A Dozen Ways to Buy Real Estate With Little or None of Your Own Money
Thursday, May 17, 2007
By Dennis Henson
Is it possible to buy property for no money down? Of course--there are many ways to totally finance the purchase of real estate. It just takes some imagination and some O.P.K. (Other Peoples Knowledge). Here are twelve great ways to buy property using very little or none of your own money…
#1 Owner Financing
A fast and easy way to acquire financing is by persuading the seller to finance the purchase. Look at all these benefits:
· No Credit Check
· No Loan Apps
· No Banks
· No Waiting
· No Closing Costs
· No Stress
· Better Interest Rate
· None of Your Own Money
The only problem with this tactic is that it is sometimes harder to achieve than some of the more conventional methods. But it can be done if you find a truly motivated seller.
#2 Partners
Another great way to purchase with none of your own money is by using partners. This too has many benefits.
· No Credit Check
· No Loan Apps
· Less Waiting
· None of Your Money
· Better Rates
· Easier to Find
But this tactic has a few more drawbacks—such as:
· Some Paperwork
· Banks Maybe
· Some Closing Costs
· Stress
· Less Profit for Yourself
How would a partnership work? You have to make a plan that will be good for you and attractive to someone with money. One way could be you do all the work and your partner provides all the money. Now you only have to decide how you will divide any profits the property produces.
Who might be prospective partners?
· Anyone with money
· Professionals--Doctor Dentist Accountant
· Friends
· Neighbors
· Co-workers
· Church
· Club Members
What would attract a partner?
· Good deals
· Tax breaks
· Profits
· Prestige
Just be sure to get everything in writing before you start the deal. And please consult a good real estate attorney to help you organize the partnership structure and the partnership agreement.
#3 Investors
Using investors is also a great way to finance your real estate deals. You just pay them for the use of their money and you get to keep more of the profit than with a partner.
What will attract investors to your deals?
· Security
· A good return on their investment
· Liquidity
What are some ways to find investors?
· Run ads in papers and tabloids
· Put on your business card
· Put out brochures in professional offices
· Put out brochures in public places
· Go to investment clubs meetings
· Talk to everyone you meet about investing
· Search the web
· Do a web site
An investor ad might read…
Potential Earnings of 12%-18%
Secured by Real Estate, Short term 3-12 months
Call for Details 817-371-8658 or go to VMIProperties.com
Again be sure to get everything in writing before you take any money from an investor and be sure to consult a real estate attorney to help you with the paperwork.
#4 Subject To
What is “Subject To”? “Subject To” means that you purchase a property--leave the existing financing in place. The purchase contract would specify that you are buying the property “Subject To” the existing first and or second mortgage.
Is this legal? My attorney say "yes" but check with your attorney. Is it wise? That depends on how you write the terms of your agreement with the seller. You need to be sure that you will be able to pay that mortgage payment on time every time. As long as you pay on time everything should go smoothly. But you risk loosing your equity should you fail to make the mortgage payments.
Here are a few of the benefits of the “Subject To” tactic.
· No Credit Check
· No Loan Apps
· No Waiting
· No Closing Costs
· Does Not Show up on Your Credit
· None of Your Own Money
BUT
· A Bank is involved
· There can be stress
· Proceed very carefully
#5 100% Loans
Are 100% investor loans available? Yes--but they are expensive and not too easy to obtain. Even with these draw backs 100% loans are frequently used by established investors to buy property.
All You Need is:
•Excellent credit
•A few profitable years as a successful investor behind you
•A good friend for a mortgage broker
#6 Hard Money
What is “Hard Money”?
A Rough Definition might read:
A no red tape Real Estate and Construction loan where the property is used to guarantee repayment. In the event of a default--“Hard Money” is repaid by the borrower with the collateralized property.
My definition is a little more easily understood. “Hard Money” equals HARD TERMS.
Hard money loans commonly have:
High origination fees (Points)
High interest
High Early payment penalties
Low LTV limits (Loan to Value)
Short terms
High fees to renew
Specific areas
Hard money lenders are not usually concerned with you or the condition of your credit. They are concerned primarily with the value of the property. If you default on the loan-- they may recover their investment and much more.
Even though this may seem harsh—“Hard Money” lenders can be a good money source of capitol —IF you need the money quickly and your deal will support the costs.
