You need a lot of money to get into real estate investing. You do not have to pay a large down payment out of pocket, in fact to make money and build your portfolio of properties, you have to learn the ways to buy properties with nothing down or even using someone else’s money for a down payment.
In Canada, a first time buyer can use their RRSP, their Registered Retirement Savings Plan, to purchase a property that is owner occupied. You can loan yourself money from your RRSP account. You are allowed to borrow money from the account and pay it. You are best to ask the person holding your RRSP, or your mortgage broker or real estate agent how you can do this strategy. Just understand that this strategy is available to the first time investor that would be occupying a unit.
If you have good credit, you may be able to find a lending institution to give you a 100% loan. These loans are usually given to people who have a Beacon Score of 680 or above, and at the time of writing this, there are credit unions still offering this program.
The most common way investors buy a property with little or nothing down is through joint ventures with other investors.
The way a joint venture works is one investor would find a good deal on a property. They would be an expert on purchasing and managing an investment property. They have the time and means to manage the investment. That person would then bring in the money partner who may even be the one that qualifies for the mortgage. The money partner would be the one that comes up with the down payment. All the profits are split 50-50. This is the common way but it’s not limited to that. It can be split 60-40 or any other type of proportion. I recommend 50-50 because I think that the knowledge and work the real estate investor puts in is worth it.
To find the perfect person to collaborate with is different for every investor. Their goals should match your goals. If you want someone with money, make sure you are borrowing from someone with money. Don’t just take their word for it, ask for some verification. Proper due diligence is required here, and a Joint Venture agreement must be drafted by a lawyer for all parties involved, even with family and friends
In some situations, you may actually go into a property deal with more than one other investor. This often happens in a multi-family building situation where you can offer shares in the building because you are now in a situation where you need a large down payment so you could have $50,000 from four different people to come with the $200,000 down payment. Having more than one investor in a property can be more complicated and I only recommend it for a seasoned investor.
First, you want to develop a record of accomplishments, or track record. Get a couple properties under your own belt before looking for investor, as money investors are more likely to go into joint ventures with you if you can prove a successful track record. Many first time investors start with family and friends. Try borrowing money from family and friends and do a joint venture with them. It is probably going to be your easiest and best way to start and build a track record.
Another strategy to do a no down payment deal is through what is called wholesaling or assignment. In this type of deal, you find deals and then you assign the deal to an investor for a fee and never have to take title and you never have to put any money down. You make a fee rather than being a property owner; however, you are building your record of accomplishment with other investors, as well as a bankroll for a future down payment
A Vendor Take Back Mortgage works by having the seller finance the entire property for you. Maybe they’re asking $100,000 for the house. You think it’s only worth $80,000. However, in that situation you might actually pay them the full $100,000 as long as they hold the mortgage on it. Usually what happens with the vendor take back or seller financing, is that they will give you part of the down payment. You need to make sure that your bank allows for a second mortgage.
Now let’s say the house lists for $100,000 and you need 20% down to qualify for the bank. Therefore, the bank is lending you $80,000 and the seller is lending you $20,000. You would just have to make sure that the bank allows for that second mortgage and would allow for 100% because some won’t and you don’t want to be caught in those areas because then you’re breaking the law. Most banks would allow a 10% vendor take back and 10% down from the investor.
It should be mentioned that that there are other ways of doing no down payment deals, but some of these constitute fraud, or in grey and illegal areas. You need to stay away from them.
That is one of the reasons why you want to have an experienced realtor and an attorney on your team. They can ask those sorts of legal questions and know what the laws are because ignorance of the law is not a pass. I’ve already listed many ways you can buy right now without any money, or with very little money. Real estate is a highly leveraged product. Banks love them. You do not need a lot of money, because banks are willing to lend you most of it.
People are often shocked when they begin in real estate investing that it is not as difficult, complicated, or as expensive as they might think. Most people know how to purchase a house and have access to homes. It’s one of the more controllable and easily managed of all the investments. Most investors consider real estate a tangible asset. You should have a millionaire mindset, and that will help you create a great portfolio and a decent passive income, but you do not have to start there. You can work up to the seven digits, one investment at a time.
David Giovanniello is the Author of the book: "The Warren Buffett Approach to Sell Real Estate and also Founder & Host of North London Advice Givers™ Podcast and Editor-in-Chief of North London Advice Givers™ Magazine—a monthly print-publication, featuring London experts, entrepreneurs and thought-leaders. He is also, CEO of North London's Teacher Only Program® and is a licensed real estate agent with Century 21 First Canadian Corp. Brokerage. David has been called "provocative and entertaining," but also, "a committed philanthropist." He is praised for his Mission to raise/donate over $10,000 to local and Teacher-related charities each year. David also supports many great national charities too, such as: United Way London & Middlesex, Muscular Dystrophy, Canadian Red Cross, MADD: Mothers Against Drunk Driving, Jr. Mustangs Hockey Team Sponsor. Plus, with his "Free Book 4 Charity" campaign, he hopes to raise another $25,000 annually from the $5 (minimum) donations, of paying it forward., visit: www.mybook4charity.co