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‘No Money Down’ Properties – Scheme or Scam? (Part 2)

Beware! ‘No Money Down’ or ‘Little Money Down’ Properties can be more sneaky than a well concealed lizard.

Anyone, including ordinary investors, can own properties easily and will not cost you dearly, either with ‘No Money Down’ or Little Money Down’, so proclaimed by some ‘property experts’ and have people pay ridiculous amount of ‘tuition’ fees in property seminars just to learn from them.

As promised, in this article, ‘No Money Down Properties – Scheme or Scam (Part 2), I am going to share some of these strategies with you for FREE!

But beware! These strategies come with many inherent risks ordinary investors may not fully comprehend.

Between early 2000s-2005 in Singapore, to help propel the local property market up, the Loan-To-Value (LTV%) was raised from 80% to 90%. The minimum cash requirement was also reduced from 10% to just 5%. In other words, anyone who have had bought properties during this low period would qualify as buying property with very little money down.

However, government policies always change according to market conditions, and today, if one were to have an outstanding mortgage on an existing property, the Loan-To-Value (LTV%) is raised to just 60%, with hefty 40% downpayment. A $1 million property would require one to cough out $400,000.

That’s one of the many reasons why, today, one would see many advertisements touting anyone can buy properties with no money or little money down, just to lure investors to invest on assumptions of a low interest rate environment.

So what are some of these ‘No Money Down’ or ‘Little Money Down’ deals and strategies? And are they even applicable for the ordinary investor?

1. Borrow Money

This 1st strategy would be for an investor borrow with interest repayments, the cash downpayment from friends, relatives, bank overdrafts, credit lines and even insurance policies with substantial cash value. One can even borrow from an existing private property which have appreciated significantly in value to obtain the cash for downpayment.

Risks: Unless the investor can ascertain for sure that the property invested is indeed a great property with very good cashflow to repay the debt leverage, if not, the investor could get into serious debt obligations

2. Co-Invest with other investors using cash

The 2nd strategy involves an investor partnering others to buy a property together. If a property cost $1 million and the required LTV% IS 80%, the downpayment excluding other upfront costs is $200,000. If there are 4 investors in a group, each investor need only to come up $50,000.

Risks: Unless one can truly find a group of friends or associates who can share very similar investment objectives and proper legal documentations are drafted, most often than not, most ended up worse than ever. Some considerations are in the event of an investor exiting out earlier than expected due to urgent need of money, or even death of a partner. Or worse, all partners faced equal legal obligations should one partner fail or choose to default on the loan payments.

3. Co-Invest with other investors using Central Provident Fund (CPF)

The 3rd strategy is similar to the 2nd strategy above, only difference is in the use of one’s CPF funds.

Assuming that one investor do not qualify for a bank loan but have cash to support downpayment and mortgage payments, and another investor is able to get a bank loan, but do not have sufficient cash to invest, then they may come together as partners. So, literally, the investor who dos not have sufficient cash to invest, can tap on the investor with cash, so little or no money down in this case.

Risks: The risks are similar to the 2nd strategy using cash.

4. Negotiate with developers

The 4th strategy involves being able to negotiate a discounted or ‘special’  deal with a property developer. An investor would work out a private arrangement and have the developer sell the same property at $400,000 instead. So downpayment is only $80,000, but instead of absorbing the discounted rice, the investor persuades the others to contribute his share and come up with $20,000 instead. So again, the investor literally own a property with No Money Down.

Risks: Specially Discounted properties are usually reserved only for the privilege and the rich. Unfortunately, most ordinary investors cannot even come close to smelling the door.

The second risks here is also like trying to find a needle in hay stack. Try finding a developer who is willingly to give a 20% discount for no reason, even in a property downturn. If there is such a deal even existed, such property might not be such a good buy after all. But then again…you got the property with no money down so no risk is taken while other investors whom you persuaded into the deal has to bear those risks instead on top of coming up the money.

Character integrity is major risk here.

5. Buy overseas property with no money or little money down.

There are many overseas properties can can be bought for as low as $5,000 even no money down through special arrangements with the seller in that country. In USA for example, there are many cheap properties one can buy and some can even be bought with no money down through a scheme called ‘Seller Financing’. It enables the buyer to own a property literally having the seller to pay for the downpayment.

Risks: Beware!! Buying a cheap overseas property have inherent risks and may not even be suitable for ordinary foreign investors. If even the local overseas professionals investors are avoiding themselves, what more can a foreign investor who is so very unfamiliar with foreign territory expect.

Such properties are often located in bad locations, crime ridden areas, low income tenants who cannot afford to pay rent or comes with hidden hefty maintenance issues which can eat into an investor’s returns. There are crafty investors only so willingly to offload such properties to ignorant buyers. Sometimes these properties are marketed so well that many of the inherent risks of buying such properties are kept well hidden like an Enron company!

So w(at can an ordinary investor do to mitigate these risks of  buying no money or little money down properties?

The question here is why does one need to even mitigate these risks while one can avoid it completely? Why fight the fire when you can prevent it first?

Here are some tips:

  1. As an ordinary investor, FIRST FOCUS on buying great quality properties with REAL cashflow, rather than trying to find that pot of gold hidden somewhere in the Antarctica!
  2. Money always follow GREAT deals. To first find these deals, one must FIRST financially educate themselves through hard work and patience.(When I meant GREAT, I mean GREAT, not those average or mediocre deals being marketed in property seminars)
  3. If you do not have enough money for the downpayment, then it’s time to figure what do you personally have in your entire financial resources inventory and use them wisely.
  4. Start saving up gradually and stop buying unnecessary big ticket items that eats into your piggy bank.
  5. Buy during low times when nobody is buying and buy on cashflow NOT capital gains! The property is a lot less expensive.

As Warren Buffet puts it wisely,”It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”

And this applies to properties as well.

Click Here To Find Out How You Can Harness Your Intentions And Turn Them Into Reality.

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Your Friend,

Gerald Tay

 


About the Author

Gerald Tay Author, entrepreneur, professional investor and loving father, runs crei-academy.com with a tongue-in-cheek approach to property investment - and himself. He is widely regarded in the industry as 'The Common-Sense' Investor. Gerald writes with passion and straight-forwardness, disclaiming wild claims and impractical investment strategies behind lies and ignorance pervasive in the property industry for vested interests. His well-known statement, "All I did is to value my investments with science, logic and common sense.'

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