Some advantages that these lenders may offered include:
No credit check
Quick closings
Interest only payments
Funding of repairs
None of your money
One “Hard Money” lender offered the following terms on the date of this writing:
Loan amounts from $50,000 to $2,000,000
Rates from 12.99%
Term from 6 to 24 months
Acquisition, Rehab/Repositioning, Cash Out
LTV—up to 70% of after repaired value
Points—from 3%
Use equity in other properties as down payment
Quick Closings—within 2 weeks from receipt of file
Lending area—Texas metropolitan areas, Colorado…
Amortization-interest only
Not credit driven
“Hard Money” loans are not hard to find—just search the internet. Here are a few:
•Starwood Mortgage
•InvestWell
•HardMoneyFunding.com
•HardMoneyDirect.com
•BarclayAssociates.com
•UnionHomeLoan.com
•Bmortgage.com
#7 Buy and Sell a Contract
This tactic takes a little more ingenuity than any of the others to this point. You will need to be sharp enough to tie-up Property with a just a note. This will give you some time to find and sell that contract to another investor or buyer. At the closing the title company will treat you as a flaw in the title that must be fixed (paid) to complete the transaction.
#8 Auctions
Find a motivated seller and tie up the deal with a “Note” then proceed to sell that property through a real estate auction. If the deal is good enough—you can earn some serious money in a short time with this tactic.
Also, some property auctions such as “HUD” (Housing and Urban Development) will allow you to tie up the property you have won at auction for a small deposit. You may need to use one of the next tactics to get that money. After you have the property tied up—you proceed to sell your interest to another investor or buyer.
#9 Credit Cards
Another great way to avoid using your own money for buying property is by using Credit Cards. You never know when a great deal will pop up and take my word great deals must be grabbed quickly or they will disappear. A quick way to take advantage of these deals is by having a large available balance on a number of credit cards.
Here is what to do…
•Apply for and get cards
•Always pay on time
•Keep balances under 30%
•Use all your cards
•Call every quarter and ask for increase
•Also ask for interest rate decrease
•Apply for more cards
•Continue this process
There is no limit to the amount of money available as long as you pay on time and keep using the cards and requesting more.
Have your Credit Cards ready for emergencies and you can land some great deals.
#10 Sandwich Lease Options
Are Lease Options Legal? Yes they are but some states have guidelines. Just be sure to check with your Real Estate Attorney before you get started.
What is a “Sandwich Lease Option”?
Let’s take this step by step—an “Option” is the right to do something. You may purchase the right to buy a certain property on or before a specified date. For example I may give you $1,000.00 for the option to buy one acre of land for the price of $20,000.00 before the end of this month. I do not have to buy the property--but if I don’t buy it you get to keep the $1,000.00 and the property. You do have to sell me the property for the $20,000.00 if I choose to exercise my option.
A “Lease” is when you agree to make payments to use something for a period of time. I might lease your car for three months for $400.00 per month. At the end of the 3 months you get your car back and I start walking again.
A “Sandwich” is two pieces of bread with a piece of ham between each slice. Well that’s a “Ham Sandwich”. A “Sandwich Lease Option” is when I pay you for the option to purchase a piece of property and sign a lease to use that property during the time of the option. If I then sell my option to someone else and sublease it to them—that is a “Sandwich Lease Option”. I am sandwiched between you--the seller and my buyer.
By setting up this tactic advance you have another great way to control property without using any of your own money.
#11 HELOC
A HELOC is a Home Equity Line of Credit. Many banks offer their customers the opportunity to take out a second loan on their dwelling. This is providing that they qualify for a loan and that the home has sufficient equity to support the loan.
Here is the nothing down tactic.
• Buy a home well below market
• Move in
• Get a HELOC based on the market value
• Real Example
$158,000 Purchase Price
7,000 Down (use your credit card)
230,000 Appraised Value
32,000 HELOC
25,000 Net
Not only did you not need your own money but you added $25,000.00 to your cash flow.
#12 Notes
A “Note” is an agreement to pay back a loan. Most notes specify:
The amount to be paid back
An interest rate
The interval of and amount of each payment
And by what date the loan is to be totally paid off
A note may be used to pay a seller a down payment. Notes may also be used in combinations with most all other tactics. Some examples of combinations are:
Note and Owner Financing
Note and Option
Bank Loan and Note
"Subject To" and Note
Use Your Imagination
Using notes is a great way to buy property without using your money.
Review
A Dozen Ways to Buy Real Estate With Very Little or None of Your Own Money
1. Owner Financing
2. Partnerships 50/50 60/40
3. Investor Loans
4. Subject To
5. 100% Mortgage Financing
6. Hard Money Loans
7. Buy and Sell a Contract
8. Auctions
9. Credit Cards
10. Sandwich Lease Options
11. HELOC
12. Notes & Combinations
Continuing Education
Listen To CD’s While Driving & Read (at Home):
•“Nothing Down” by Robert Allen
•“No Money Down” by Carlton Sheets
•“Are You Dumb Enough to be Rich?” by William Barnett
•Tapes and CD’s from Nightingale Conant
I hope this article will help you in your quest to build wealth through real estate investing. For more articles on real estate investor training, visit my website at www.dennisjhenson.com. Also on that site, you may sign up for free reports, articles, and e-books and find free forms, documents, MP3 downloads and much more. Also visit www.turbo-bidder.com for a great real estate investing tool.
Thank you,
Dennis Henson
Rachit