Zero Down Investing with Lease Options

I hear from a lot of people that you just can’t do zero down investing in real estate. Realtors will tell you that you have to have a down payment, so you can get a mortgage. Mortgage brokers tell you the same thing. Even some real estate investors who have had their opinions clouded by naysayers will say that zero down investing deals just aren’t out there.

It’s almost funny but at the same time a little frustrating to hear that from all these people because I have been doing zero down investing for years. Certainly, not all of my deals are zero down deals. Sometimes I have lease option deals where I put a small amount of money down or even spend a little in repairs. But I will tell you that without question it is possible to do zero down investing!

Don’t let the naysayers tell you otherwise

You do have to choose the right strategy, however. You can’t do zero down investing right now on an investment property that you are buying outright with a mortgage. The mortgage rules have changed too much and lenders want to see a down payment. So, in that respect the Realtors and mortgage brokers are right.

However, what they aren’t taking into account are the other ways to invest–like lease options.

There are two ways to do zero down investing with lease options. The first is setting up a sandwich lease option with a home seller in which you pay the seller an option fee, but you don’t start the lease option until you find a lease option buyer and they pay you their option fee. That way you can pay the seller their option fee from what the buyer paid you and hopefully have some left over.

You’ve just set up a sandwich lease option with no money out of your own pocket.

The second way is to not pay the seller an option fee at all. Many times they won’t ask for it or even know to ask for it. Again don’t start the lease option with the seller until you find a lease option buyer. That way the option fee you collect from the lease option buyer is yours to keep entirely.

That’s zero down investing! As a matter of fact, you are actually getting paid money at the beginning, so it’s even better than zero down investing.

One thing I want to stress because it is very important. Even though you are doing zero down investing lease option deals, you still absolutely want to have cash reserves! Your reserve funds will carry you through if something goes wrong, like the buyer moves out or even worse you need to evict the buyer.

During those times you are still obligated to pay the seller the monthly rent while you find a replacement buyer. Having those cash reserves gives you protection and peace of mind. There is nothing worse than having something go wrong and not have the money to carry you through. So, I recommend at least three months of reserve funds.

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