For new investors, access to capital often poses the largest obstacle to entering the commercial real estate world. In other words, most investors don’t just have hundreds of thousands of dollars sitting around for a down payment on a commercial property.

Fortunately, you still have options to buy commercial properties with little to no money, and I want to show you how.

In the following article, I’ll outline five no- to little-down options for buying commercial real estate.

Option 1: Get Your Real Estate License

At first glance, it may not appear that getting your real estate license will help you buy commercial properties, but this is actually a great option for new investors. Here’s how it works:

· Step 1: Get your real estate license.

· Step 2: Begin looking for commercial deals. As you look, let your network know that you’re actively looking for investors to bring into deals. Once you find a property, you’ll have an established list of potential investors.

· Step 3: With a deal identified and investors confirmed, negotiate your commission on the purchase of the property. As a licensed real estate agent, you can legally receive a commission from the seller while you acquire the asset (the seller would pay a commission to another agent if you weren’t acting as the buying agent yourself).

· Step 4: If the lender requires 20% down, a 3% commission on the transaction can translate into a 15% equity stake for you in the deal, assuming you roll your commission proceeds directly into the deal.

Without putting bringing any money out-of-pocket – just providing your time, energy, and expertise – the seller basically provides you money from the transaction to invest in the deal.

Want to connect with other commercial real estate professionals in your market? Drop us a note!

Option 2: Lease-to-Purchase Deals

The next option involves lease-to-purchase deals (a.k.a. rent-to-own). This process works best with a vacant property. If a seller agrees to it, you formalize an agreement where you sign a long-term lease, with a portion of all of your lease payments applied to the purchase price.

Next, you can either occupy the vacant property with your own business, making rent-to-own payments from your operating income. Or, you can sublease the space to other tenants, using their payments to you to make the rent-to-own payments.

At some point (as dictated by your negotiations and specific agreement), the purchase option will come due, and you’ll need to close on the property. But, by applying a portion of your payments to the purchase price, you gradually build equity in the property – relieving you of needing to pay a large down payment as a lump sum when executing the purchase option.

Feel free to drop us a note if you need help structuring a lease-to-purchase deal. This can seem complicated, and we’re happy to help!

Option 3: Subject-to Deals

Subject-to deals offer another great opportunity to buy a commercial property with little to no money. These deals are common in distressed financing situations, when a property owner is at risk of defaulting on his or her mortgage.

Rather than default or go through the bankruptcy process, many investors in these situations simply want to walk away from the deals. As such, you can purchase the property by assuming the current financing, meaning you buy it subject-to the current mortgage.

However, before executing this strategy, I recommend reviewing the current loan documents with a real estate attorney, as you’ll want to thoroughly understand exactly what sort of financing you’ll be assuming. Additionally, not all properties can be acquired this way, as some lenders include a due-on-sale clause in loan documents.

Commercial real estate professionals can help you identify subject-to investment opportunities in your market. Need help connecting with reliable ones? Drop us a note!

Option 4: Request Seller Financing

You don’t need to use a traditional lender to purchase a commercial property. While not overly common, some sellers will offer to provide you seller financing to purchase one of their properties, for a whole variety of different reasons.

Simply put, the seller carries the debt on the property when you buy it, and you make your monthly loan payments to him or her, not a bank. And, some sellers who agree to this sort of deal will allow for little to no down payment.

Eventually, the seller’s debt will balloon, and you’ll need to refinance the property on your own. But, by this point in time, you’ll have established equity in the property, potentially preventing you from needing to pay cash out-of-pocket for a down payment with a traditional lender.

Option 5: Have the Seller Cover Your Down Payment

This final option may be one of the most creative ones out there, but it’s a great strategy in the right circumstances: you ask the seller to pay your down payment for you.

But that’s crazy, right?

Yes and no. For this to work, you’ll need to pay well above asking price, but the up-side is you won’t need to come out-of-pocket on the deal (NOTE: getting the property to appraise for the new asking price can be tricky, but it’s not impossible, especially if you understand the commercial property value formula).

Here’s an example of how this could work. Assume the seller’s asking $500,000 for a property you intend to owner occupy, with a bank willing to only require 15% down. If the seller agrees to sell for $600,000 – instead of the initial $500,000 asking price – and gives you $90,000 to close ($600,000 x 15% = $90,000), you’re solid. In this situation, the seller gets an extra $10,000, and you close without coming out-of-pocket.

It should be obvious, though, that the associated drawback of this strategy is that the loan – and, therefore, monthly debt service – will be larger.

Final Thoughts

When you’re first starting as a commercial real estate investor, money’s likely tight. Solution? Use other people’s money!

Many people want to invest in commercial real estate but don’t have the time or experience. If you can become an experienced and trustworthy commercial operator, capital will naturally flow to you, providing you opportunities for deals.

At the end of the day, the most successful real estate investors and developers are also the most creative – they find ways to make deals happen, often without needing to contribute a significant amount of their own capital.

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We recognize that, even after outlining the above information, tackling the challenges of entering the commercial real estate world can seem daunting.

That’s why we’re here to help. The Pocket Broker team lives and breathes commercial real estate, so drop us a note to see how we can help you achieve your unique objectives!

5 Ways to Buy Commercial Property With Little to No Money