4 Ways to Buy Property with “No Money Down”

Byguest contributor Gerald Tay

Some“property experts” claim that anyone, including ordinary investors, can own propertieseasily either with “No Money Down” or “Little Money Down”, and make people payridiculous amounts of fees in property seminars just to learn from them.

Inthis article, I am going to share some of these strategies with you for FREE!But beware – even though some of these strategies may be applicable to aneducated investor, they do come with many risks ordinary investors m Betweenearly 2000 and 2005 in Singapore, to help support the local property market,the Loan-To-Value (LTV) was raised from 80% to 90%. The minimum cashrequirement was also reduced from 10% to just 5%. In other  words, anyone who bought properties during thislow 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 mortgageon an existing property, the Loan-To-Value is now just 60% for the second orgreater loan, requiring a hefty 40% down payment. A $1  illion property would require you to cough out$400,000. That’s one of the many reasons why, today, one would see manyadvertisements touting how anyone can buy properties with no money or littlemoney down, just to lure investors to invest on assumptions of a low interestrate environment.

Sowhat are some of these “No Money Down” or “Little Money Down” deals andstrategies?  And are they even applicablefor the ordinary investor?

1. Borrow money to pay the down payment

Thisfirst strategy would be for an investor to borrow the down-payment fromfriends, relatives, bank overdrafts, credit lines and even insurance policieswith substantial cash value. One can even borrow from an existing privateproperty which has appreciated  significantlyin value to obtain the cash for the second property’s down-payment.

Therisk is that unless the investor can ascertain for sure that the propertyinvested is indeed a great property with very good cash flow to repay the debtleverage, the investor could get into serious debt obligations. 

2. Co-Invest with other investors 

Thesecond strategy involves an investor partnering others to buy a propertytogether. If a property cost  1 millionand the required LTV IS 80%, the down-payment excluding other upfront costs is$200,000. If there are four investors in a group, each investor need only comeup $50,000.

Therisk is that unless one can find a group of friends or associates who sharevery similar investment objectives and have proper legal documentation drafted,most often than not, many of these deals end up badly. For example, one of yourco-investors may need to exit earlier than expected due to an urgent need formoney, or even death of a partner.  Orworse, all partners face equal legal obligations should one partner go bankruptor choose to default on the loan payments.

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

Thethird strategy is similar to the second strategy above – the difference is inthe use of one’s CPF funds.  Assumingthat one investor does not qualify for a bank loan but has cash to support thedown-payment and mortgage payments, and another investor is able to get a bankloan, but does not have sufficient cash to invest, then they may come togetheras partners. So the investor who does not have sufficient cash to invest can tapon the investor with cash, which becomes little or no money down for him inthis case.

Therisks are similar to the second strategy using cash.

4. Buy overseas property with no money or little moneydown

Thereare many overseas properties that can be bought for as low as $5,000 or evenwith no money down through special arrangements with the seller in thatcountry.

Inthe USA for example, there are many cheap properties one can buy and some can evenbe bought with no money down through a scheme called “Seller Financing”. Itenables the buyer to own a property by having the seller pay for thedown-payment.

Buyinga cheap overseas property has inherent risks and may not be suitable for mostordinary investors. Even experienced local investors are extremely wary of suchproperties – what can a foreign investor who is unfamiliar with the foreignterritory expect?

Suchshady properties are often located in bad crime-ridden areas, with low income tenantswho cannot afford to pay rent. Or they come with hidden maintenance issues whichcan eat into an investor’s returns.  Thereare crafty sellers who offload such properties to ignorant buyers and conceal manyof the inherent risks of buying such properties.

Evenif it’s 100% financed, a bad property is a bad property!

Qualityproperties in good locations rarely, if ever, have motivated sellers.Unfortunately, the “gurus” have made buying no money down more important than buying quality properties.How you finance the property isn’t  asimportant as buying a property that will be a sound, long term investment. Inother words, buy only quality properties with investment value. Even if it’s100% financed, a bad property is a bad property!

AsWarren Buffet puts it wisely, “It’s far better to buy a wonderful company at afair price than a fair company at a wonderful price.” And this applies to property investment as well.A smart investor will invest in enough education before entering into any investments.The return of your investments is dictated by the amount of education you have.Rather than aiming to buy properties with no or little money own, first focuson educating yourself thoroughly. Therest will follow. 

Byguest contributor Gerald Tay, CEO and

ChiefTrainer at CREi Academy Group.