BiggerPockets

How to Buy Properties with No Money Down

Thursday, August 06

Do you need a lot of money to do a lease option or lease purchase?  Actually, you don’t.  I can tell you, from experience; when I got started in this business opportunity, I didn’t have a lot of money.  I couldn’t go out there and get a loan.  I really didn’t have money to buy a property, fix it up, renovate it, and rent or sell it, so I really had to understand and learn how to do “no money down” or “very little money down” deals. 

Actually, one of my first deals was a lease option 'no money down' deal.  Just kidding my first 2 deals required $5.00 each!  So it wasn't really a 'no money down' deal, but close enough. One of which I will share here. I saw a seller who was trying to sell her property and she couldn’t.  She was competing against the builder.  She was living in a pretty new neighborhood and was unable to sell her property.  In that same subdivision, there was a builder still building new homes.  Most people would go in that community and which home do you think they would want to buy, from someone who has a three or five year old home, or somebody who is going to custom build the house?  She was really unable to sell her house.

I offered her a lease option.  The terms were agreeable to both she and I, and we made about $6,000 up front from the tenant, about $300 per month in cash flow.  When we sold the property about two and a half years later, we profited about $72,000 from selling it to the tenant. So can you make money now from 'no money down' or 'purchase real estate with no money down?'  YES!  And in this recession with so many houses on the market, 'no money down to buy real estate' is available and plentiful.

Essentially, it was a very profitable deal and it was a situation where I looked at the person who had a problem and I came up with a solution for it.  That solution was a lease option.  It was very profitable and I didn’t have to put in a lot of money.  I didn’t have to get the loan.  I didn’t have to put down a lot of money.  I actually put down $5, that’s right folks, $5 to make the contract binding.  When I gave her that $5 and we signed the contract, she was wondering what that was for.  I jokingly said it was for tomorrow’s lunch, “Thank you for letting me buy your house for $5.” The seller laughed and was really more relaxed since she found me to help her with her house problems. I did not need a hard money lender or hard money investor nor did I have to borrow money from Bank of America. I actually purchased a property 'no money down!' Some critics who lack the facts would call this a scam but I can tell you that most would find this business opportunity a dream come true.

In order to find deals, you must understand that nobody likes to be sold. Don't make your seller feel like they've been ripped off! Don't be a scam artist in your business. Creative negotiating is the key to securing a great lease option deal. There's no need to strip the seller of their dignity by insulting them with a totally one-sided offer. Make the seller feel like they are getting something out of the deal and you'll close more profitable deals faster with less problems. Learn to listen to their situation and don't assume anything, while you are negotiating with the seller, find out just what they need to get rid of the property and go from there. Most sellers in distress don't have a lot of time or options and may offer you a very good deal. Also take in consideration the condition of their property. You cannot pay full price if the house is in need of repairs. A good suggestion would be to only look at houses that are cosmetically damaged, and not structurally damaged. Needing a new roof or new plumbing installed is different than just cleaning up the yard and putting a fresh coat of paint on. Actually, the more cosmetically unpleasing the property is, the better your negotiating leverage is. You'd be surprise the amount of discount you can get from an unpleasant looking property! To ensure the property has no major problems, bring along a handyman with you and have them hand you estimate for getting everything done. Once he does, simply hand that to the seller and show them how much it's going to cost to get this property back into a livable place. If the seller can't or won't fix the problem areas, ask them to add the cost into the final sales price to make it fair for both parties. If you go from a 'salesman' to a 'consultant' you find more deals and less resistance.
 

Also, in doing 'no money down' deals and embracing this lucrative business opportunity my attorney advised me that if you don’t have any money, just put something down.  It could even be $1 to make the contract binding.  That’s what I did.  That’s how I did my first lease option deal, with $5.  You don’t need a lot of money to do these types of strategies, just $5.00.  (smile)  For more examples and insight on how to do lease options and lease purchase profitably, ethically, and legally visit www.GuaranteeProfits.com

Success Coaching on Various Profit Centers with Lease Options

Thursday, August 06

When I coach real estate mentees, the number one question is always....are lease options and lease purchases profitable as a good business opportunity?  As an investor, if you’re looking to do this as a business or as a passive investment for yourself and your family, it is definitely very profitable because there are at least three profit centers in a lease option.  The first one is “option consideration,” most people call this a security deposit, but an option consideration is when a tenant puts down money, let’s say two times or three times the rent they would put down as a security deposit; they will put that down as an option consideration.

