Do you want to get started in real estate investing with duplexes?
Have you ever wanted to live in a duplex while having a renter pay for your mortgage?
In this article, you’ll discover how to buy a duplex with no money down.
One of the biggest difficulties in getting started with real estate investing is not having any capital. A lack of funds may hinder and even prevent you from doing a real estate investing deal. However, it shouldn’t stop you from working other created deals, that is, creating other methods to make a deal. There are other financing options to obtain investment properties for your real estate business that will allow you to acquire real estate with NO MONEY DOWN. The goal in this article is to give you enough information to direct you to further explore these financing options for your real estate investing business.
In summary, there are six creative methods on how to buy a duplex with no money down. They are lease options, seller financing, negotiate the duplex investment, exchange property, create a partnership, and home equity line of credit.
What is a Duplex Investment?
Before we dive in and explore how to buy a duplex with no money down. Let’s quickly understand what a duplex investment is. A duplex is a house that has two living units that are separate, yet, at the same time the units are attached to each other. They can also be called family homes or multi-family homes. They may remind you of an apartment building, however, due to its size, a duplex usually looks like one house but just has two different living quarters. At least, by the legal definition, it’s not considered an apartment (this may depend on your state, however). The duplex may also share a common address. Furthermore, a house with more than two units would be referred to as triplex (3 units) and fourplex (4 units). The key is that a duplex, triplex or fourplex will usually take up the space of a single-family house and an apartment will contain a much larger lot.
The duplex investment comes into play when you purchase or control (e.g. master lease option) one of these properties and create cash flow through, mainly, through rental income. The concept is the same with a one-unit rental, instead you have two dwelling places to work with that can actually be more beneficial than working with one unit.
Benefits of a Duplex Investment
Investing in a duplex investment is a great way to get started in real estate investing. In fact, it can be an excellent way to get your start.
For example; Johnny who joined the Navy started to educate himself on real estate investing. He was first introduced to the concept by a senior level petty officer who was about to retire from the military and now will be collecting rent checks from his renters. Johnny was excited to get started also. He sought out a real estate agent and he knew the military benefits of a VA loan.
He worked hard by analyzing property through his real estate agent and finally landed on a great duplex investment. He closed on the deal and now finds himself with not just a place to live in (when he is not overseas somewhere) but he also has someone willing to rent the other unit who was another service member. And just by his analyzation of the area and market, the rent covers the entire monthly mortgage! From this one transaction, Johnny acquired two separate units and only one mortgage payment. Johnny set out on a plan to purchase more duplexes for the future. And you can finish the story of Johnny’s early and hungry success.
Why duplex investments?
Unlike, a single-family home you usually reduce the risk by having two renters pay the same mortgage payment. That is, in case one moves out you still end up being covered by the other renter.
Also, Duplex investments create great cash flow. A duplex allows many landlords to live comfortably knowing that the “other guy” is happily paying down all that interest and principle.
Further, financing a duplex is relatively just as easy as financing a single-family unit. Even more so, duplexes are easier to lease because of the lower rent associated with it for the renters. Duplexes are designed to be rentals, unlike a single-family home. Many people who want to rent do not want to rent a full-size single-family house. They usually need something inexpensive and convenient that allows them to create stability in their savings for a few years, so they can eventually buy the property they want. However, everyone has different goals, and someone may be very satisfied to be a long-term renter.
How to Buy a Duplex with No Money Down
This article focuses on how to buy a duplex with no money down. Therefore, it assumes that you have zero cash. But if you did, you can still try the methods for acquiring property through your bank and meet their down payment requirements.
1. Lease Options
Obtaining a lease option is a great method on how to buy a duplex with no money down. A real estate lease option is simply leasing a duplex under a legal agreement which allows you the renter exclusive rights to buy the duplex with a predetermined time period. This legal agreement prohibits the owner from selling the property during the lease.
In this scenario, you as the buyer will negotiate with the owner and come under terms and price agreement of the lease with the option to buy contract. This method allows you as the buyer to legally take control of the duplex. You can read more information on real estate lease option in my article on how to do a real estate lease-option.
But to elaborate on the method, let’s go back to Johnny. Johnny, in this case, ran into his long-time shipmate (Tim) who was transferring across seas to Germany. He owned a duplex and he wasn’t comfortable renting the property to some random person. On the other hand, Johnny had no cash on hand but was still interested in Tim’s duplex home. Both negotiated on a price and determined that Johnny will take control of the property through a lease-option agreement. Johnny has the lease agreement set at three years with the option to purchase anytime up to that point. Most of the rent was being paid by the other unit and Johnny within a short time frame was able to save up and qualify for a loan to reach the down payment that is needed for the real estate closing. Both Johnny and Tim benefitted from this transaction, although, the completion took several years later.
2. Seller Financing
Obtaining real estate through seller financing is a great way for investing in duplex real estate and is another great method in how to buy a duplex with no money down. Although, your negotiation skills will come into play. But usually, this method works best when networking with others. Fortunately, this method requires no credit check. Therefore, this method is good for those with poor credit let alone having no cash.
A seller finance is basically having the seller finance the duplex, that is, the seller becomes the “bank.” Therefore, you will negotiate terms and price with the seller and pay the mortgage to the seller. Of course, legally closing on the deal and having a third party involved will minimize conflicts but, in this scenario, you can work with the seller by eliminating a down payment.
