by Theresa Bradley-Banta
Banks have their own ideas about what constitutes a good investment. They tend to be rather linear in their processes, and they do not look for the big picture or place much value on vision.
To make a loan, the project or real estate investment must meet several specific criteria. That is not necessarily a bad thing, but traditional financing does not work for some people and some real estate investments. The big question for many novice investors is if they can purchase investment property with no money down. The answer to that? Absolutely. Is that the best way to go about purchasing rental properties? No.
The main problem with no money down investing
Perhaps the worst thing any investor can do is try to manage rental property when they are under-capitalized. After all, there are times when spending money on repairs and maintenance saves considerable money down the line. A well-maintained property is much more appealing to potential tenants than an unkempt property. Being in a position to spend money when needed puts you as an investor in a better position for profitability.
You can’t do it just because you don’t have money
Although buying investment property with no money down is entirely possible, owning investment property requires money. Investors can take a cash flow positive property to foreclosure within a few months when they do not have the funds to repair or replace a non-functioning HVAC system.
There’s a lot of discussion in real estate investment blogs about the responsibilities of tenants and how landlords can ensure their renters comply with rules and laws, but landlords and property managers also have obligations. These property owner responsibilities include maintaining a safe environment, keeping the property clean, and responding to repair requests promptly.
Another big legal requirement is the proper keeping of tenants’ security deposits. Specific requirements vary by state, but in the eyes of the law, security deposits belong to the tenants unless the landlord has some right to utilize the funds.
How no money down can work
Money is available to you via a line of credit, personal bank loan, investment partner, or some other reliable source. Some people jump in with no resources and hope they will just get lucky, and this works for some people, but most quickly come to realize that banks didn’t become multi-billion dollar corporations by being lucky. You should not expect to build a profitable and sustainable investment portfolio on luck.