Zero down financing can be accomplished either through a single 100% mortgage, or by a combination of two mortgages (sometimes referred to as a piggyback mortgage). The investor gets the significant benefit of not having to bring a down-payment to closing. This might allow an investor to take advantage of a buying opportunity without selling another property, stocks, or other investments. The investor also maximizes the amount of interest that can be deducted for tax purposes.
On the downside, many lenders do not offer 100% financing for properties that are not owner occupied. Those that do may charge higher rates which partially offset the benefit of not having to pay a down payment. It is also important to take into consideration the fact that assuming a higher level of debt will increase your monthly payment, making it more difficult for your property to generate a positive cashflow on an ongoing basis. This is a particularly important consideration. There is no free lunch; pay now or pay later.
Zero-down is a good option for many investors – but just because you can buy a property for zero-down doesn’t mean that you should, regardless of what the gurus tell you.
The Author: Chris Smith is a real estate investor, founder of an online reference for investors and real estate professionals and has published articles in Corporate Finance Magazine, Euromoney, and the Business Journal Network. More about Chris Smith.
