My first exposure to real estate investing came almost 15 years ago from a “No Money Down” course.  At the time, I thought it was the best thing since sliced bread. 

The most important thing that course did for me was to open my mind to the possibilities of what real estate could do for me. 

The reason I was attracted to the material in the first place was that – you know what – I had no money.  Since I couldn’t borrow money from a bank or mortgage company, this concept was VERY compelling. 

The central idea in their no-money down system is calling property sellers from the classified advertisements in the newspaper.  Target sellers who are looking to carry the note for the seller.  In addition, ask the seller if you can pay out the down payment. 

I actually ended up with a few properties using this method.  The problem was that using this way to find sellers was actually attracting very unmotivated sellers to me.  Their goal was to find a sucker like me who would buy the types of properties no one else was willing to buy. 

This brings me to three conditions that must happen for a no money down deal to make sense for you as a buyer. 

1)      You need a truly motivated seller.  If you don’t have the right seller, someone who is just looking to dump a piece of property, forget it.  They have to be in pain over the property or they will not be willing to make a deal with you that makes sense from your prospective  as a buyer. 

2)      The property must have enough equity built in.  Most people live in homes that are overleveraged.  They plain owe too much for it to make sense for you to buy their property.  Even if you can go in and get 100% financing, it still usually doesn’t make sense to buy the property unless you have at least 20% equity right away. 

3)      The underlying financing must be favorable.  Remember the days of subprime loans?  You know, the ones with outrageous interest rates.  I turned down many sellers who begged me to take over their payments.  Why would you want to take over somebody else’s problem?  If you can’t get a monthly payment that allows you get a decent positive cash flow, don’t do the deal.