Nothing Down Deals

OKay, I've been throwing around some ideas about nothing down deals. I'm not interested in doing them, as such, just curious about the meaning, like how do others define nothing down deals?
Personally, I would consider a nothing down deal to be one where the purchaser organises bank finance for part of the deal and vendor finance for the rest. Is this correct? Am I on the right track?
How do others define nothing down deals?

Mark
'no hat, some cattle'
 
Mark,

I would presume the same thing.

I was trying the same thing for my last deal. It didn't work- but if it had, it would have been icing on the cake. I'll try again the next time.

My proposal to the r/e agent was like,

"The vendor is obviously making a profit. That will raise capital gain tax. (S)he will have to pay the tax- down the track. If the vendor arranges finance (for the deposit- ie, for me), I will borrow the money required for the CGT from the vendor. And I will pay the vendor the amount of the deposit, pus 7% interest, when payment of the cgt is required. That is much better than putting the money into the bank and waiting for a norrmal bank interest payment,
 
after reading through your offer i would tell u where to go as well.
if u use your words correctly next time and it will surely work GW

regards
Jerry



:)
 
Another definition of a 'nothing down deal' might be where you raise funds through third parties, such as investors. You will thus be using other peoples money for the 10% the bank won't give you.

PT_Bear.
 
I don't know that technically there is such a thing as a "nothing" down deal, usually you would have to at least part out a few hundred dollars to back up your offer on a property.
But generally, I would say that my definition would also be that a deal with none of my money in it is a nothing down deal.
Perhaps that can be achieved using investors, or also in a wrap situation where the wrap buyer puts in a bigger deposit than you did, then you could end up with nothing in the deal.
 
Geoff.. you'll find that most agents will not even acknowledge something that is remotely different from the norm.

The concept of not putting down a deposit??? How is that even possible? To them that's weird and different and therefore doesn't even come under consideration.

You might want to have a go at making some similar type offers to private vendors... although don't use big words and make it as simple as possible for them to grasp them concept. Find out what they need, and offer that to them in return for an upfront deposit... who knows what might happen.

Lissy, there are ways to make a deal without any up front $$. My 1st Lease option was secured without any cash. My first monthly payment was due 2 weeks after the contract began and there was no up front cash involved at all.

You're only limited by your imagination.
 
BR is right..

Most agents won't acknowledge anything out of the ordinary...
Then there are some (like me!!) Who love stretching the parameters to see what can be done!

To this end I have developed a system of purchasing real estate called the Cost Capitalisation Method. BUT!!! I am not quite ready to start running yet!

I will post more on this when I get it moving a little more, and when I have organised myself a little better!

Stay tuned...

asy :D
 
Hi,

In my experience its not the agent that's the problem its the Vendor's solicitor who will reject pretty much everything.

You can draft up a deal which is win-win-win for everyone, but if it means the solicitor actually needs to think about the terms, then they will advised the vendor from not signing.

Even if the buyer is offering more money, and the vendor has been trying to sell for over six years (true story).

Michael G
 
Jerry,



after reading through your offer i would tell u where to go as well.

You're probably right- which is why I spend my day programming instead of talking with people.

How would you word it?
 
Mark,

If we think of a property deal and its funding requirements, we can break it down into 3 broad categories;

1) The deposit (generally 5-20% of the purchase price).

2) The purchase costs (application/bank fees, conveyancing, stamp duty, etc - about 5% of the purchase price).

3) On going costs (interest,rates, insurance, repairs, etc).

Let's use the definition for "nothing down" as not using your own money. Rather, using OPM (other people's money).

Step 1, in my view, would be to see that the on-going costs are covered, this means that the cashflow (rent, etc) covers these costs. Your biggest cost will be interest payments.

The bigger the LVR (loan to value ratio), the more interest you pay. This is where using a bigger deposit may help.

