Discover several tips for investing in real estate starting from scratch by watching this informative video!
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Investing In Real Estate Starting From Scratch
Joe: Hey, it’s Joe Crump. This question says, “Hey, Joe, I’d like to start investing in real estate but I’m starting from scratch. I don’t have money, I don’t have credit.” That’s okay. You can start with nothing. You can start while you’re still in the hole. If you owe somebody a ton of money and you can’t afford to pay them and you couldn’t possibly go out and get credit because you’ve trashed your credit or you filed bankruptcy or you’ve had other problems. Doesn’t matter. You can still put together a real estate investing business using no credit and no money down techniques.
Joe: And the techniques that you’re going to use are going to be subject to, multi-mortgage, land contract/contract for deed, assignable cash deals and lease options. And those structures, if you go through my other videos they’re on my channel or on my blog, or in my training programs, it’ll show you what those structures are and how those structures work. You don’t have to spend money to make this happen.
Joe: Let me give you an example of one way that we do it with my mentor students, the way I get most people started. Because I think it’s the easiest, fastest way to get going. I call it the For Rent Method. And essentially what it is, is you’re buying a property on a lease option, but you’re not actually taking that property. What you’re doing is taking the right to buy that property by getting a document we call the Lease Option Memo, which essentially is a purchase agreement that allows us to assign our right to buy it to another party. We then raise the price, and we sell that property for a higher price. We get a down payment for that property, that’s our profit in the deal. We also get the first month’s rent on that property on a lease option and we give that first month’s rent to the seller.
Joe: So, typically the way that the deal would be structured is it would have a three-year term. We would have the purchase price of whatever that seller wants for this property. So, you don’t have to negotiate price with these sellers. If the seller says I want $200,000 for my property and then we ask them, well, what’s the market rent on that? Market rent on that is about $1,500 a month. Okay, so, you want $200,000, which is market price for that property. And as long as it’s market price or below, you’re going to be fine. You can sell it for a little bit more than market price when you sell it on a lease option.
Joe: Make sure that your monthly payment, that $1,500 a month on this particular property, if that’s the market rent, don’t go over that. If you try to get $1,600 or $1,700 or $1,800 you might get a little bit more, but it’s unlikely and it’ll reduce your chances of getting it sold dramatically if you go too much on the monthly payment.
Joe: Lease option buyers are much more sensitive about monthly payment than they are about purchase price. So, let’s say on this property we raise the price by $20,000. So, we’re going to sell the property for $220,000. We get a Lease Option Memo on that property that says we have the right to buy this property for a three-year term, to exercise that option, $200,000 and $1,500, and pay $1,500 a month while we’re leasing that property. And we have the right to assign that to another buyer. And it even says on our memo that we’re intending to assign it to another buyer and make a profit.
Joe: And we’re not acting as a real estate agent here. It’s very important if you don’t have a license that you not work as a real estate agent. You’re working as a principal in the transaction. It’s legal for you to sell properties that you are a principal on. So, you’re going to become a principal on this transaction because you’re on this document. Now you have the right to buy this property and you have the right to assign that property to someone else. You go out there and you advertise that property on Zillow and craigslist and Facebook. And using your buyer’s list, which I show you how to build. All these other techniques that we use to find buyers.
Joe: If you’ve got a decent deal that is at market rent or below, you’re going to get it sold. So, you’re going to raise that price by $20,000. You’re goal is to try to get $20,000 in cash for the down payment. Now, you’re not always going to be able to get $20,000 in cash from a lease option buyer. But maybe you can get $10,000 on this particular property. So, if you get $10,000 you could have them pay the other $10,000 as a promissory note and get maybe $200 a month from them to cover the promissory note for the balance of their down payment. So you can work out something with them so you’ll have regular income from a promissory note.
Joe: Now, you’re going to be in and out of this deal. As soon as they give you the money and they give you the first month’s rent, you give the first month’s rent to the seller and you have them fill out the paperwork between the seller and the new buyer and you’re out of the deal entirely other than the profit that you make. So, you’re in and out of this deal. You’re done. You don’t have to manage the property. You don’t have to mess with it again. You neve had to buy the property, you never had to qualify for the property. You just had to find a good tenant for the property. So, that person then will move into that property and they’ll start making payments to you on your promissory note. So, they’re going to make payments to the seller on the rent, but if you had $10,000 you got in cash and another $10,000 on a promissory note, let’s say they’re paying you $200, or $250 or $300 a month on the promissory note.
Joe: That is a note between you and them. It has nothing to do with the property. It’s not secured by the property. You don’t have the right to secure it by the property anyway because you’re not the seller. If it was your property then you could secure it against their lease option and you could build it right into the lease option – if it’s your property that you’re selling. But if you’re just doing it for somebody else, then it’s going to be a promissory note.
