There are a lot of methods to generating long term passive wealth, one of which is making property investments with no money down. Some methods are safer than others so you have to decide which method is best for your business.
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How To Generate Long Term Passive Wealth
Hey, it’s Joe Crump. How to generate long term passive wealth buying houses with no money down. There’s a few ways to do it, to buy property to invest in property. One is using your cash, two is borrowing money from a bank or a nonconventional lender, and three is borrowing money from the seller. I don’t borrow money from banks anymore. I use my own cash, but that’s because I have cash to invest because of properties that I flipped and properties that I bought with no money down. And you can do the same thing and will need to do the same thing eventually.
Joe: But, the best way to buy a property is by using seller financing. And the structures that we use to buy properties with zero down are Subject To, Multi-Mortgage, Land Contract/Contract for Deed, Assignable Case Deals and then of course there’s Lease Option. So, those are the types of properties, the ways that you can buy properties without using any of your cash. Because those are all zero down structures that require seller financing.
Joe: Now, technically, when you take a Subject To, there’s a bank involved, but it’s not a bank that you qualified for. It’s not a bank that you used your credit or your income to be able to do that. So, it’s essentially the seller that you’re buying it from who set that deal up. And I’ve got a lot of other videos on these structures, so I’m not going to get into each of these structures on this video, but if you’ll learn those structures, you can buy properties with no money down.
Joe: Now, if you buy a property with zero down structures like this, without using your cash, the leverage is much higher which means your return on investment is much, much higher. Now, you’re risk also goes up when you have leverage. But the risk isn’t too bad when you’re doing seller financing. If you’re doing bank financing or nonconventional bank financing, there’s always the risk to your credit, there’s a risk of being sued, there’s a risk of deficiency judgments, those things exist. Plus, there’s higher interest rates.
Joe: If you do seller financing, you can actually structure deals where you don’t pay any interest at all. And so the return on your investment becomes very, very high, especially if you’re dealing in properties that are low priced, under $100K because you can find a lot of those properties that are free and clear that the seller doesn’t owe anything on and that they might be willing to do a land contract or contract for deed on it.
Joe: We’re doing a lot of these these days because every payment we make towards those properties, 100% of that payment goes towards the mortgage. If you get a mortgage on a $100K property, and you go to the bank and let’s say it’s five percent and you’re paying $800 a month on that payment, 90% of your payment is going towards the interest on that loan, and 10% goes towards the actual principal. It takes 30 years to pay off that loan at that rate. Now, if you make the same payment, that same $800 a month payment on a $100K property and it’s principal only, that property is going to be paid off in about 10 years.
Joe: So one-third of the time. That means that two-thirds of the time you’re paying on a bank loan is going to pay the bank. You want to try to set these deals up so that you don’t have to do that, so that you’re paying to the seller and that you’re not paying into interest. If you can do that, you’re going to build your wealth much, much quicker. And if you buy really cheap properties, like $20K, $50K, $60K, you can pay those things off in 4, 5, 6, 7, 8 years. Then you own those properties free and clear and the money that comes in from them will be all profit, other than the taxes and insurance and property management costs and repairs that you have to pay on any property.
Joe: So, the best return on your investments are going to be properties that you leverage. You don’t have any money into. The safest return on your investment are going to be properties that you purchase for cash. I don’t like to put down payments on properties, so I’ll buy a property with no down payment. But that’ll mean that I’ll have a surplus of cash if I don’t spend all the money that I make, assuming that I’m doing lots of deals.
Joe: Then I take that cash and I’ll go out and buy less expensive properties. And I’ll be able to own those things free and clear and have income from those properties so that if I buy a property for $50K, for cash, I’m going to get that $50K back within 4, 5, 6, 7 years. I’m going to make $50K on that because I’ll probably be making between 7% and 40% on my money depending on the property, depending on the area, depending on the price to income ratio for that particular property. Cheaper properties typically have higher price to income ratios. They make more money for the amount of money that it costs to buy them. So you’re return on investment is much higher.
Joe: The place to find these low priced properties is in rural areas and in urban areas. A lot of those places, you know, all across the Midwest and the South, there’s a ton of places where you can find properties like this. And you don’t have to buy them in your own backyard. You can buy them in a different state.
Joe: If you live in California and you can’t find a property for $100K or $200K for that matter, then you can go out of state and you can buy them in Texas, or you can buy them in Arkansas or you can buy them in South Carolina or you can buy them in Florida, or you can buy them in Ohio. There’s so many places that you can buy properties like this and you can do it remotely and you can have them managed by someone else. You don’t have to manage your own properties. I don’t manage any of my own properties, even the ones I own locally. I have somebody else that does that and I pay them a fee to do that, monthly, out of the rent. And typically, for property management, you pay about 10% of the rent
Joe: So, it’s not that expensive to have somebody manage that property for you. It’s just go to be somebody that you can trust and somebody that’ll do a good job, so make sure that that person is licensed.
Joe: All right. I hope that answers the question. Good luck. If you like this channel, subscribe. Go to my website, JoeCrumpBlog.com and sign up for my free newsletter. Go to PushButtonAutomarketer.com and you can get an endless stream of seller-financed leads that are coming in and you can build this kind of portfolio and this kind of investment business with a funnel that will keep you going forever.
Joe: All right. I hope that helps. Good luck to you