Mortgages & Creative Financing

The Power of Private Financing: 3 No Money Down Strategies That Actually Work

Expertise: Personal Development, Business Management, Real Estate Investing Basics, Landlording & Rental Properties, Personal Finance, Flipping Houses
120 Articles Written

I remember reading about no-money-down deals and thinking people were completely out of their minds. How could you possibly do deals with no money down? It doesn’t make sense. I know when I go to the bank, they ask me a million questions, want everything but a blood test, look at everything I own and owe with a giant microscope, and then in the end, I will likely be frustrated, tired of the process, and may or may not walk away with a mortgage on a property. And I’ll end up bringing more money to close than I wanted to in the first place.

The fact is, cash and financing are the barrier to entry for a lot of the people wanting to get into real estate investing.

And I’ve learned over time the power is in finding solutions to problems: harnessing your needs, working towards them with desire and tenacity, and creating a solution. Those solutions come in many forms, and it can take many creative steps to put the financing of deals together.

I wanted to think through a few examples of how you could use private money to do your real estate deals that would require little or no money out of pocket, while benefitting all the parties in the transaction. Remember, no matter how awesome the deal is, if it ISN’T a win-win for everyone, it’s not worth doing.

I’d rather sleep at night knowing I did the right thing.

3 Ways to Fund Deals With Little or No Money Down

Private Finance From Friends/Family Through Self-Directed IRA

Many conversations these days have been about how terrible the stock market is doing and what kind of returns (or lack thereof) people are generating. What if you approached your family members and offered a rate of return of, say, 7-9% where they fund the deal and you run it? Maybe the first one you are going to fix up, live in, save money, have friends or roommates, and have a 2-year window where you flip the house and sell.


Related: No Money Down Strategies: How We’ve Purchased 80 Units in 5 Years

They fund it through the self-directed IRA—you have a note and mortgage on the property, they have first lien position. Let’s use real numbers:

Let’s say you buy a HUD or bank foreclosure, and you have first access before investors bid on/buy it. You are shooting to be all in at an 80% LTV, which you have explained to your family a number of times, and you remind them again and again you will get an appraisal, and if it doesn’t meet those criteria, you can either bring some money to the table or move on to a new deal.

  • Starter House: $120k ARV
  • Purchase Price: $70k
  • Reno:$25k
  • All In: $95k
  • LTV: 80%
  • Equity: $25k

In this example you would get the $95k from the self-directed IRA, and you would have a payment (if you did interest only) of $633.33 monthly at 8% interest. Add $150 for taxes and $100 for insurance (just to ballpark it), and you are at $883.33. Have a roommate who pays half of everything with you, and you are in your own place, which is in your own name, with $25k or so equity, for $0 out of pocket, and $500-$600 a month. WAY cheaper than rent.

In a couple years, you can either refi them out, get into a cheaper mortgage, or you could sell, take your cash, and do it all over again.

Hard Money Lender Flip With Equity Back to Lender

One of the ways you can not only get experience, but also get into a deal and have someone who knows what they are doing in the process is that you can partner with a hard money lender who also does flips themselves.

We’ve done this a number of times and have partners local to our market who know the houses, know the deals, and know what they are doing.

You can structure it pretty simply, tell them you will find the deal, they fund it, you guys work the project together, they get paid interest on their funds, and you will receive a percentage of the profit in the deal. If it’s your first few, even if you’re making 25-40% of the deal, that’s awesome. You’re making money, doing a real estate deal, and have NO money in.


Here’s the idea:

$150k AVR

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$75k Purchase

$30k Reno

$12k Closing/Realtor Fees (ballparked 8%)

= $33k Profit

= You are a 35% partner, and you made $11,550. Cash in. $0. 

And repeat!

Private Finance Rental Property

For a rental house, you just need to make sure you cash flow. I also STRONGLY prefer you have some cash to make repairs before you go into the deal—although you can also have some of those dollars come out of the deal as well.

Related: How to Invest in Real Estate with No Money Down (4 Rules You NEED to Follow!)

Let's say you have a lender who will do up to 70% ARV and you have a $80k house. I prefer a lender who will also fund renovation costs and cover those in the note/mortgage as well. You will then fund the deal at closing with the loan and receive proceeds for part/all of the renovation at closing.

After you have closed on the property, you own the house with the private mortgage, you complete your renovation, place your tenant, and cash flow on it. Once you’ve owned it for a while (whatever the lender seasoning is), you could either hold long term with the financing you have, you could sell like the previous example, or refi into more favorable long term financing options that create the best cash flow for you, and hold long term.

  • ARV: $80k
  • Purchase Price: $45k
  • Make-Ready: $8k

If lender allows up to 70%, you have a loan of $56k, $45k for the house, and likely enough to cover closing costs and your entire make-ready on the property, maybe even a payment on the first month's mortgage.

Don’t allow the fact that you don’t have funds keep you from getting into real estate. Keep asking. Keep learning. Keep finding like-minded people and have the resolve to do what you want to do. Just be willing to keep after it. The more deals you do, the more experience you have, the better and more favorable terms you will have, and the more financing options you will have to do deals.

Investors: Have you used any of the above strategies? What has your experience been?

Let me know with a comment, and let’s chat!

