Financial Structure Of
No Money Down Deals
No money down deals require intelligent financial structuring, below are the most used methods, however please note that with all of these the practitioner is the key, not the technique.
In A Nutshell
- The techniques work but will you be able to work them?
- Are you good at negotiating?
- The law of averages means you will get potential deals only if you have a sufficient number of qualified leads
Some techniques work better in a rapidly rising market i.e. ‘enthusiastic’ valuing, estate agents do this all the time pushing ‘comparable’ prices up. In a more static market as exists now, a valuer will be less flexible.
All the 'no money down' methods are dependant upon a motivated seller willing to be ‘creative’ and in some cases accepting less then market value or to agree to the property to be sold above market value.
The seller holds some or most of the agreed price and gets paid later or receives regular interest payments on the money they have fronted. This obviously requires someone who does not need all the money straight away.
Generally as with all these techniques it requires the talent and skill to query the seller as to what they really want. This is a numbers game… you may have to go through hundreds to find the odd one that will go with your plan.
In America approximately 20% of houses are sold with some form of seller financing.
Personal loans to you can be used for the deposit and can then be repaid by re-mortgaging. This depends on your personal connections and peoples faith in your ability, as well as the market movement and valuation of the mortgage company.
The 'no money down' methods below can be used when the full price is agreed upon:
This is where the lenders pay the full purchase price, in theory for you to use the house as your own residence, but you need to have a good income and credit rating. You will pay in higher interest rate charges, but can then change the type of mortgage to a BTL at a later date.
Check the clauses in the initial mortgage contract and be aware of the fee. Note that many BTL mortgages require you to have an existing personal mortgage. This method produces higher total repayments… does the rent still cover them?
• Assignable Option Agreements
This is a legal form to secure an option on land, property or a business. There are different types most of which are concerned with land development. An option means you have a controlling interest for a certain period of time, yet are not committed to buying.
If it is an assignable option you can then sell to another party or buy it yourself. To make it a binding agreement you need to pay a ‘consideration’ which is usually nominal.
Option agreements if used ethically, are one of the areas to get up to speed on if you are looking at running a property business.
Many books on no money down deals and creative finance originate in America where the law is different to the UK banking and property laws.
If you have a passion for property, and are a driven aggressive negotiator with extensive contacts and drive to make money that’s a good start.
Then you need the ability to do or effectively delegate extensive market research, create a lead-generation system and be or hire someone to be accurate and efficient with tenants, budgeting and the maintenance.
Any time is good for the above type of person. Is it you? If you think this character describes you then you are definitely a good match for success.
Recommendation
Assess yourself and develop a lead generation system, only then will no money down techniques prove to be successful.
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