A Zero Down, No Credit Deal Structure You Can Use Today

Read Transcript for “A Zero Down, No Credit Structure You Can Use Today”

 
 
Getting people to come to you and accept the offers you make to them can be discouraging when you have bad credit or not enough money for down payments. Here’s an example of a real estate investing structure you can use to get a win-win-win deal for you, the seller and the buyer that works:
 

“I’m having trouble getting started with my low credit scores and my lack of money. Everything is ‘Join this’ or ‘Join that’; I don’t have money to join anything right now, let alone, know what to join. I’m thinking that it might be best if I were to concentrate on interest only mortgages on rental homes. That way, I can build up my reputation while I learn about other methods while I earn ‘join money’. I already have one rental home. It doesn’t make me money but it’s my first. I’d like most of my business to be based on rental properties but first I need to clear my credit.” – Anthony

 
Joe: Don’t worry about clearing your credit. That’s not important. What you need to worry about is putting deals together. If you put deals together, you’re going to make money, and if you put deals together the way I’m teaching, without credit and without down payment, you’re going to be a lot better off.

 
Joe: Let me just give you an example of a zero down structure so that you can kind of understand what I’m talking about here. “Subject-To” – this is a pretty easy structure to understand. Let’s say I’m going to take the property subject to the existing loan, and what this means is – let’s say we’ve got a property (and I’m going to use the value of $100,000 because it’s just a round figure) So let’s say I’ve got a property that’s worth $100,000. It’s got a mortgage on it of $90,000 and they have to pay $750 a month for this mortgage. If they go to a real estate agent and try to sell that property, it’s probably going to cost them money to sell that property because they’re going to have to pay the real estate agent and they’re going to have to come down in price.

 
Joe: At best, they’re going to break even, and at worst, they won’t ever sell it at that price. It is also going to take them a long time to move it, whereas you can take that property almost immediately if not right then and there, depending on your situation. What you can do for them is take the property over subject to the existing loan. You’re not going to give them any money – you’re not going to give them any of your equity – they don’t have any equity. That $10,000 isn’t real equity because they would lose that in negotiating when selling their property and when paying a real estate agent to sell it. They know that when you break that down for them. And if they need to move that property quickly, they’re going to be more motivated to make this happen.

 
Joe: What they’re going to do is deed you the property – you take the deed to the property. Now you’re the owner of that property. You have to pay off this loan and the loan is not in your name. You didn’t qualify for the loan – they’re still on the hook for the loan – if you don’t make the payments on it, their credit is going to be damaged. So you’re going to want to do the best you can for them but you’re also going to want to make them aware of the fact of what you’re doing, how you’re doing it and what their risks are. You give them the disclosure that I give you in my “Safety Net Method” program which is part of the “Push Button Method” package that I’ve got (that’s the PushButtonMethod.com if you’re interested). And you make them aware of what their risks are – and most of the time they’re going to be willing to take that risk if they have enough motivation to make that happen.

 
Joe: We do Subject-To’s all the time and getting the deed to that property makes you the absolute owner of that property. Now, yes, you have a lien on that property by a bank that has to be paid off, that $90,000, but if I went tomorrow and I sold that property on a lease with an option to buy to a new investor for $900 a month, then now I’ve got $150 cash flow and in one year when that option is exercised, I’ll make $20,000 on that property, and also, I’m going to charge them money up front for a lease option fee.

 
Joe: So let’s look at this. We sell it at $110,000. We charge them a $5,000 lease option fee. Now they still owe me $105,000. They’re going to make payments for $900 a month. I have to make payments of $750 a month. So I’m going to make $150 a month on this property. They’re responsible for taking care of the property – any maintenance issues, or any of those types of those things – we’ll write into the contract that the new buyer is responsible for those things. So, I’ve made $5,000 up front, I make $150 a month over the year period. I’m getting tax depreciation off of my income on that property, so on that $90,000 purchase price, I’m able to deduct that (and you have to break it down over a 27.5 years) so if you can deduct that amount and divide that $90,000 by 27 and a half and whatever that figure is, about $3,000-$3,500, you can deduct it from your taxable income.

 
Joe: If you made $10,000 that year, you can deduct the $3,500 from it, and then you’ve only made $6,500 that year in taxable income. Which means, in reality, if you’re paying a 35% tax bracket, you’re saving about $1,200 to $1,500 for doing nothing but just owning that $100,000 worth of property that you’re getting a tax benefit from, making $1,000. You’re also going to make $15,000 when that person exercises the option. And then what happens is that they don’t exercise the option. After that, you can go out and sell it to another lease option buyer, and do the same thing over again and make another $5,000 and if the value has appreciated since then, you can raise the price and sell it for even more.

 
Joe: Now, why did I sell it for 110 when the value is only 100? It’s because you’re selling it on terms and typically you can get an 8% to 10% premium on a property, depending on the price (the higher the price the less the premium you’re going to get) but on this price range of property you’re going to get about a 10% premium by selling that property on terms. So it’s great all the way around.

 
Joe: Now, what’s the worst case scenario on a deal like this? Let’s say that the buyer who buys that property from you walks away from the deal and you can’t find another investor. That means you have to make these payments, right? – No, it means you have to decide whether or not you’re going to make the payments. If you make the payments, you’re going to protect your seller and you’re trying to protect your seller; you’re trying to do your best by them. But you’ve also made them aware that this might happen and if it does, what’s going to happen to them. Their credit’s going to be trashed and their property is going to go into foreclosure. But it’s not going to damage you. But you’re going to try to protect them.

 
Joe: So you’re going to go out there and find another buyer for that property. That buyer is going to give you another $5,000. So if it takes you 3-7 months to get that thing rented, you’re still not going to lose any money. Actually, having somebody default and having to get rid of them and get another person in there with another lease option fee is one of the best things that can happen to you. You don’t want that to happen to the buyers, but it’s not a bad thing to happen to you financially.

 
Joe: Your risk is very low in a deal like this. And you can do these deals all day long. There’s lots of them out there. Don’t be discouraged by the fact that you have bad credit, by the fact that you don’t have money for down payments, or that you don’t have investors to work with – do deals like this. Do the right type of marketing. Get those people to come to you and all you have to do is make the offer and they’ll accept them. Good luck.