I hate, hate, hate putting money down on homes. I am damaged good though. I put down $60,000 on our first home in Arizona back in 2008. Then I proceeded to lose all of it because of the real estate market that year. Never again.
This belief is mine and mine alone. You can feel completely different. I appreciate that everyone does not feel this way. Besides reading Robert Kiyosaki religiously, my experience has led me to feel a certain way about leverage- and money in general. However, I’ll keep my opinions to myself.
Back to down payments- I don’t like them. I may have to use a down payment in the future, but I promise I will try everything in my power to use other people’s money. It requires no financial education to use your own money; that is the challenge of finding creative ways to leverage someone else’s money. Real Estate is the I.D.E.A.L. investment for these reasons.
The Pitfalls of Owning a Home and How to Avoid Them
So let’s find some ways to avoid paying 20% down payments. Remember, first-time home buyers and owner-occupied single-family homes are going to get preferred treatment. You will need to understand these methods and exploit them on an organized schedule to get maximum leverage. For example, you may have to live in a home for 2-3 years before moving into another home. You could also use your 1031 transfer to roll your equity into another house; no down payment is necessary. Let’s look at some of our options.
FHA Loans. Many homebuyers use FHA loans, and their regulations can be strict. First-time homebuyers use these loans because of 3.5% down; however, others have access to these loans as well. The biggest con of this type of loan is that you will have to pay private mortgage insurance on the loan for its entirety. That’s okay; we can refinance out of this loan when we get enough equity.
VA Loans. VA loans are the granddaddy of wealth generation. The main con is that you will have to have served in the military to access this kind of loan. However, if you are already in the military, leverage the crap out of VA loans. I would buy as many houses under this loan type as possible. There is no down payment required, and another option is to buy a multi-family home with your VA loan. No down payment plus rental income makes Josh a happy customer.
Mortgage Zero: The Art of Paying Zero Out-of-Pocket Housing Costs
FannieMae Home Ready Program – Fannie Mae has a program that allows us to purchase a home with a little as 3%. It is investor-friendly, which means that you can buy these homes and not live there. You can use the houses as rental properties. There is a process before you get access to the places. First, the program offers homes to first-time homebuyers (non-investors); then, if homes remain, the bidding opens up to investors- like us. We will be okay; we can wait. We want access to those sweet low down payment homes.
FreddieMac Home Possible Program– The Freddie Mac program is more strict than Fannie Mae. However, it is still worth looking over the details. As I wrote in “Become a Private Money Lender,” you may be able to leverage someone else who qualifies’s for the loan. The world cannot stop us if we work together.
USDA 502 Direct Home Loans– USDA homebuyer loans must conform to specific income requirements. I am sure that I exceed that requirement. Our children will be eligible once they leave home. That’s why we had children, right? Also, the homes have to be in a rural area but, USDA can loan up to 100% of the loan value (no down payment). No money down may make it worth the trouble.
Using leverage is the most considerable benefit of real estate investing. I want to leverage every dollar I can and avoid using my cash. The above loans are just the start of ways to use leverage. In Maximum Leverage 2, I will go over ways to acquire financing for a down payment- if you have to pay it. These are ways such as 1031 transfer, seller financing, cash-out refinancing, and using business credit.
Become a Land Millionaire
It is essential to realize that real estate is part of our four-pronged approach to passive income. We can avoid getting into trouble by slowly acquiring properties along with growing other forms of wealth.
For example, we may have a couple of rentals, then pause to grow a business. Yes, real estate is the faster way to increase your bottom-line income; however, you make yourself immune to economic downturns by diversifying. We can diversify by building our money system (investments), creating royalties, and starting automated businesses. When those endeavors bear fruit, we can return to real estate.
Even further, there are other ways to use real estate that can be an alternative to holding rental properties. I list some of these ways here in Real Estate 102. Also, becoming a real estate agent or wholesaling are ways to get the low down on superb deals.
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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
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