In some situations, a seller will take a larger sales price or larger monthly payment to waive the down payment for you. The seller is still protected if you don’t make the payments because the seller can still foreclose on the property.
Since I’m big into storytelling and some learn the concept better. Let’s continue with our star Johnny. Johnny’s mother owned a duplex with no mortgage who decided she was relocating to another part of town and didn’t want the upkeeping and property management. Johnny’s mother agreed that she was willing to allow her son to simply make payments to her. This gave Johnny’s mother a reasonable income from the payments and eliminated all the duties of managing the duplex. Johnny over time improved the property’s value and therefore increased the rent, therefore, making a bigger networking operating income (NOI).
Keep in mind that people have all sorts of reasons to get out of an investment even if it is creating serious cash-flow. Some of these reasons may include, retirement, relocation, liquidation, freeing up cash for bigger projects, etc. Don’t be alarmed or concerned that an investor decides to sell an investment when the property is cash flowing extremely well. It may make more sense for them to keep it from your perspective but from their perspective, it may not be. It’s not always a bad deal when someone is selling a property.
3. Negotiate the Duplex Investment
One of the most overlooked opportunities with contracts is the failure to negotiate. Negotiation is an art and trade that needs to be mastered. Hint! This is one of the reasons why we have attorneys.
You as a buyer can negotiate the down payment with the seller through closing. Your real estate agent can always create the contract or attach an addendum by ensuring that the negotiation terms are met and that the seller pays the down payment for you. After all, many times the seller will help the buyer, so they can get their duplex property sold.
Back to Johnny! This time no cash Johnny decides to work and negotiate with the seller to purchase the investment property with no money down at closing. The seller was willing to work with him by increasing the sales price. However, Johnny knew this is an investment property and he will have two renters paying the mortgage. His goal was to create cash flow from this duplex. Therefore, the seller was willing to pay for Johnny’s closing cost and all related fees and down payments.
4. Exchange Property
Again, we come to negotiations. Property exchanges are another creative method to transfer one unit into two units. It may be difficult to find someone who is willing to perform this type of transaction, however, if you have a property, for instance, a single-family home and know someone who has a duplex. And you both want to work out a deal to exchange properties. Then have an attorney work out a contract that works for both parties.
Again, Johnny! In this scenario, Johnny had a single-family home in the same community that his friend Tim lived in with a duplex. Tim’s family was growing bigger with additional family members and Johnny just so happened to be a single bachelor. Further, Tim always liked the size of Johnny’s house and was always over there. Johnny liked the idea of having a rental income and see the opportunities that a duplex had. Together Johnny and Tim worked out a deal that allowed them to exchange property ownership through their attorneys. Both parties involved benefited greatly. Tim moved his family into a larger home and Johnny immediately cash flowed both units.
5. Create a Partnership
Believe it or not! There are people who are like-minded. A partnership may help you find the cash you need for a duplex investment. Keep in mind that when you purchase a duplex you are actually legally partnering. If you want to have someone give you money (investment) for a duplex investment without any partnership entity you will need to file paperwork through the U.S. Securities and Exchange Commission (SEC). Always consult your attorney! You can be held criminally liable if you lose someone’s investment and not have the proper paperwork.
In this scenario, Johnny and his friend Tim were discussing investment opportunities. Johnny always wanted to get started in real estate investing, however, like many new investors he was lacking capital. But Tim was a big saver and over the years generated a large sum of money. Johnny was studying and educating himself on real estate investing and felt confident that he knew what he was doing to get started. Tim, on the other hand, knew nothing about real estate investing but was confident in Johnny and trusted his partnership. Together, the created a business entity and purchased their first duplex together. With the correct accounting and legal structure, both benefited from this partnership.
6. Home Equity Line of Credit
One of the greatest methods of obtaining money is through equity. I personally think a lot of people overlook their opportunities in not leveraging their equity. We all want to be out of debt but understanding and knowing how to leverage debt is a beautiful concept.
If you own a home and have significant equity in the home, you can always obtain the necessary cash through a home equity line of credit. This is not a home equity loan, but a line of credit. You can also use this line of credit for velocity banking and really pay off debt with the velocity banking strategy. You can see my article Velocity Banking: The Ultimate Debt Acceleration Strategy for more information.
My final scenario with Johnny. Johnny had been living in his home for several years and have gained significant equity in his home from the increase in market value and the consistent payments he’s been making. However, after reading the material and educating himself about real estate investing, he wanted to buy his first duplex and start to really generate cash flow. He has recently learned the velocity banking strategy and wanted to implement in his investment strategy. Johnny worked out a home equity line of credit through his local credit union. He now has access to a line of credit that gave him the ability to use some of it for a down payment and for the closing cost to purchase a duplex in his neighborhood. Johnny now has renters in both units that generate cash flow.
Conclusion on How to Buy a Duplex with No Money Down
When you buy a duplex as a primary residence it allows you as the real estate investor to cash flow on the other unit. Buying a duplex is a great way to start out in real estate investing. These benefits can reduce risk, gain the ability to gain two units with one transaction, obtain long-term financing, etc. There are several ways in how to buy a duplex with no money down. Such as using a home equity line of credit (HELOC), seller financing, exchange property, taking control of property through lease options, or negotiation the terms and price to satisfy the seller. However, whatever the method used. Know that, duplex investments are a great way to get started in real estate investing.