I had been initiated into the "no money down" crowd by buying my first house under the VA loan program. I had paid no money down and gotten a nice little house which I now called home. Many years went past and now eight years later, I was married and thinking about getting a house as investment.

I had little money saved and definitely not enough for a down payment. Prices had gone up and houses cost a lot more now than in previous years. Still, somehow I was determined to get a house. I did a lot of reading and studying how others did so well in real estate investing. I needed a "no money down" deal. They are not easy to find however.

My first paid real estate seminar

One day I decided I just had to go to a relatively costly weekend seminar on how to buy single family houses. It was way out of my reach cost wise, but I decided I needed some property and wanted to do real estate investing part-time. Against my wife's wishes I charged the seminar cost on my newly acquired credit card.

I knew it was a big risk as how much can you learn in a weekend? But all I wanted was one good idea that I could use and the seminar would be worthwhile. I soaked up everything I could at that seminar and asked a lot of questions. I wanted to be prepared just in case I found a "no money down" deal.

There was something at the seminar that really captured my attention besides the fact of buying houses. It was the use of mortgages. Because it involved money and real estate you could control by a piece of paper it seemed like it had even more merit than just buying real estate property.

It was a hectic weekend and a lot of thoughts went through my mind. It was a lot to grasp and surely I probably would never use all that information, but I got the basic idea of what was involved. If nothing else it would give me the motivation I needed and that was a large part of why I wanted to attend.

The quiet after the storm

Things were quiet the next three weeks or so. Then I received a call from a close friend who asked me if I wanted to buy her house. She was getting a divorce and just wanted to get rid of it. It was only a year or so old and was a nice house with a big back yard and plenty of flowers and landscaping.

The risk taking begins

Me being the risk taker that I am, immediately answered back saying "yes, I'll buy it" not knowing how I could ever do it with my meager salary and only a few extra dollars to my name. I wasn't even thinking about a "no money down" deal at that time.

Ok, now it was time to get down to business. What did I learn? How could I pull this off? Where would I get the money? These and many other questions rang in my mind as I started thinking what was I going to do.

The situation turned out somewhat in my favor as the owners didn't want any money – just to get rid of the house and loan. They were both going to move and go their separate ways. The payments were high but maybe there was something I could do to handle that. Now let's see.

Things were looking better and maybe it was not such a bad deal after all, even with the high payments. They apparently had little or no equity in the house so that was a help to me. I knew that with the small amount of equity, if any, this was a risky buy at best, but I was game for the try.

The FHA is my friend

It turned out they had an assumable FHA loan, which was greatly in my favor. In fact it hinted of a "no money down" deal if I were lucky. I was more interested in mortgages right now since the house payments were high. So I decided I would create a wraparound second mortgage, an AITD.

Lease Option is my choice

I advertised the house for lease with an option to buy. That meant a potential renter had a lease with an option to purchase the house. I worked out a deal where the tenant (former owner) would stay there two months rent free and show the house to any prospective renter. My job now was to find a potential buyer in those two months.

Find someone to lease to

During the two months the previous owner stayed there I advertised and interviewed several prospective tenants. I finally settled on a couple who were qualified (in my opinion) with a good job, good credit, and good references.

Within about two months they signed the lease and moved in. That was easy and I owned the house with a big payment. I arranged the rent payments to be high enough to cover the cost of the original mortgage with a little extra as monthly profit.

Working out some money details

Since I had to cover the first two months house payments while looking for a tenant and letting the original owner stay there rent free I decided to borrow the money from my credit card. That little bit of monthly profit I was making off the rent was used to pay back the credit card loan.

I set up a longer than usual option period to cover the cost of my credit card loan so it would be all paid off without any money from my pocket. I had enough to cover the first two months house payment, but what the heck; I wanted to use someone else's money hence the credit card cash advance.

Option to buy was exercised

About three years later the renters decided they really wanted to buy the house so they exercised their option. They bought the house. My original loan was paid off, my wraparound mortgage I had created was paid off, and I was about $19,000 richer.

It wasn't a lot, but not too bad considering the main thing I did was paperwork. I had used a standard Real Estate Sales Contract and added some conditions for the option. I used a standard wraparound real estate mortgage form, and figured what the payments would be. I found buyers and now was collecting a little money in the process. Looking back it was easy.

A few no money down details

That felt good. The only money out of my pocket was advertising for renters or buyers. My down payment was letting the original owner (one of them) stay there rent free for two months in which I covered the house payments during that time with a credit card cash advance. That loan was later paid back from monthly profit from my wraparound mortgage.

To be technical it was an AITD. That's an All Inclusive Trust Deed. A 2nd Trust Deed in my case, as trust deeds are used in California instead of mortgages. That type of trust deed is normally much more common in commercial real estate transactions.

In my case, however, it served perfectly and I have used them several times since then. The state you buy a property in determines whether a trust deed or mortgage is used. Although similar in purpose, there are some differences in trust deeds and mortgages.

I was now a real estate investor

I had now become a real estate investor having bought and owned a second house for almost three years. And I did it with "no down payment". Had I not gone to that real estate seminar about three years earlier, against my wife's wishes, would I have bought that house? I doubt it, especially the fact of buying it with no money down.

Would I have known about AITD's or wraparound mortgages? I doubt it, especially enough to create my own AITD. Would I have been able to figure out how to make an essentially break even real estate transaction make me almost twenty thousand dollars with little work and money? I doubt it.

What does the future hold?

Would I still be investing in real estate some twenty-two years later – maybe? I never give up. Nothing stays the same and it's now practically impossible to use some of the techniques I used before in buying houses.

There have been income tax changes that have changed things regarding installment sales, which carrying the AITD was considered. The VA and FHA have changed some rules regarding assuming loans and down payments. And who knows, there probably have been other changes too. But as they say, "where there's a will, there's a way."

But I have more to tell about my "no money down" escapades. Look for my next "no money down" adventure in this series.