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Whether you’re a property investor looking for a single family house, multifamily property or even an apartment complex for sale, there are strategies you can employ that involve acquiring investment real estate with little money down. Use any one of the following ideas to help solve the common issue most beginner investors have…namely, how to make money in real estate.
Other People’s Money (OPM)
Many novice property investors like to get their feet wet by flipping single family properties. Unfortunately, they don’t have much experience in knowing how to flip houses with no money down. One way is to use “Other People’s Money,” or OPM. Don’t be shy about asking family members and friends to help you come up with your down payment on a piece of investment property. You can either agree on interest payments to them, as well as a payoff time for repayment of their loan. Or, have them gift it to you, if you have a special relationship with them already. If it’s going to be a gift, make sure you understand what gift rules your mortgage lender requires first. You’ll obviously need to scope this out before you actually apply for your mortgage loan.
Another strategy for flipping houses with no money down is to utilize a partnership. Look for other investors interested in partnering with you to acquire investment properties. Many communities have local investing clubs that are a great source of potential partners. Many times, one partner will put up the down payment on a property while the other one does all the hunting and searching work. Likewise, an investor may put the money down in return for the other partner (or partners) managing the building(s). In many circumstances, one partner puts the money down on the property for a greater share of the potential profits the building will return in the future, including when it sells. Whatever the structure of the partnership agreement, make sure you put it in writing. It’s also smart to have an attorney review it prior to signing.
Another strategy that solves the how to flip money fast issue, is to consider living in the same house as your tenants. Essentially, become an owner-occupying landlord. When you buy a multifamily property and owner-occupy it, you can apply for an FHA loan with a low down payment of 3.5%, or a conventional loan with 5% down. You’ll need an excellent credit score (above 740), as well as be willing to supply more paperwork on these mortgages, but you’ll be able to leverage so much more with a 95% or 97.5% loan to value on the mortgage. Make sure you get pre-approved first. It will make the negotiating process much easier.
Other borrowing ideas for flipping houses with no money down
If you already own your own home, why not use a home equity loan or line of credit on it? You can then use that equity for your investment real estate down payment. Also, why not use some of your retirement savings for down payments? There are some types of retirement savings plans available that will allow you to utilize your retirement savings without incurring any tax penalty. As an example, setting up a self-directed IRA, or SEP-IRA, is one possibility. Of course, always consult a tax attorney or accountant to set up this type of account. Another option is to use some credit card balance transfer offers that have low interest rates. Most are good for short-term funding, but be ready to pay back the principal before the promotional, low interest rate offer expires.
photos courtesy of anchorloans.com, kapitall.com