Some methods of tweeking the numbers is by increasing the rent, via a renovation, subdivision, etc

Now if we consider a deposit, there are a few options here too;

- draw down from a LOC (line of credit using equity)
- use a JV (joint venture) agreement with an investor, they put up the funds you manage the deal.
- ask the vendor to finance the deposit. Remember this will increase your on going costs though because it will involve paying back the principal and interest for this loan.
- again a reno during settlement to boost the value of the property.

With purchase costs, the quick soluction is draw down of equity somewhere, be it in the same property or via equity in the property after a reno. Again a JV may work, or maybe a vendor financed deal.

The above is more related to a buy hold scenario. The sexier ways discussed in many seminars are;

- Buy OTP (off the plan) with a deposit bond, and resell before settlement.
- flip a property
- get a finders fee (think about that, get paid for your time)
- option a property, buy an option, sit on it then resell it at a later date.

BUT, the biggest problem is not crunching the numbers, it is getting the vendor's solicitor to agree to the deal. Because in the end they have the final say.

Michael G
 
An interesting topic indeed. I have recently been reading about inovative ways people achieve these type of outcomes. A guy by the name of David Shamy (from US) was promoting these type of deals about 20 years ago. He called his process the "Double Closing". Basically, it seems he would purchase the property for at least 80% of val. or lower and have the equitable title transfered to him prior to settlement. The finance was then arranged as a "refinance" as opposed to a purchase. So technically this would give 100% finance on the deal.
I'd be interested to hear if anyone has followed the Shamy model
Apparently Robert Allen has published a book titled "Nothing Down" , I haven't read this, so any feedback would be welcome.
As you say Michael, the solicitors would be the major problem in any type of creative finance deals.......
 
There are lots of creative deals.

no money
nothing down
zero cash

Don't get caught up in semantics.

How would you feel about making $7K in 2 months for a $500 deposit.

How about $24K gain in equity in 7 weeks? But what if in that 7 weeks you had paid 100% in cash (credit card advances), renovated and refinanced out leaving none of your own money in the deal?

What if you paid $14K deposit and got the deposit back at settlement (42 days)? Then sold the house 16 months later for $35K more?

These are deals I have done and I'm not bragging about them. All have needed some cash along the way. But all would qualify as no money deals in some way.

I prefer to do no money deals. I define them as deals which have none of my own money in them for the long haul.
 
Hi Paul

That is a VERY important distinction isnt it. Having the cash in the first place is where more people come unstuck in the no down model.

By true definition I suppose those types of dont count. Youve done it the easy way (juts joking) Just about everyone that has approached me for these types of deals did not have two copper coins to rub together.

Ta

Rolf
 
Originally posted by Rolf Latham
That is a VERY important distinction isnt it. Having the cash in the first place is where more people come unstuck in the no down model.

By true definition I suppose those types of dont count. Youve done it the easy way (juts joking) Just about everyone that has approached me for these types of deals did not have two copper coins to rub together.

Thanks Rolf

I think having no cash gives zero room for error. On the other hand it means I was very careful to triple check everything.

I've done deals when I was so broke I couldn't get a cheque accepted(!). Tricky but not impossible.

I learned how to win friends and influence people. That got me finance partners who didn't try to screw me.

I also learned that a 20% return on a deal done is better than a potentially infinate return on a no money deal that doesn't come off.

Paul
 
Mark,

All my deals are NO Money down deals to acquire my Buy & hold IP. I borrow 106% of the purchase that also covers all my buying & legal expenses to set up the deal. All these deals are Cashflow Positive from day 1 , therefore my ROI on my deals are 1000%+

Happy Investing
Rixter :)
 
Actually Rixter your ROI is not 1000+% nor infinite (as a $0 down deal would result).

ROI is Return On Investment and includes borrowed funds in traditional calculations (pre-Enron?).

Your Cash-On-Cash return is infinite. That's E on your calculator ;)

I also like to calculate returns based on 106% borrowings even when I have money in the deal because that money has an opportunity cost.
 
Paul, what ever way we would like to call the ROI its putting money in our pockets without a cent of our own expenditure to create it. I think anyone would call that a good ROI.
 
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