Can You Buy Property
With No Money Down?

Question: Is there a way to purchase a home with no money down, paying on an interest-only mortgage, then reselling the property for a profit or renting it out? I am contemplating whether or not I should participate in buying and selling real estate.

-- Rachel, Orlando, Fla.

Rachel: Yes, you can buy real estate with little or no money down. It's done quite frequently. However, there are important caveats.

To get the no-money-down loans (which may or may not be interest-only), you must be an owner-occupant. That means that you need to live in the property yourself. Of course, after a period of time, perhaps up to two years, you can then convert it to a rental or investment property. Further, to get these loans you must meet strict credit and income requirements -- they are not available to everyone.

On the other hand, seller financing is still available. In this situation, the seller handles the "paper" for you, allowing you to buy with little or no cash. And here, you can rent out the property immediately.

There are lots of opportunities when investing in real estate -- and lots of traps, too. I suggest you look into it further by reading books on the topic and talking with people who already have started investing this way.

Question: Is there another way to qualify for the one-time capital-gains tax exclusion on a home sale if I lived in the home for six years, then leased it for 10 years up to the present? I asked an Internal Revenue Service representative who said the only way I could qualify was to move back in and live in the home for two years.

-- Lynn, Port Orange, Fla.

Lynn: The rules for capital-gains exclusion are quite explicit. The exclusion allows a seller to forgo paying capital-gains taxes on up to $250,000 (or $500,000 for a married couple) of profit from the proceeds of a sale. You must have lived in the property for two of the past five years. Simply owning it is not enough. If you were leasing it out for the past 10 years, then presumably you did not live in it during that time -- and in that case, don't qualify for the exclusion. The agent is right: You would need to move back in for two years.

-- Mr. Irwin has more than 25 years' experience as a Los Angeles-area real-estate broker. He is the author of more than two dozen books about real estate and is recognized as one of the most knowledgeable writers in the real-estate field. Mr. Irwin's most recent books are "How to Get Started in Real Estate Investing" and "How to Buy a Home When You Can't Afford It" (McGraw-Hill, 2002).

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