So you figure it’s time to pinch pennies and put as much cash into buying an investment home as possible. With homes and condos selling for less than half of what they were a few years back, now just might be the time to invest. But taking advantage of current market conditions might be harder than you might think without a lot of cash.
After all buying a second home or investment property without anything for a down payment is history, right? Not entirely.
While it’s hard to find a bank or conventional lender to finance a 100% of a property, purchases can still be made with relatively little down. Here are the 4 ways to buy without much cash.
1: Use Home Equity
Cash in on the equity you’ve built up in your primary residence over the years by refinancing if you are able to do so and use the extra cash for a down payment on a rental property. If you lack equity think about selling a boat, extra car, RV or art work to gain the cash you need for a down payment, which is usually about 20% of the purchase price.
2: Swap or Trade
The days of runaway housing inflation are over at least for the next decade until someone figures out the next way to produce a bubble. So why not consider trading your home for another. Own a place at the beach and want to trade for a mountain resort? It just might be possible with all the people in the same position on the World Wide Web. Check out the sites that could make it happen.
We haven’t quite heard that anyone traded a tent for an RV, but who knows in this economy anything might be possible. Trading a bus for a down payment could work too.
3: Seller Financing
When real estate markets take a downturn there are always property owners who have enough equity or have paid-off a property so they can finance the sale themselves. Typically, the interest rate is a little higher – 1-2% above a conventional rate 30-year mortgage, and for a shorter term, amortized over 30 years but due in 5 to 10 years.
Buyers who choose that route should seek the advice of counsel to cover the legalities and make sure that you’re not signing up for any traps you won’t want to deal with in the future.
4: Private Money
Private money investors fund mortgages for home buyers who customarily can’t get a loan at a bank or mortgage company. But that old way of looking at private investors, who typically charged higher rates of interest is going out of style as more private investors step in to take the place of conventional bankers. Many private investors are financing home mortgages for buyers that don’t have 20% for a down payment but do have good credit and want to get into the rental business.
An attractive option for investors is to purchase a mortgage on a home that is already rented. A home with a tenant demonstrates that the property can generate income and the mortgage holder can make the payment. Private investors can be found through small private banks.