No Money Down (NMD) - Sinner or Saint

John Paul


When I started property investing 5 years ago I did it the old fashioned way, released money from my home, bought a couple of terraced properties, waited for them to increase in value and then remortgage. Then around 2 ½ years ago I stumbled on No Money Down or NMD. I thought all my Christmas’s had come at once. I couldn’t believe that you could buy property this way. There had to be a catch! But there wasn’t, I just kept buying and before you knew it I’d bought 35 houses within a year.


Then the unthinkable happened, the credit crunch and the demise of Mortgage Express, I was devastated. What I thought was my god given right to buy properties in this way, was snatched away from me, just as I was planning my early retirement (I was only 29 at the time)

Saint

There’s a saying up North, “Owt for Nowt” and not a truer word can be said of NMD. Its only human nature that if we can gain a lot, by not putting much in, we’ll take it.


Myself and my family have done pretty well from NMD so I have to support the idea. Although most of my NMD were done through Mortgage Express and not through creative financing that may or not be ethical.

Sinner

For me NMD has caused a lot of problems for investors. I feel that it has brainwashed investors into thinking this is the only way to purchase investment property and that putting partial or full deposits into a deal is a sin. However for new investors, this is all they know.


My concern is that investors are missing out on great deals because of the mentality that is forced upon us by the property media.


I recently had an investor turn down a deal that produced £305 positive cash flow per month because he had to put 5k into the deal (including ALL fees).


He was a wealthy investor and cash rich, he was just of the opinion that if NMD exist then he’s not going to buy properties any other way.


Now 3 or 4 years ago before NMD, if you were offered a 14.7% yielding property at 15 – 20 % below market value, you would have snapped their hand off and paid the full deposit. Now investors have the mindset that if in order to purchase property all they are prepared to spend is a few hundred pounds or even want cash back.


Don’t get me wrong, if you haven’t got the money you simply haven’t got it, and NMD is the only option you have to purchase properties. However if you haven’t got any cash, should you really be in property investing?


What happens if major repairs are needed or if the tenant decides not to pay? How will you cash flow the situation if you have no savings, you can’t just say ‘I’ll cross that bridge when I come to it’ that’s not responsible investing.

Is it Ethical?

This really is a grey area and I can’t reach a definitive conclusion on this topic in only a few short paragraphs, but I’ll certainly try my best.


Ethics is defined as ‘being in accordance with the accepted principles of right and wrong that govern the conduct of a profession’


Now your solicitor or conveyancer might agree with what your doing, your accountant say its okay and you obviously think its fine, but does your mortgage company? Of course not, hence having to use designated solicitors and all this cloak and dagger stuff. Has any one been totally upfront and honest with the mortgage companies and still been allowed to buy properties in this way? I doubt it. Therefore how can we claim we are being completely ethical if we’re not being honest?


Now before you all start calling me Judas or traitor, I must re-iterate Im a fan of NMD and as long as it’s legal, I’ll continue to purchase properties in this way. I’m just open minded and not blinded by the media.


I am of the opinion that NMD was good while it lasted and have certainly served its purpose over the last few years, but like all good things it must come to an end. Over the next few years we will see a clamp down, in various forms on the NMD and the return to deposit purchasing. We just need to be more open to the concept that our cash might not go as far as it once did.


"The secret of success in life is for a man to be ready for his opportunity when it comes."

Benjamin Disraeli

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