When I first started, I didn’t have tons of cash to put down on my first investment properties, and I worked directly with the sellers to purchase their property. That was back in the early 1980’s when there were less resources for financing than there are today. Now, even if I had unlimited funds at my disposal, I would still purchase property the exact same way I did, and continue to do to this day.
I don’t purchase properties from the Multiple Listing Service (MLS). I purchase from older owners who don’t live in the property and own it free-and-clear. But I know that many of you still worry where to get the money for down payments on your investment properties, and that’s what we’re going to talk about today.
The first thing you have to do in any negotiation to purchase a property is ASK. There’s no reason why you shouldn’t ask if the seller will take payments for their equity for their property. It doesn’t matter if they don’t trust you yet, because you’re just asking for a chance to show them that you are a person of your word. Open up to them and you’ll be surprised how many sellers are willing to work with you.
Another strategy I would use is to postpone the payment. This was especially helpful when the property needed to be renovated. I would ask the sellers for a delay on the payments so I could get the property ready and put tenants in there. In one case, I immediately moved in a handyman who rented the property from me while he fixed the property for me, and in the six months we pushed back the first payment, I was able to collect the down payment money.
If that wasn’t possible, I would turn to a “financial friend” to supply the down payment money so I could close on the property. Once the tenant was in the property, I would collect rent and then pay back the financial friend.
Also working with the financial friend, you can pre-pay a certain number of mortgage payments in the beginning. For example, you could pay 24 months all at once and then not owe anything until the 25th month. This will leave you only the payment to your friend during that time. You can give your financial friend a better investment than just letting their money sit in the bank account, and the seller is happy to have some money to start with. Everyone is happy.
You can also put the down payment on the back end of the loan as a few extra payments at the end of the life of the mortgage. Any dollar you can save today is a dollar you can start putting to work somewhere else.
Did you know you can TRADE to pay your down payment? If you have a vehicle, equipment, etc. that can be valuable to the seller, why not use that as a down payment and save your cash? I once had traded a Chevy truck to a brick mason who needed it for his business. I didn’t need the truck and I got more than the blue book value off that mortgage.
These are just a few creative strategies when you think you can’t afford a down payment on a potential investment property. You don’t NEED money to MAKE money in this business; that’s the beauty of it!
Be sure to head on over to my website, LarryHarbolt.com, for more tips and tricks on how to become a better investor.
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