Commercial real estate investment is an industry of abundance. There is literally an unlimited amount of money available to people who want to borrow it. So much, in fact, that you can literally purchase millions of dollars worth of commercial property without using one dollar of your own money! Unless you already have millions of dollars at your personal disposal to invest, or are fortunate enough to have come from a family of wealth, borrowing money is the only way to become a commercial real estate investor. It is a great way to purchase commercial property, even if you have your own millions already, because you don't have to worry about losing your personal money. In fact, that is how many multi-millionaire commercial real estate investors make their money- by not using their own! If you don't use it, then you never lose it. One of the reasons you can borrow money to purchase property is because of something called leverage. You simply borrow money against the property, as it is the property that actually holds the value. This will play a major role in our discussion of purchasing property without using any of your own money. The first way to purchase property with none of your own money is subordination. Many people consider this way of purchasing property as creative financing. In this situation, the current owner actually takes out a second mortgage on the property to cover the difference of what the purchaser (you, the investor) can get loaned from a bank or private lender. If you are lucky enough to have an owner who will sell the property with no money down, and he or she subordinates a second mortgage for the difference you owe, then you just purchased a property with none of your own money! When using this tool, it is a good idea to have the owner only subordinate for a short amount of time, like one to two years, just until you can take the money generated from the commercial property and pay off the second mortgage, leaving the owner free of the property. At this point, payment for the property can take place because you will have generated cash through the commercial property. The owner will actually wait to get paid his money for the property! It happens all the time, and everyone comes out happy in the end. You purchase your money generating property with none of your own money, and the owner gets paid for the property. This situation may seem backwards at first, but it works rather well, if you find an owner who is very motivated to sell, and he or she understands this way of investing. You must always be sure that the property can support the debt, as you do not want the owner getting into financial trouble with the second mortgage. Some owners are weary of this type of investing, as some purchasers do not do as they say, and problems occur. You want to be an investor of integrity and have a reputation of making things happen in the way in which you and the seller agreed. Another way to purchase property with none of your own money is through the owner releasing some acreage that is free and clear which you, in turn, use to borrow enough money to cover a down payment on the entire piece. This strategy works especially well with raw land. You are basically using a piece of the property to purchase the entire property. Owners may not even be aware of this option, so be sure to mention it or address it in a letter of intent, especially when dealing with many acres of land! A third way to purchase commercial property without using your own money is using partners. There are experienced investors, builders and developers who will find the financing for you, and basically get the deal ready to go, if you are willing to do the work. The agreements can greatly differ, but the partner(s) will basically finance the deal and take a piece of the return that you create through, either turning a distressed property around, or overseeing the development or building of a specific type of property and making it profitable. Partners can offer great experience and insight so that you can learn more about a specific type of property or the actual industry itself. When it comes to commercial real estate, there are so many options; don't ever limit yourself! Be creative and find resources. There is a wealth of information and money available to anyone who is willing to take some time and make some contacts. This industry is not one of limitations, but one of abundance. |
