Can You Really Get a House With None of Your Own Money?

I get asked this question all the time because the Gurus advertise you can execute this strategy or that strategy with none of your own money.  There are real estate niches where you can make money without any of your own money, but can you buy a house without any of your own money?  Yes you can!

There are several ways we know how to do this, and as investors we have done them all, both as the buyer and the seller.

Rent-to-Own:  With rent to own you rent the property for a certain period of time and then you own it.  Right now, there are so many investors out there with property to sell that there is a pretty good chance someone in your area is advertising rent-to-own homes.  One thing to be aware of here is that in many rent-to-own agreements, the landlord will want you, the renter/buyer to be responsible for many, if not all, of the repairs.  After all you are renting to own this property, and property owners take care of their own repairs.

Lease Option:  A lease option is a lot like rent to own except there are two agreements. 

First is the lease.  With a lease you agree to lease the home for a set period of time, usually 1 – 2 years, sometimes as many as 5 years.  The person leasing the home is technically responsible for the entire value of the lease, in other words all the payments, even if they leave early.  In practice, collecting the total value of the lease if the buyer leaves early may not be practical or even possible. 

The second agreement is the Option.  The option, simply states that the person leasing the home will have the right to buy the home within a certain period of time for an agreed upon price.

Like a rent to own, in many lease option arrangements, some if not all repairs will be the responsibility of the person renting or leasing the home.

Both rent-to-own and lease options are good opportunities for someone with bad credit to improve their credit score, prove they can make the payments, and position themselves to purchase the home with bank financing. 

Owner financing:  With more than 1/3 of all homes in the United States being owned free and clear there are many owners who will sell their properties with owner financing.  In this case, the owner acts as the bank, receives their payments with interest over time and the buyer gets a home without all the hassle of going through traditional financing with a bank.  This is a great option for self-employed people or people with a ding or two on their credit report.

Subject to:  “Subject to” means that the person buying the home is purchasing it subject to the existing financing staying in place.  In effect, the person responsible for the mortgage, “assigns” the responsibility to make the payments for them to the buyer. 

When done properly this is a perfectly legal transaction.  The person selling will end up with all the rights of any lender and the buyer is responsible to the seller of the property to make the payments in full and on time.  In all cases the bank should be notified about this transaction so both parties are protected.  The bank can object to this type of transaction however our team has performed over 1,200 of these purchases and it is extremely rare for this to happen.

When selling “subject to,” the seller is still responsible for the mortgage.  Therefore, if the person buying the property doesn’t make the payments in full and on time, this type of sale can hurt the seller’s credit.  The seller benefits from this type of transaction because they usually receive more money for their property and they don’t have all the costs associated with a tradition sale.

To help protect both the buyer and the seller it is a good idea to have a loan servicing company in place to receive and distribute the payments to the appropriate parties (bank, taxes, insurance, etc.).  For a small fee they receive the payments from the buyer and send them to the bank and notify the seller if a payment is missed.  Then the seller can step in and make the payment before it impacts their credit.  The seller can either work with the buyer to get the payments back up to date or get them out of the property and re-sell to a new buyer.   

In our opinion, selling “subject to” is preferable to many other options such as short sale, foreclosure, bankruptcy, or having to bring money to the closing table.  It may even be preferable to renting or leasing the property depending on the seller’s tolerance for becoming a landlord.

Other People’s Money (OPM):  With many of the options outlined above the seller may be looking for a down payment and/or an option fee.  If they are, perhaps you can get a family member or partner to put up that money and then you are still into the home for no money out of your own pocket!

Heck as investors we’ve bought houses with cash, not our cash but other people’s cash.  They get a decent interest rate in return and we get a property.

As a real estate investor your ability to grow your business is limited by the amount of money you have available.  So your ability to attract OPM to your business is a critical skill set you must have, or be partnered with someone who has those skills.  To learn more about attracting Other People’s Money (OPM) go here.

 http://reinvestingassociation.com/PMOD

These strategies work for both people who want to become owner occupants or investors who will eventually flip the property unless the contract specifies otherwise.

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7 Responses to “Can You Really Get a House With None of Your Own Money?”

  1. Alex J. Kasubienski III Reply Saturday at 9:19 pm

    Kevin:

    I have wanted to invest in Real Estate for some time now, but, I have a few questions before I can proceed any further.

    • Alex,

      There are so many ways to invest in real estate. We certainly believe in it here. I will be happy to respond to specific questions.

      Kevin

  2. With your situation a bank loan is out of the question unless you can prove income via tax returns etc. You’re best bet is to save your money and pay cash for a fixer-upper. Depending where you live smaller homes like this can be had for less than $20k. Next best bet is to find someone who will do a lease with an option to purchase or straight owner financing, Good hunting.

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