Realtors- Can You Really Buy Property With No Money Down? – Real Estate Investing
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Let me give you an example of a zero down deal so you’ll understand the structures better and the ins and outs of zero down real estate investing.
“Dear Joe, how is it possible to buy with zero down? I know an agent here in Philly who lost his license and went to jail last year because they were doing zero down deals. Apparently, they would raise the price of the house and get a kickback at closing to cover their down payment. They took all of the money and then the houses went into foreclosure. Can you really buy with no money down or are you teaching the same method this guy was using?” – Michelle in Oklahoma
Joe: Well, Michelle, what he was doing is illegal. He’s committing loan fraud because he’s lying to the lender. He’s raising the price of the house, which is harder to do these days because there’s a lot more scrutiny for appraisers. But still, it’s possible, and especially when the markets change, those types of things can happen. But they’re also getting new loans on the property and then they’re pulling money back out and creating shadow seconds. In other words, what they’re doing is defrauding the lender. Obviously you don’t want to do that.
Joe: I have a hierarchy of structures that I use from best to worst, depending on the type of deal that it is, what the seller needs, what they’re trying to accomplish and what you’re going to do with the property after you get it.
Joe: The hierarchy is “Subject-To” at the top, then “Multi-mortgage”, then land contract or contract for deed (it’s the same thing – just different names in different states – if you’re in a trust deed state its contract for deed, and in a mortgage state, its land contract). Then there are lease options, and then, assignable cash purchases. Those are the five zero down structures that you can use and in that order, based on the type of deal that we’re going after.
Joe: Let’s take just one of them. Let’s take “Subject-To” because that’s the one I like best and I think is the strongest. It’s at the top of the hierarchy. It’s very easy to use with no risk, no credit, and no money down; it’s really a nice process.
Joe: Basically, Subject-To is when, for example, you have a property worth $150,000 and they owe $145,000 on it now. If you were to sell it for them as an agent, it would cost them $10,000-$15,000 to come to closing, to be able to pay the commission, for any negotiation, repairs, the title and all of that stuff – it would cost them that much to sell that property and they’re not in a position to do that for one reason or another, or maybe they just don’t want to.
Joe: They can’t pay a realtor to sell their property for them. We all know that about 85% of for sale by owners don’t succeed, so the likelihood is that they’re not going to sell it for sale by owner and save the commission, either. So they don’t have a whole lot of choices.
Joe: If you go to them and say, ‘I’d like to buy this property. Here’s how I can structure the deal.’ They owe $145,000 on it. They’re making payments on it. A lot of these interest rates they have are still pretty good. They have interest rates of about 6-7%. Some of them have ugly interest rates and you have to deal with those in a little different way, but most of the properties out there that people need to sell but can’t sell because they don’t have the equity have decent interest rates. And so, what you’re doing is you’re taking over their property.
Joe: There are a lot of different things you can do with it, but the way you’re going to take it is that you’re going to have them deed you the property. You’re not qualifying for the loan or applying for the loan, you’re not pulling your credit, and you’re not giving them any down payment – you’re going to just start making the payments.
Joe: Basically, what I like to do is ask them to make the next 30 day payment. So, if their payments are due on the 1st, I have them pay on the 1st. That gives me 30 days to find a tenant or a lease option buyer to put into the property before I have to make the next payment.
Joe: Now, if you’re brand new at this, and you don’t want to take the risk that you’re going to have make a payment without having a tenant (and I wouldn’t suggest that you do this if you’re brand new anyway because until you’re positive that you can fill those properties because you don’t want to take on that debt) the way you do it instead is to put together a purchase agreement.
Joe: I have a purchase agreement for Subject-To deals, and what it does is it gives you 90 days to find a buyer that you can assign the deal to. You don’t even have to close it. You don’t have to have it deeded to you at all – you could have it deeded directly to another person who gives you an assignment fee to buy that property, or you can buy the property and you can sell it on a lease option. That protects the seller a little better, and I like that way better, plus it builds your wealth – it builds your portfolio of properties, which is something that is really important to be doing if you want to have a good retirement.
Joe: As agents, most of you don’t have retirement plans, and when you stop working or stop making commissions, you stop making income, and that’s not a good situation to be in. You really need to own rental property – every agent should own a bunch of rental property – at a minimum, two to five pieces of rental properties; everyone should own that. And I would go so far as to say that it’s a better investment than the stock market.
Joe: If you look at the leverage position, and if you buy good, solid, stable properties that you can rent for the long term and don’t have negative cash flow, it’s a great way to save for the future. It’s a great way to leverage your money. And, there’s no tax implications on the money that it’s making. In fact, it saves you money on depreciation, so you want to keep those properties.
Joe: In summary, on Subject-To deals, you take the properties, they deed them to you, and you have the property – that’s a zero down deal – it’s as simple as that.
Joe: Multi-mortgage gets a little bit more detailed. Land contract and lease options are a little bit different. I spend two or three hours at my buying events teaching these structures, plus it’s in all of my programs, because this is the core material of what I teach. So, I hope that helps. Good luck with it.