The Truth About Nothing Down Deals
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We've all seen it! Every night there is someone selling their real estate program on how to buy real estate using no money and making a fortune from the comfort of their kitchen table. They claim their deals were made with absolutely no money and resulted in large chunks of cash being deposited into their bank accounts. 99% of these guys are liars. Do not get caught up in the "no money down" strategies because they do not exist for the common lay person.
The closest someone can get to a "no money down" deal is by lying to the financial institutions to get the loan. This is not good business practice. Not to mention that it is unethical and illegal. And in some jurisdictions it is a felony. As a matter of fact it is a felony to lie on a mortgage application in almost every area I know of. The two reasons for this is because you are making a sworn statement (remember most mortgage papers are notarized) and because the lender can be held accountable for falsifying documents by the United States government.
Someone who has excellent credit, a property 20% below market value, and a large income, may be able to walk into any bank and walk out with a new mortgage. But even this person will have to pay closing costs, origination fees, and possibly even mortgage insurance. There is money being exchanged from the buyer to the seller, lender or both.
Most real estate investors know there is no such thing as a nothing down deal. Real estate agents know this, and lenders know this too. It seems the only people who don't know it are the real estate "experts" trying to sell you the systems which say it can be done.
There are ways to invest in real estate with little upfront money. For example, you can ask the seller to pay the closing costs. You can ask the seller to pay the down payment. You can even ask the seller to hold a note for a period of time. But no matter which way you go, lenders are going to want some money (the down payment) from someone. The seller most likely does not have it, so where does this leave the lender? With the ability to say no.
The best way to invest in real estate is the old way. Look for a good property you can buy below market value, buy it with the best financing you can find, and sell it for a profit at some point in the future. This has been a solid wealth building strategy for decades. There are no legal issues with this strategy, and everyone gets what they want.
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