Joe: When we first started doing this I thought it was going to be a challenge to get people to pay that and I told one of my students about it and I said, you know, I don’t if this is going to work. Give it a try. And this has been years ago. And he tried it and I said, well, so how is that going? He says, I’m getting it on every single one of my properties and everybody is making the payments. I said what happens when they don’t pay? Well, they all pay it because, as long as they’re keeping the property at least. When the move out of the property that’s when you stop getting your money.
Joe: So, if they move out of the property it’s hard to continue to collect that money. But, you still have a promissory note and you have some leverage. Because you can take them to Small Claims court because they owe you money based on that promissory note, not based on that property. Now, I don’t think – we never actually go after people after they’ve moved out of a property for the balance on a promissory note. But you could. And you know, you could continue to try to get, try to collect the money that’s due to you which they agreed to from the beginning.
Joe: So, that’s a really simple, straightforward, easy to do method for buying properties without any money, without any credit, to do it from scratch, to do it from day one. In my mentor program I’ll have my students start making offers like this the very first week they’re in the program. We go through a little training period with them during that first week, get them started, get them understanding how that process works and then get them on the phone immediately.
Joe: Now, they’re not prepared, they’re not competent. They’re not any good at this at the beginning. They screw it up and they sound like idiots on the phone. And that’s normal. And that’s okay. And that’s exactly the way I sounded when I first tried this. But once you do it for a while you get good at it. And one of the things I tell my mentor students, for you to be able to come to my mentor program, to work with me, you have to agree to put in eight to ten hours a week on the phone talking to sellers making offers. And then you can expect within three to four months that it’s likely that you’ll make money within that period of time.
Joe: You know, some people make money in a week or two. But they’re the exception not the rule. So, I tell them give yourself time so that you don’t give up before you actually learn how to do it. Because you’ve got to sound competent before people will trust you. When you don’t sound competent on the phone, it’s not that they think that you’re not competent. It’s that they think you’re a scam. So, they always go to the darkest place. So, you have to build your confidence, you have to build your competence and you have to learn how to listen to people and how to walk them through this process. And we spend probably the most time with my students teaching them how to talk on the phone, how to make offers, how to think about the offers, how to optimize the offers and how to make all that work.
Joe: I mean, the part that I’m most excited about is the automation, is the systematization, building a business that I can extract myself from and not do. But until you’re able to make an offer that is successful, to be good at it, you probably won’t be successful with automating a business. Because you can bring a ton of lease just using the Automarketer. But if you don’t know how to convert those leads, you’re not going to be able to be successful with it.
Joe: So, my suggestion, if you’re going to get started with this, is learn the process, one. And there’s a couple ways you can do that. One is you can get the Automarketer. Got to PushButtonAutomarketer.com and you can, there’s training materials in there. Or you can get into my six month mentor program and I’ll teach you personally how to make that stuff happen. I’ll answer your questions, I’ll be there to help you figure out your contracts and all that stuff. You can check that out at ZeroDownInvesting.com. And you can actually get going and start making offers right away. And before long you’ll start putting deals together. And I guarantee you’ll make money if you follow through with it the way that I teach you to do it.
Joe: So, the problem is not everybody follows through. I can tell you that about 30% of the people that come through my mentor program will make money. They tell me that 5% is normal for these kinds of programs, so I guess I’m 600% better than average. But I can also tell you that 100% of the people who do the work will make money. I never have anybody that does the work that doesn’t make money. If you go through this process and you do the work the way I teach it you’re going to make money and you’re going to do well. You’re going to put a deal together.
Joe: And once you’ve done it once you can do it over and over and over again and you’ll just keep getting better at it and more efficient and each deal will make you a little bit more money because you’ll be better at negotiating and better at listening to what that seller needs and being able to solve their problems and at the same time make a profit for yourself.
Joe: I think the whole goal to this thing is to be able to solve problems for people, make their lives better and the more problems you solve the more money you make.
Joe: All right. Subscribe to the channel, hit the bell button and it’ll actually send you an email, YouTube will send you an email, or go to my blog, JoeCrumpBlog.com and sign up for my free newsletter. I send out stuff to that newsletter list that I don’t send to other people. And you can also check out PushButtonAutomarketer.com. That’s the automation system that I’ve got that’ll bring you in leads and help you manage those leads and drip on those leads, and help you build a team and systematize your team and automate your system. And then of course my mentor program ZeroDownInvesting.com where I work with you for six months. So, check it out.
Joe: All right – Good Luck.