How to Buy Properties With No or Low Money Via 4 Financing Strategies - Business Insider

Like many real-estate investing gurus, Brandon Turner attributes his inspiration for achieving financial freedom to Robert Kiyosaki’s best-selling personal finance book “Rich Dad Poor Dad.”
Although not a step-by-step guide in any way, Kiyosaki’s book was “foundational in the lives of many real estate investors because it changed the mindset of everyone who read it,” Turner wrote in “The Book on Investing In Real Estate with No (and Low) Money Down.”
The one specific revelation that blew Turner’s mind was when Kiyosaki described his best friend’s father, the rich dad, who forbade him to say “I can’t afford it” and instead required him to ask “how can I afford it.”
“I had been raised in a household of ‘we can or we can’t afford that’ and so was accustomed to turning my brain off as soon as I reached the point of ‘no,'” Turner recalled in his book. “When I suddenly realized that there was a different way of thinking, something ignited inside me, and my quest for creative finance began.”
At the age of 21, Turner, who had no cash or credit, set out to learn everything he could about building wealth in real estate. “I read every book the regional library system had on real estate investing, spoke with every real estate investor I could find in my area, attended landlord meetings to network, and continued to work my day job making barely above minimum wage for the first few years,” he said. 
As of the writing of his book (the first edition was published in 2014), Turner said he had amassed nearly 300 rental units. During an April 25 episode of his “BiggerPockets” podcast, the top-ranked on the topic on Apple Podcasts, he said he owned about 1,500 units but was able to “retire” at age 27 with about 30 units. 
With little to no money, Turner has leveraged his knowledge, time, and creativity to make money from essentially nothing, but he warned that investors starting from similar positions must “be conservative, buy great deals, and have a financial backup plan.”
He also credits his individual circumstance then with his investing success. “Your ability to carry out certain strategies will rely heavily on a number of factors, including your location, your personal place in life (family commitments, free time, willingness to sacrifice, etc.), your finances, your personality, and more,” he said. 
Turner got started by using the same house-hacking strategy that has been employed by thousands of investors and can be “one of the absolute cheapest ways” to invest in real estate.
Right out of college, he bought a four-bedroom, one-bath home that was “downright ugly.” By renting out the extra bedrooms to some friends, he was able to use their rents to pay the mortgage and live there for free. He also put some sweat equity into the house and slowly fixed it up by charging associated costs to his credit cards, a risky move that he does not necessarily recommend.
Nine months later, he said he sold the property for a $20,000 profit. 
Turner was able to rely on a 100% mortgage to purchase the property because owner-occupied investment properties are also primary residences for homeowners. In the US, homeowners can purchase homes with little to no money down with mortgages, get lower and fixed interest rates, and qualify with lower credit scores, he said. 
He was also able to do put no money down because it was the pre-2008 subprime mortgage crisis era. Today, it would be close to impossible for a recent college graduate with no income or credit to secure a 100% mortgage.
However, there are still creative financing strategies that require little to no down payment for investors from different backgrounds. 
Investing in an owner-occupied home is a great place to start, but homeownership is not for everyone. “It requires a plan, stability, and moderately good credit,” Turner said. 
For those who are willing to sacrifice and hustle, they can use this live-in flip strategy to live for cheap or free, get the on-the-job training to be a landlord while waiting for the property to appreciate in value. 
Turner shared four main types of financing strategies to buy owner-occupied properties with little to no money down. 
The use of a Federal Housing Authority insured loan to purchase homes is one of the most popular methods for low-income borrowers. The FHA passes fees that are known as mortgage insurance premium to borrowers when the loan-to-value ratio (the mortgage amount relative to the total appraised worth of a property) is greater than 78%.
FHA-insured loans have “extremely low” down payment requirements of just 3.5% of the purchases price, which is considerably lower than the usual 20% down payment requirement. However, the mortgage insurance premium, which is charged both upfront and monthly, can be a “real cash flow killer,” Turner said.
Another caveat is that the FHA allows for only one FHA loan in a person’s name at a time, so unless an investor can refinance their FHA loan into a normal mortgage, they cannot pursue another FHA loan. 
The 203k loan, which is one of the subsets of the FHA loan, includes both funds to purchase and rehab a property.
Turner believes that the 203k loan “holds tremendous potential for a smart investor” who knows how to find distressed properties and “force” their value higher through repair work. There are two types of FHA loans depending on the extent of the rehab involved, but the contractors working on the rehab must be FHA approved. 
Rehabbing can be a risky business because hidden damages can cost investors more money than expected. As part of the FHA loan program, the 203k loan also includes the mortgage insurance premium, which investors should consider, Turner said. 
Exclusively designed for US military service members, veterans, and eligible surviving spouses, the VA loans require no private mortgage insurance and allow the seller to pay 100% of the buyer’s closing costs. This means a VA loan can truly fund a property purchase with no money down. 
These US Department of Agriculture insured loans allow for 100% loan financing and certain rehab to be rolled into the loan. However, they are strictly for low- to moderate-income homebuyers of rural single-homes only.
USDA loans have no maximum purchase price and require no monthly private mortgage insurance. Plus, the seller can pay up to 6% of the buyer’s closing costs. 
For all of the four financing strategies, Turner said investors should take into account the red tape involved when it comes to applying for government-insured loans and be prepared for issues such as “obnoxious paperwork” and months-long waiting. 
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