'No Money Down' Real Estate Schemes
Posted by David Rosenfeld on Jan 10, 2013 - 6:09:53 PM
LOS ANGELES—I’m sometimes asked about TV infomercials touting high priced seminars that offer to teach you how to buy real estate without a down payment. My answer is generally the same: It’s an interesting idea, but it’s not something I would pursue.
I just don’t think this is a realistic way to pursue real estate if you’re a serious buyer. Back in the 90s for instance, there wasn’t much money available in a bad economy so you could find deals where you could buy property without making a down payment or having to get financing. It was a different time and the economy was a lot different than it is today, so some of those types of deals could be done today. But it’s not very likely.
Back in the early 90s when there was less money around in the market, the only thing people could do was do all inclusive trust deeds where they kept the current institutional financing after and the seller sold the property to the buyer who was still servicing the old loan. But the problem there was that it could become a very difficult situation should the new owner not pay the old lender.
Today, you would have a very difficult time finding anyone to agree to do anything like that. Especially in a large metropolitan area like Los Angeles. You may have a better chance in a far-flung community where the market is more impacted by the economy.
It’s easier for somebody to risk their $300,000 house than their million dollar house. So there is not that kind of market pressure and have no money down and sell a place.
What would happen back in the early 90s was that the buyer would fix up the property get new financing and/or turn around and sell the property. But today, loans have become more restrictive with these types of deals, making it harder to do them with any success.
But in terms of no money down, it’s very hard to find somebody willing to sell their property based on getting a payment from you every month. It has to be somebody you know who is willing to do this for you or someone to whom you were recommended who is willing to do it. The desperation that once existed for people to do this doesn’t exist anymore.
But what these infomercials say is that there are ways to make a deal with no money down with the property owner where he or she can finance you or they show you ways to try to raise money from investors. But in reality, people are generally very hesitant to risk money on something like this so it’s no wonder these deals are so rare.
Part of the selling points of these “no money down” seminars is the fact they offer you various ways to find financing. Among these is borrowing money from your life insurance policy. And it can be done, but you still have to ask your insurance agent “What happens if I can’t pay it back?” Like any loan, this type of loan has to be paid back sooner or later and if you can’t pay it back, it’s going to be a major problem.
Another possible scenario is asking a seller to lease the property with an option to purchase. If you’re a seller, you want to sell your property and not lease it so it’s a tall order to get a deal this way.
And there are many other things you can do without putting your own money to purchase property, but in the end, none of these are very likely to get you a deal, given today’s real estate market. In the end, you may ask yourself if someone has a secret way to buy real estate without using their own money, why don’t they keep it to themselves unless it’s not making them as much money as selling the seminars to you are? It’s an interesting question to ponder.
David Rosenfeld is a Real Estate broker and president of Advantage Real Estate, a Real Estate and investment firm in Santa Monica, and a Rotary Club member. He has more than 20 years experience in commercial and residential property investments and financial counseling. He can be reached at firstname.lastname@example.org.