by B. Lee
Pros: inexpensive, huge asset for nothing but a signature
Cons: need good credit, must choose wisely, must find tenant quickly,
I was a first time homebuyer when I bought my first investment property. Banks love first-timers. They have a myriad of different programs to get buyers into their first house. Most banks will bend over backwards for them. With meager credit, I qualified for a brand new house with no money down, super-low interest rate, and $5,000 in equity, just for signing on the line. That was the fastest $5,000 I have ever made.
The catch is that first timers must buy the house as an owner-occupant, meaning the owner must intend to live in the house. This requirement, however, can be a blessing. Finding a good tenant can take some time, but if you are living in the house you won’t incur any additional expense. I lived in the house long enough to qualify myself as an owner-occupant and find a tenant to take my place. When I found a tenant, I moved into a rental apartment 1/4 the size of my house and 1/2 the monthly payment.
If you are not a first time homebuyer, there are other ways to get a property for nothing down. A creative mortgage broker can show you loans that cover the price of a home plus improvements. These brokers use creative financing to arrange a payment plan with no money down. Another method is to take over payments for an owner to get them out of a sticky situation.
It is very important to choose your property wisely. This is especially true if you have a very small margin for error in your finances. Find a good realtor who deals with a lot of investors. They will be able to help you find a property that will cash-flow immediately, meaning that the rent you receive will be enough to cover the mortgage, insurance, taxes, maintenance, vacancy fee, and all other expenses related to the property.
Don’t get sucked into the idea that you are going to make up for negative cashflow with capital gains. This is a recipe for disaster. If it doesn’t cashflow, it isn’t passive income. In fact, it’s a passive expense. There are plenty of properties out there that will cashflow, so take the time to find one.