For example, the rent is $1,000.  On a regular rental, they would put down the first month’s rent in a security deposit of $1,000 and move into the property.  On a rent-to-own, that same tenant would put down two or three times that amount, which is $2,000 or $3,000 in an option consideration, as well as the first month’s rent.

We mentor our students to know that the money that the tenants place into the property is their option to purchase the house when they’re ready to purchase within the terms of the agreement.  That is the first profit center, and sometimes, that option consideration could be considerable.  It could be as much as 3-5% of the sales price, or of the projected sales price.  You can actually collect $10,000-$20,000 up front, in cash, in option consideration because that is what the buyer is willing to do in order to rent the property and then have the right to purchase it later on, when they qualify. This is great because this is money you can make now. 

The second profit center is the cash flow that you get from a property.  When you collect rent, for example it could be $1,000, you may have a mortgage obligation to the lender or the seller, of $700.  That is a $300 difference, each month, of positive cash flow that goes right into “hip national bank.”  If you are collecting $1,000 in rent and the obligation each month is only $700, you are making $300 every month.  That is the second profit center and if you accumulate enough of these profit centers you can replace your J-O-B and not have to go to your full time job. Think of it, a legitimate business opportunity where you can walk away from your day job within a couple of years.

The third profit center is when the tenant purchases the property.  Let’s say it’s now a year and a half or two years later and the tenant is ready to purchase the property.  They have been getting their ducks lined up in a row, and now they’re ready to purchase.  They have lending qualification that they are approved to get a loan.  Let’s say they are ready to buy the property.

Let’s say the house is worth maybe $150,000.  You bought this property on a rent-to-own, with the seller, at a strike price of $120,000.  Now that you’re ready to sell the property, the buyer purchased the property at $150,000, which was agreed upon when they rented out the property with the option to buy.  They purchased it for $150,000, which was agreed upon in the beginning.  You sold it for $120,000, which was your strike price or your agreed upon price that you would buy from the seller.  That is a $30,000 difference and you made that in profit as a third profit center. It's really successful when an entrepreneur can start a home based business and be able to realize many profit centers using real estate lease options and lease to purchase homes.

Is a lease option profitable; absolutely, there are three profit centers.  If you add it up, each deal could average anywhere between $20,000-$50,000 plus.  You didn’t have a lot of risk involved in this business opportunity.  You didn’t take out a loan.  You didn’t have your name on a loan.  You didn’t have to put up a lot of cash to get the loan, and your tenant buyer is paying the mortgage while you control it via a lease option.  Lease options and lease purchases are very profitable if you know how to do it correctly. I coach real estate investors to big profit centers and if you like more information on this and other strategies, go to www.GuaranteeProfits.com.

Success Mentoring on Risks with Lease Options

Thursday, August 06

When getting into creative real estate investing, investors must be coached on the good and bad of lease options if they want to use this strategy. 

What is a drawback with using a lease options as a business opportunity in your real estate strategies?  From the seller’s point of view, you could default.  You could have a tenant that doesn’t pay the mortgage and then you also don’t pay the mortgage.  In our real estate mentoring program we advise that a risk, and even in a home based business, you have to be able to honor a contract that you signed.  Before going into a lease option or lease purchase, make sure that you have a tenant that is qualified, that they have money that will pay the rent, that you also have option consideration and you probably kept some of that in escrow in the event that they don’t pay or they get evicted, or you should have reserves in cash or savings to pay that mortgage while it is empty.

Our mentees are taught that the risk in a lease option is that the seller might say, “You might not pay my mortgage and therefore you’re going to damage my credit.”  You are going to have to reassure them that you really don’t make money until your tenant purchases the property.  Sure, there is an option consideration you are making up front.  Sure, you are making money now each month in cash flow.  You essentially want to tell them that your big payday, most of the money made on a lease option is when you sell the property to the tenant when they’re ready to purchase, which is true.  You wouldn’t jeopardize that by having the loan go in foreclosure and getting the seller in trouble.

You’re telling them you’re not doing this just for fun.  You are doing it to be profitable.  Your service, in the meantime, is to get that buyer to purchase the property.  The money upfront, just call it a slush fund, in the event that something happens; you have it in escrow and you don’t spend it all because you can then pay the mortgage if the tenant doesn’t, for whatever reason.

