I believe it’s arguable whether or not real estate investors who look to buy real estate investment property with no money down are really closing any successful real estate investing transactions.
Maybe I’m wrong; perhaps these zero-cash-down deals do occur (I am not privy to all of the universe’s information). But I would wager that they don’t occur nearly as often as the get-rich-quick seminars would have us believe.
For the sake of argument, however, let’s assume you are negotiating the purchase of an investment property with no money down, and are successful. Here’s what you should expect in the outcome:
1. You will have more debt service. This is the natural course of 100% financing. The result could be a large loan payment that will eat away at your cash flow like a gorilla, and may mean that you will feed the property. That is, you could wind up digging into your pocket every month to make up the difference between the cash you receive and the cash you pay out.
2. You might inherit a loan with a higher rate and shorter term. Obviously, a lender would expect something in return for taking the high-risk of financing the entire property. In this case, the loan could indeed become a sponge that sucks your cash flow dry.
3. If it’s the seller making you the loan (or secondary loan), ask yourself this: “Why would the seller allow me to purchase this property without coughing up one penny of my own cash?” Unless the seller has a slate loose, chances are that the price you end up paying for the property is inflated and the seller simply counts the financing as a windfall.
All in all, buying real estate investment property with no money down is not unlike an observation made by a friend: “Life is a series of trade offs.” So it is. At the same time buying investment property with no money down offers some tantalizing opportunities, it will cost you something in return. Just be sure you prepare yourself to deal with it.
