Is a "no money down" real estate investment possible in today's economic conditions? Banks are obviously tightening up but there are other lenders who are willing to finance real estate investments. They are willing to give investors enough money to purchase a rundown house and even repair that property to it can be sold for a much higher amount. These lenders provide hard money loans.
Hard money lenders are unlike traditional lenders. These creditors lend money based on the real estate deal the borrower wants to close. In short, if the lenders think that the investor will earn enough profit to repay the loan, they will give him the funding he needs. In most cases, that funding includes money for the repairs - something you can't expect banks to give borrowers.
Traditional lenders like banks, if ever, will provide a borrower money to purchase a property. But if that borrower is a rehab investor, or one who repairs and flips properties, he would need more than that. He will need money for improving the condition of the house. If an investor sought funding from traditional lenders, he would have to foot the repair funds. The case is different is he uses hard money loans.
Hard money financing can cover all those expenses. That simply means the investor can buy a property, repair it, and sell it without having to come up with out of pocket money. If so, it can be considered a "no money down" investment. But how exactly does this happen?
As mentioned, these hard money lenders base their decision on the deal that investor wants to close. They will usually provide around 65% of the property's ARV, or after repair value. Therefore, if all of the investor's expenses are within that 65%, a single loan will be able to finance the whole project. He wouldn't need any personal money to complete the deal. That's how hard money loans work.
For example, the ARV is one dollar. If the investor purchases the property for 50 cents on the dollar and will need another 15 cents for repairs, closing, and other expenses, then it's a "no money down" investment. He'll be able to buy a home and fix it without shouldering any of the expenses. One loan - the hard money loan - will be able to cover all of those expenses.
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