Nathan Brooks is the co-founder and CEO of Bridge Turnkey Investments, a Kansas City-based company renovating and selling more than 100 turnkey properties per year. With over a decade of experience...
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    Katie Rogers from Santa Barbara, California
    Replied over 4 years ago
    Although I can appreciate the usefulness of these strategies, it is really hard to make them work in a town where the median house is 1 million dollars. It is hard to find enough family and friends to fund such a deal just because the total amount is so big. Same with the private or hard money lender deals. Any suggestions?
    Matthew Orf Real Estate Investor and REI Coach from Kansas City, Missouri
    Replied over 4 years ago
    Hi Katie, I would recommend looking at a different market. If you find another market that fits your finances, you can connect with investors in that area who are familiar with the team members you will need to make your investment happen. For exampl you can purchase a buy and hold property, have the team in that area fix it up, the team in that area can find the tenant and mange the property for you. (If it is a buy and hold). Turnkey investment companies are becoming more and more common and allow investing outside your geographic area much easier. Feel free to contact me if you would like more info about what I am doing in my investment market.
    Cornelius Charles Investor from Oxnard, California
    Replied over 4 years ago
    Hi Katie. We live down the road from you in Ventura County. Our median price is in the mid-600s (last time I checked), and although that’s still not the million dollar range, we were able to find at least two hard money lenders that agreed to do 100% financing (purchase and rehab) for our current project. On top of that, I reiterated to them several times that this is our first project, but they felt the numbers were good enough to be comfortable. They both wanted a huge cut of the profit and luckily we were able to find a private investor with better terms, but at least we knew we had a back-up plan if nothing else. I would suggest that if you find a good enough deal you should be able to find a lender. Just for reference, our purchase price was 500K and it appraised as-is for 650K. Feel free to PM me if you would like the contact info for a couple of the hard money lenders, although I cannot guarantee that they lend up in Santa Barbara, but it wouldn’t hurt to ask.
    Curt Smith Rental Property Investor from Clarkston, GA
    Replied over 4 years ago
    Katie, I’m in a low priced houses, strong rental market, so down hill is do do buy and holds. A todo of launching into a successful business is figuring out what is down hill AND has low competition. Down hill and everyone is doing the same thing doesn’t make sense either. In my market I tell new folks, think of what no one else is doing. Ask at all the REIAs in your area, what the majority say they are doing, don’t do that!! LOL Do what they aren’t saying. In my market that advice would be: instead of nicer 3/2’s, 4/2.5’s, go for the older 3/1’s little brick ranch with a carport. Cheaper rehab, and they will sell or rent just fine. No need to be the 25th bidder on the nice houses. Look for ugly, put a bit of lipstick on it and if you price it right it’ll sell to a happy couple. In high priced markets I’d say be an agent, in low priced markets be a landlord. Even in high priced markets, I bet there’s plenty of stressed sellers stuck underwater etc. I suggest doing a direct mail campaign to expired listings, delinquent taxes… Typically they are underwater or too ugly to sell. Offer to take the house subject to, or lease option, then find a tenant buyer using a lease and option to sell down the road when equity has returned to the homes. Just ideas for you.
    Anje Walfoort from Redding, CA
    Replied over 4 years ago
    Katie Rogers, Where do you live that the median house price is so high? Have you looked at other markets?
    Katie Rogers from Santa Barbara, California
    Replied over 4 years ago
    Santa Barbara, CA. One of my goals is to change the unhealthy landlord-tenant dynamic in this, my little corner of the world. Of course, I am aware of other markets, however there is nothing significantly less within 30 minutes drive anyway. I would have to travel at least a hour to find a half-price market, and probably at least two hours to find a market comparable to the national median.
    Richard Guzman
    Replied over 4 years ago
    Very good article and good points to live by — but the only thing is every HML I talk to always requires some funds from the investor?!?!? Are there 100% HML still out there?
    Lisa DuFaux Investor from New Port Richey, Florida
    Replied over 4 years ago
    Richard, yes, there are still hard/private lenders who will do 100%. I am fortunate enough to have found one who not only lends me 100% of purchase price but will also lend rehab funds as long as the total is under 70% of ARV. Unfortunately, I don’t know a magic formula for finding these people. When I look at my situation, I guess it comes down to networking. A former co-worker (and fellow investor) met him at a workshop on private lending. He introduced us and the rest is history. Just tell everyone you talk to that you are a real estate investor and you never know what may come of it!
    Thomas P. Agent/Investor from Knoxville, TN
    Replied about 4 years ago
    Lisa, Does this private investor have additional funds to lend? I own several properties in Tennessee and I’m looking for additional funding. Let’s connect either way. I can share a source I have with you as well.
    Kevin Andrews Investor from Seekonk, Massachusetts
    Replied over 4 years ago
    Thanks for the article Nathan. I’m looking at some properties now that I don’t have a lot of money to put down but with these few strategies explained I feel confident that I can make a deal happen and get my feet wet.
    Replied over 4 years ago
    I’m in the process of closing my first investment property, and i’m already getting excited about the next one. I used conventional financing. How long do I need to wait before I can purchase another investment property? The hard inquiry will stay on my credit report for 2+ years, right?
    Don Alberts from Frankfort, Illinois
    Replied over 4 years ago
    Thank for the different strategies and creative thinking. Have a special day. Don
    Mohammad (Asad) Asaduddin Wholesaler from Houston, TX
    Replied over 4 years ago
    Thanks for the different strategies Nathan. I have found that the simplest is the private lender and I do have on who trusts me. But sometimes he has already lent it out to others. I am looking around for additional sources following your advice “keep at it”.
    Tangala Williams from Tampa, Florida
    Replied over 3 years ago
    Great article. I would love to partner with a hard money lender. I could learn so much. I just wanna start somewhere