How does no money down real estate investing work?

Answer 1

No money does assumes that you will have 100% financing. Banks are less apt to offer this due to the current credit crunch. If a lender is willing, then the process is similar to most other loans. Differences will mostly be in the form of higher costs; points (front or back) and the percentage rate offered. The greater the risk, the greater the fee and interest to the bank. The average US loan is approximately 80% Loan To Value (LTV). Higher LTVs will cost extra to compensate the lender for the greater risk. Besides origination points to originate the loan, other points can be charged to buy down the interest rate or to pay for the greater risks associated with bad credit, a loan for investment property and other factors. There is an alternative view that is common with real estate investors. Nothing Down does not have to mean there is no cash or high LTVs. It just means none of your own cash. The investor can bring in a money partner who puts up cash to make the deal work. The investor could refinance another property and use the cash from that refinance to use as the down payment on the new property. The seller may even offer some of the financing to reduce the down payment (carry back second). At its simplest, Nothing Down means using Other People's Money (OPM) rather than your own cash. An investor does this to leverage up the portfolio and magnify the returns. Do note that high leverage can magnify losses as well as gains.