Jul 2, 2013
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No Money Down Commercial Real Estate Deals

I am frequently asked if you can buy commercial real estate with no money down. My answer is yes, you can buy commercial real estate with no money down, however you need to be careful and conservative in your approach. The other big thing that you need is your creativity.  There are several no money down concepts including seller financing, using other people’s money, taking on a partner, utilizing home equity loans or lines of credit, wrap around financing, lease with option to buy, using private or hard money, assume some of the sellers debt, wholesaling properties and financing to 100 to 110 percent of the cost of the property through private lenders or USDA or VA loans. In the commercial real estate market, the two most common are seller financing and using other people’s money.

Seller financing is where the seller carries back a portion of or the entire purchase price. This is common in a market or economy where the banking industry has strict lending requirements making it very hard to get a loan.  When you approach a seller about carrying back financing you will want to point out to them the advantages of seller financing which are: they don’t have to take all of the gain immediately, they can delay some of the gain as you make your payments, saving them some taxes on the gain, the note you negotiate can be sold at any time if they want to get out of it for any reason, you can pay them a higher interest rate than if they put the money in the bank or invested it in bonds, they will have the real estate as security for their note and they can potentially save money on closing costs.

Using other people’s money is where you find an investor or investors who will front you all of the required money. The investors can be a family member, a friend or a business acquaintance. The investor is usually looking for a certain percentage return or ownership or both.  As you can see, the investor can be a lender and/or a partner, based on their wants and needs.  Using this method, in the beginning you will be pledging a lot of your profit, however as you get experience and a solid track record, you will find that you will keep more of the profits for yourself.  This method also requires that you put together a buying strategy and an exit strategy as your investors will want to know how long you will need their money and the return that they can expect.

One of the keys to no money down deals is that you need to bring something to the table.  Some of the things that you can bring are your time, your experience, your creativity, your intelligence, your connections, your education and/or your confidence.  As you do deals, all of these areas will grow, along with your bank account.

In my opinion, the best properties to do a no money deal with are those that have upside potential such as properties with 30% or more vacancy, properties with rents 40% or more below market, properties that you can expand because there is excess land or you can expand upward by adding levels and/or properties that have poor management where you can substantially cut expenses. These types of properties typically assure you that you can create immediate equity and/or cash flow through fixing a problem.  In other words, this is where you utilize your creativity to solve a problem that a particular asset has.  You need to learn how to see problems as opportunities.

I do not suggest that you buy a property for no money down that has a small initial return or breaks even or loses money on a monthly basis even if the property gives you tax advantages and cash flows after the tax advantages. If for some reason something goes wrong with the property and you have to put money into the property you will not appreciate this investment.

One of my favorite quotes when talking about no money down deals is “If you don’t think that you can do a no money down deal, then you can’t”.

As I say throughout my blogs, if I may be of assistance with your real estate questions please contact me.  My way of giving back is to give away my knowledge.  Thank you for reviewing this blog.

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