Owning property with no money down
Nov 18, 2019
First, let me be clear that there are generally two types of money that gets invested in an income producing property – like apartments.
The first type of investment dollars comes from “financing” in the form of a loan secured by a deed of trust, or a mortgage against the property. This could include taking out a new bank loan, or the assumption of an existing loan already on the property. Sometimes the seller will carry all, or part of the financing.
Banks generally love to lend to apartment properties because there is a pretty predictable income stream from operating the property. With bank financing, or institutional loans the lender will usually finance 75% to 80% of the purchase price using certain underwriting criteria and ratios.
The other type of financing is “equity” and this is typically the down-payment, or the amount invested by the buyer to purchase the property. Obviously, the amount of financing and equity typically equal the purchase price.
The most common place for an investor to get equity money, besides putting up their own is to put together a group of people (investors), that pull their funds together to come up with the down-payment. Each of the investors in the group has an ownership interest in the property proportionate to their investment, less any equity or funds that go to the sponsor, or syndicator. As a sponsor you get to have a “sweat equity” position in the deal plus usually fees and other on-going income. So essentially you use, financing and equity all available from other sources than your own money to purchase the property and gain a “sweat equity” position anywhere between 20% to 50% of the deal depending on how aggressive and time consuming it would be for you to manage the deal goals.
Warm regards,
-Nes
Love-The-Rent!