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Down Payment as Strategy

Topic: Investments

What can help make Real Estate investment possible? The answer is few practical down payment funding strategies. The key is to be flexible and willing to negotiate for what is in your best interest.

The most common perception among those not familiar with the Real Estate market is that there is only one option for coming up with a down payment for a potential purchase. You have to get a piggy bank and start saving up until you have enough to afford it. This method is pretty fool proof as a down payment funding strategy, but the down side is that you are using your own capital. This capital can often be better used elsewhere when your purpose is investment.

One good way to fund the down payment when you are planning on a short term Real Estate investment, such as flipping, is to borrow the down payment through a separate loan. If you are planning on turning the property around after upgrading it or if the price is considerably under market value for some reason, a down payment loan makes sense. You can pay off the loan with the proceeds from the sale. If the loan is paid off early, your interest charge should be small.

There are a couple of ways of getting the seller to fund your down payment. In a case of seller financing, the seller might be willing to forego the down payment in exchange for a higher monthly payment. The seller might also be willing to provide the down payment himself in return for a quick sale contract.

A lease with the option to buy contract is also a different way to get down payment funding. The contract for this kind of sale allows the buyer to rent the property for a pre-set fee and purchase it within a specified time for a set price. What is actually happening is the rent is being applied to the down payment. This method is good if you are already paying rent elsewhere.

The secret is negotiation. Remember that down payments are not required by any mystical law and there are imaginative ways to either reduce them or provide the funding for them from a different source than your own pocket. If you are planning on investing in Real Estate for any of a number of different reasons, you should try to keep as much capital liquid and accessible as possible. Although large down payments tend to create instant equity in the property, this equity can not be easily realized until the property is sold. So try to become an expert on alternative means of funding? And you will see that your own funds may well be better reserved for other things.

07/20/2007
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