How to Get No Money Down Financing
Have a deal, but don’t have the cash to close?
We hear a number of real estate investors express this frustration, but I’m here to tell you about three solutions that can help you close more deals without a down payment.
Scenario #1: Fix and Flip + Cross Collateral
Let’s say you’re an experienced investor with a sizable portfolio of real estate to your name.
If you have some of these properties paid off (free of a mortgage), then you can use these assets as collateral in lieu of a down payment for your private money loan.
Here is an example for you. Investor Jane has a property that she is looking to fully fund. She needs $100,000 to fund her deal, but the lender will only lend $80,000. She will need to come up with the remaining $20,000 down payment.
Instead of eating up her business reserves for operations and interest payments with the $20,000 down payment, Jane instead decides to pledges another rental property she has completely paid off as collateral.
The lender happily agrees to this as they are very secure in their loan and funds the full project giving Jane $100,000.00.
Six months later, Jane sells the property for the estimated after-repair value, the private lender is paid back, both mortgages are released, and Jane walks away with big profits while putting NO MONEY DOWN.
Pro Tip: Property isn’t the only thing that can be used as cross-collateral. You can pledge things like stocks, bonds, personal businesses, equipment, precious metal, or really anything of value as cross collateral.
Scenario #2: Fix and Flip + Partner’s Collateral
In scenario #2, let’s pretend that Jane has that same solid deal, but is less experienced. She hasn’t had the time to build assets that she can pledge as cross collateral.
Just when Jane thinks she has nowhere to go, she connects with another local investor (Jim) who pledges to make the down payment on her behalf if she will manage the project and split the profits with Jim.
Jane understands that it’s better to have a 50% of something rather than 100% of nothing, so she partners up. The partner brings the cash to close and signs on the loan as well and the deal gets funded.
Six months later, the property sells as expected, the mortgage is released, the note is paid in full, and both partners (Jim & Jane) walk away with a solid profit. All the while, Jane puts NO MONEY DOWN.
Scenario #3: Wholesale + Transactional Funding
In this situation, Jane is really at the end of her rope. She has no money to put down on the deal and she can’t find a partner who is willing to go in on the deal with her.
With the property under contract and soon to expire, she is about to miss out on her opportunity to profit. She reaches out to some other investors and finds a buyer who is willing to buy the property from her at a $10,000 premium over what she paid for it.
This is referred to as a “wholesale” deal.
There’s just one problem though.
She just told her sellers about the beautiful renovation she was going to do to the property. She didn’t tell them that she has their property sold in the same condition for a higher price at which point they may back out of the contract altogether and try to sell the property at a higher price themselves.
Transactional funding can help her solve this problem.
So what is transactional funding?
This is where a lender like Sharper Capital Partners briefly funds the closing between the home seller and Jane so that Jane can in turn sell the property to her buyer.
These are two separate property transactions that occur typically on the same day.
Transactional funding shields the selling price that Jane is selling. This way the property owner (aka the person Jane is buying the property from) only sees the price she is buying the property for. Not the price that she is upselling it for.
Jane wholesales this deal for a profit when it seemed like she couldn’t close otherwise.
So there you have it!
Three ways to profit in real estate with NO MONEY DOWN.
If you have any questions about NO MONEY DOWN financing, the team at Sharper Capital Partners is here to help.
Your Friends at Sharper Capital Partners,
Chris and Grant
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Grant Smith
Principal - Investor relations
An alumni of the University of Cincinnati. Graduate of the Lindner College of Business AFA Finance Curriculum. Grant is a real estate investor in both commercial notes and commercial real estate.
