No money down?

[seanw]

Here is my situation:

21 years old. Almost finished my degree in commerce. I have a Student Loan which will total roughly $40,000 upon graduation. Aside from this, very little consumer debt. I am good with my money and know where all my money goes each week.

I am very interested in getting started in PI now. I figured one house by the end of the year is a perfectly good start.

I am wanting to know how I can get that first deposit amount without using any of my own money? My parents could help me out using the equity in our family home, but to be perfectly honest I don't want to involve them in this even if it is successful.

I also have little income each week being a student - it is a positive figure but only about $50 after expenses.

How can I get into the game? I will only buy a property at least 15% below MV. It must be cashflow positive immediately (or after some small renovations). I know I can find these properties with some persistance.
I know once I have made one good deal and got some instant equity nothing will stop me.

At this stage of my life, I am in this for the cashflow each week. I am currently living on roughly $13,000 per year before tax!! I live on the necessities.. not much more.

I appreciate any help or guidance you can give me. If I haven't made something clear about my situation or plans don't hesistate to ask. I'm am clear to myself about what I want.

Thankyou in advance!

Sean

[cube]

Hi Sean,

Welcome to the forum, and well done for sorting out your priorities early on!

Basically, unless you can convince a bank that you are buying your first home, have fantastic prospects and that they should lend you 100%, the banks won't be very helpful.

So, you need other options. How about cutting your teeth as a property finder - hunt out the deals, get them under offer, and then offer them to other investors - plenty of takers here for the right deal!

Another alternative would be to approach people, maybe through a accountant or lawyer, who have money, but no time. They provide the deposits, you provide the leg-work and you split the profits.

Both these approaches are ways to increase cash flow, or to allow you to save towards enough of a deposit to make your small income not matter.

These thoughts are still firmly inside the IP box - think outside that box, ask for advice on your ideas, and go for it.

Good luck

cube

[Dean@Massiveaction]

Hi Sean,
There are many many ways to buy property with no money but here's an easy start. Make lots of offers on property and ensure that every offer contains the following 2 things.
1. Settlement date 6 months from unconditional. As long as you can purchase for 20% below valuation you can get a valuation before you settle and Pioneer will lend 80% of valuation requiring no money down
2. Always have a 20% vendor finance clause. Again any offer that gets accepted with this enables you to purchase no money down.
Always have both and tell the agent you need one of them left in, you don't care which one.

You need to sort a few things out first to not get into trouble. Please email me if you'd like more details!!

[seanw]

or to allow you to save towards enough of a deposit to make your small income not matter.

Are you saying that in many cases, reputable lenders aren't too concerned about your weekly income IF you have a decent deposit - say 10%?
And do they take into account whether it is a positive cashflow property too?

Thanks.

[cube]

You need enough income to cover you expenses, taking in to account around 75% of the rent (varies from bank to bank).

So, say you can buy a $200,000 and rent it out for $300 a week, and the interest rate is 8% (all nice round figures!).

Rent per year = $300 x 52 = $15,600
75% of Rent available for mortgage = $11,700

$11,700 is the interest on $146,250 at 8%, so you would need a deposit of $53,750 to make the property pay the mortgage itself, hence your income, whatever it is, ceases to matter.

The other 25% of the rent goes towards rates, insurance, maintenance, vacancies and all those other 'incidentals'.

As you can see, a sizeable deposit is required (26.875% in this case), but that just means you have to work hard to find a better deal (how does it look if you can find a $200,000 house that rents for $325, $350?), or to make this one a better deal (can you get the house for $190,000, $180,000?), or to generate the deposit that allows you to make this one work for you.

cube

[roseneath_rat]

Most traditional lenders will still need to make sure you have enough cash to 'live on' using their own formulas, regardless of whether the property is +ve cashflow.

[toby]

I could spend the next three days telling you or rather showing you a number of ways to do what you want.
Personally the easiest way I have found is to use either private money or building finance to buy then when title comes through (avg 6wks) you "shop" the deal to longterm lenders and refinance - you are then in control because you OWN the property and it has been through what they call in the US the seasoning period.
EVERYTHING is in the buying in this type of transaction.
If you like I'm local (Hutt), drop me a line in the evening on 566 6720 and I can give you plenty of ideas.
To get your brain bubbling buy Robert Allen's book "nothing down" or get it out from the public library.
If you can get a ripper deal you can get an asset lend from Liberty but the rates are high and it's 2 points in.
Where there's a will,
there's a way.

[Dorien]

Hi Sean

Congratulations for wanting to get in the game of property. I agree with a lot of what the others are saying. There are a lot of ways to get a no money down deal. There are many books, courses and many seasoned investors that would help you learn.

However before you go down that track I would ask you why are you doing this. If property is a passion and you think you could see a future there, well great. But if you passion and future is what your studying then you may need to go that way. If you are doing property just for extra cash, then I would suggest that you find some deals and just assign them to other investors until you are comfortable with property and the type of market you are most suited to.

Property offer a smorgesboard of possibilities and the best results are usually when the people are in-line with there own personality.

At your stage in life you cannot afford to go out and just buy something and have your first experience be a financial step backwards.

I would suggest that you read the books, attend the odd course, speak to investors at the local meetings and make a data base of the investors and what they are looking for and where.

Single family homes,
Two bedroom units.
Inner city Appartments,
Small commercial deals
Do they want them close to CBD or out in the suburbs.

When you are a little more sure of your plans and comfortable in some areas you can then go out in the market with agents and learn as much as you can about what is out there, and how the real numbers work.

When you find a good deal, meaning that the finances are great. I guarantee that someone will either buy it off you for a whopping finders fee, or partner with you as an equity partner or income partner depending what you need. You are right to leave your parents out of this for now. Best to allign yourself with seasoned investors who understand the game and can teach you what to look for before you commit any of your own funds.

Good Luck! Dorien