We’ve been getting a bunch of different questions over and over again, so we would address a few of them in a sort of general way so that you understand how to proceed with some of these questions that a lot of you are having.
The first question is, “How do I flip houses with no money?”
A lot of people would love to invest in property and do it over and over again, but they just don’t have the funds. Or, maybe they do have funds, they want to do a flip so they go out there, they put their cash up, get a loan and they’re able to do one or two or three properties at a time before they’re out of business.
They can’t do any more until they get those sold. Then they can go out and get new loans. So, what you want to learn how to do is how to do it with no money.
They say you need money to make money. I say that if you can’t make money with no money you probably aren’t going to make money with money.
So if you learn how to do it with no money then when you make money on those types of deals and you have excess cash above and beyond what you need to live on, then you can start investing that money.
The For Rent Method
If you want to buy properties with nothing down, the best way to start is with what I call the For Rent Method. Essentially it’s just an assignable lease option.
So we take a one-page lease option memo, we ask the seller to sign it and they tell us yes you can buy it on a lease option and you can assign your right to buy to someone else, and if you don’t buy it, that’s okay, too. That’s what a lease option says, essentially. It has the price, it has the monthly payment, it has the term of the lease which we usually do three years.
So let’s say somebody comes in and says he wants to sell his property, $200K, a three-year lease option, with $1,800 a month. What we’re going to do is take that $200K price, we’re going to raise it up to $220K and even though it may only be worth $200K we can still raise the price because we’re selling it on terms.
What we have to make sure we do properly is make the monthly payment at market rent or below. If it’s not at market rent or below, it will not sell.
We can sell it for more than its value but we can’t sell it for more than its monthly payment, because that’s what’s going to be most sensitive for lease option buyers.
So you’d list it at $1,800 a month and you know, maybe $220K, $210K, $220K, depending on how much you think you can get out of that market. And then you put it on the market to sell it. And you find a buyer, a lease option buyer who will come up with $10K or $20K as a down payment.
And let’s say they can only come up with $5,000 as a down payment and you’re willing to take $10K. Let’s say they come up with $5,000 and then, but they could make another $5,000 in payments over the next few years.
You could put that on as a promissory note later on. So you get $5,000 in cash, another $5,000 as a note that you’ll get paid for over the next two or three years. So that’s a great way to make money without having any capital at all. And you can do as many of these as you can convince sellers to do it.
Adding the Automarketer to the Mix
Now, the beauty is, we have the Automarketer. Now, you could go find these sellers just by going onto craigslist or to Zillow and looking for sale by owners. And then calling those people and say, hey, would you consider selling your home rent to buy rather than selling it outright? And you can either call the For Rent or you can call the For Sale By Owners.
We originally started this by just calling the For Rents and we ran out of them so we started calling the For Sale By Owners and they worked even better. And now we’ve got the Automarketer set up so that it’ll actually text all those For Sale By Owners for you with a text that says “would you consider selling your home rent to buy? If you would, we’d be interested. Please let us know.”
And then they’ll text us back a message and it’ll be either yes or no or, you know, stop bothering me. We find that when they text back about 20% of them are yes or maybe or “give me $20K and I’ll do it”. After that we just get on the phone with those people.
So if we’re paying, let’s say, 15¢ per lead, and only one in ten of those say yes, that means we’re paying a buck-and-a-half per lead, which is just an amazing price.
If you’ve ever done any direct mail, you know that you’re usually going to be paying $10 to $20 per lead if you’re doing yellow letters or postcards or any other kind of direct mail. And those have always been good ways to find leads. But why spend that kind of money if you can do it for pennies on the dollar?