Is it even possible to ‘buy’ a piece of investment property and not have to pay a penny, even using the regular banking route?
You bet it is!
You still have to go through the process of ‘buying’ the property and resigning it in your personal name or, perhaps, a company’s name. Even still, why should you have to pay to get this done?
Nowadays it is getting harder and harder to persuade a bank to grant you over and above 100% loan to value mortgage. In general, banks are not willing to front the full amount of a property price and still, on top of that, cover added closing costs. By doing that, the bank institution would sign on for greater risk.
Previous to 2008, when things were a bit more stable, financial institutions agreed to take on extra chance but today, the process is completely different. Most property-buyers are now required to pay a minimum of 10% of the property so that they are truly invested in the property. All of the legal and closing fees are also added to your bill.
Is it still possible to find a bank in 2012 that will offer a 110% loan to value mortgages?
It is possible, but it is tricky. There are a number of things that you should do or keep in mind to give you the best possible chance:
- It is essential that you have a clean credit. A bad record history can halt your possibility of getting a loan.
- Ensure you look for a bank that is flexible depending on their specificities and the investment property’s location.
- Find a bank you feel comfortable with and that knows you are also a reliable customer. If you already use a certain bank for services, they may find you a more reputable client.
- Market conditions also decide the outcome of whether you will get a mortgage and at what value.
- Be serious about your investment property. Have a plan in place that shows that you are taking this entrepreneurship seriously when you go in to meet the bank. Make a memorable first impression.
- Try to deal as directly as possible with a financial institution and not a mortgage originator and this will pull some strings in your favor.
- Have all of your papers ready that show you can actual afford to buy the property. If you can’t prove that you have a regular income, don’t expect banks to be willing to go through with a mortgage.
This is how I managed to buy my second investment property without investing any of my money. In three steps, go from buying a piece of property to making a return in month one! First, I found a property in a popular part of Johannesburg Berea. Second, I was able to receive a 110% loan from the bank, which covered all the transfer/closing costs and a few renovations. Third, after calculating rental income, costs, and repayments there was a net profit.
This is often called cash flow positive property. There was a positive return from the very first month of investment and only money borrowed from the bank was used. The real return is immeasurable and you are practically receiving payments each month for doing nothing!
Unfortunately, nowadays banks are more likely not front a loan that will cover the entire amount of the property. There are still ways you can go about buying investment property for free:
- Be open and willing to sharing the profit(s) and find a partner, friend, family, co-worker, who will cover the extra costs.
- Negotiate with the seller to cover the extra costs upfront with the agreement that in due time you will pay them back with interest.
When deciding to buy an investment property be open to being flexible when it comes to financing. Banks are not the only method. When push comes to shove, the goal of the wealth creator is to succeed with the deal with a comfortable level of chance. As for the return, it is limitless!