Whether it is intended to be your primary residence or for investment purposes, buying real estate for the first time can be a daunting prospect. And one of the reasons some people would eventually drop the idea is not having enough funds to put in as a downpayment.
While dabbling in real estate requires more money than investing in mutual funds, it is a common misconception that you can only pull it off if you can afford the required downpayment. Yes, saving up for it may be the ideal route for most, but the truth is, you can get started with your first actual property even with little to no money at all. Here’s how.
Get a multifamily property project
It is not uncommon these days to invest in a property that can serve as both your residence and a source of rental income, regardless if you are a rookie in this undertaking. Joining seminars on the subject will give you the basics, but you will learn more once you begin the property acquisition process and establish a revenue stream. This strategy, when executed perfectly, will make your real estate endeavor pay for itself without spending a dime of your own.
With multifamily homes, you live in one of the units and rent out the rest. To get the best deal and the littlest cash out possible for your first income-generating property, consider applying for a VA or USDA loan that offers zero down payment if you fit their client criteria. In addition, for any buyer, you can seek an FHA mortgage insurance that will enable your lender to provide you with lower interest rates and reduce your required downpayment.
Team up with another investor
If you plan to buy real estate solely as an investment, seeking a co-borrower who might have some resources and benefit from the endeavor can be an option. It could be a give-and-take situation which makes the shared responsibility an attractive proposition to a particular type of person/s. They should not necessarily be a family member or friend but could be anyone who wants to be, as they say, in it to win it. Ideally, it is someone who can cover the downpayment but would prefer not to get into the nitty-gritty and wants you to take care of the dirty work in exchange.
Furthermore, having a co-borrower also increases the chances of your loan approval and lower interest rates because their income and credit history are factored in the application. Finally, you can split the monthly amortizations and future rental income once the loan comes through, making it a win-win for the parties involved.
Explore seller’s purchase options
Another way to work around the downpayment requirement is to choose among the suitable options available with your seller. They may come in the form of a rent-to-own deal or lease purchase, seller financing, or assumption of seller’s mortgage, during which you will continue the amortizations on their behalf.
With a lease-purchase option, the landlord provides their tenant the opportunity to buy the property in the future, wherein you as the tenant will put in a non-refundable “option” payment to secure the transaction. You might not have to produce this amount from the get-go since many sellers may add a premium to your monthly rental payments to cover this payment or the downpayment itself. This option can be beneficial because it will give you more time to qualify for a home loan, especially if your current situation is not yet ripe for the picking.
Alternatively, you can enter into a rent-to-own agreement right away if this is what you as a buyer would want, and at the same time, your seller is offering it. Of course, seller financing also falls alongside this scheme, which can be flexible enough in monthly repayments, applicable interest rates, and lesser requirements. But, again, you can discuss these things directly with the seller.
The beauty in these options is that you are not bound by the uniform and strict guidelines of conventional lenders or financing institutions. Instead, they give room for you to negotiate your terms, and often, sellers are willing to work with their buyers until they reach a mutually beneficial agreement. Some buyers would even go to great lengths of offering to pay a higher price instead of an outright downpayment. As a result, they don’t have to scramble for funds to defray the initial costs, which can be a setback for many.
You may have realized no one is stopping you from buying that first real property but yourself. But, with little to no money down, remember that buying real property is a significant investment. It entails working even harder to ensure you can fulfill your financial obligations to reap the benefits.