Success can be an illusion if you may have a tenant that may damage the property.  They may get in there and, for whatever reason, they really mess up the property.  You’re responsible for that.  You have to make sure, once again; the key is, when you get a tenant in there, that they are really qualified.  That’s why you want to collect a lot of money up front in option consideration.  The adage goes, “The more you have at risk, the more you’re going to be tied to the deal.” This is not only true in many business opportunities from the investor standpoint but also with the client, your tenants.

A lot of times, people have left their houses; the value has gone upside down because they didn’t put any money down.  Imagine if each person put down 20-30% into a property; we wouldn’t have as many foreclosures.  They left the property because they have no skin into the game, except for their name on a loan. If tenants have a lot of money up front that they’ve given in option consideration, plus getting some nice rental credit each month, they have more to lose.  The key is; make sure you get a qualified tenant that has a lot of stake.  They will not damage the property and less of a chance for tenants to scam you and take you for a ride since there is accountability.

There are other risks involved in a lease option and lease purchase; yet, those risks are really risks that accompany any real estate purchase or transaction.  You can name it; house burning down, taxes going up, neighborhoods that go down in value, neighborhoods that go south because of the residents in the neighborhood.  Those things all relate to any type of property that you purchase.  On a lease option, those are the main drawbacks, yet, there is something you must consider; you want to look at the good, the bad, the neutral, and the ugly before doing any type of real estate transaction or business opportunity.  If you like more information on this and other strategies go to www.GuaranteeProfits.com

Real Estate Coaching for Investors working with Realtors on Lease Options

Thursday, August 06

Property investors have a valuable resource sitting right under their noses, but many either ignore it, or dismiss this potentially valuable tool without even exploring their options. Did you know that most real estate agents do not know about lease options or like doing it? For the most part, they don’t get paid right away so that’s why they don’t really like doing leases; they don’t get paid as much as a sale, and they don’t get paid right away.  A lease option means you are going to lease with the option to buy in a couple of years.  They can’t really get a handle on when they’re going to get paid so it's not an attractive transaction for most realtors.  But with the right direction and partnership, realtors and investors can profit big working together in this great business opportunity.

Many investors are too quick to dismiss the realtor as not having the best deals, or their best deals are done before the property hits the open market. While it is true that real estate agents tend to focus on the retail market, they are in business to make sales, and that can often mean thinking outside the square, for both the realtor and investor. Keep in mind that an agent not only has sales skills, but will pick up valuable information in the normal course of their business. A good agent will know what properties are coming on the market and, more important, which properties would best qualify for a lease option transaction, as opposed to a traditional outright sale. And that's where you, as an investor, enter the picture. If you put the time and effort into helping an agent understand the lease option process, they will soon be coming to you with potential deals.

Naturally, it’s not as financially attractive to an agent.  The key is you want to make sure you do it with agents who understand.  Maybe they could watch this video, and you could give them this information.  Essentially, we tell people there is about 10% of the population of agents who would understand this strategy and want to do it.  Make sure you are dealing with that 10%. 

The other side of the debate within the real estate professional community is from the 'out-of-the-box' thinkers. This mindset is ideal for  have a better chance of surviving this downturn.  These agents will start to think and act like investors.  A common practice of the traditional thinker is that if the buyer doesn’t qualify for traditional bank financing, then they probably aren’t a good buyer. “Sorry, go somewhere else.”  We teach that because many of these prospects need time to either save for their down payment or repair bruised credit.  That’s where either a lease with an option to purchase or owner financing would have sealed the deal. In a market where financing is scarce and home values are on the decline, closing a deal quickly is key. And so is making money now, that's why this very niche business opportunity can take a home based business into a major enterprise.

Real estate agents need to strike reality into their sellers when they list.  Either the price or the terms have to be attractive, especially in this market. They also need to seek discounted pricing or special financing options for their buyers.  This is where a great relationship can be created between investors and agents.  When bank financing is difficult, many times, a real estate investor can be a solution to that problem.  We have solutions that get the property sold and the commission paid, so another new homeowner can join the ranks in the American Dream.

In summary, while working with a Realtor can reduce our profits, especially on the selling side, a relationship with a creative thinking real estate agent can be a plus in a tough market.  Starting your own business in real estate with a couple of creative hungry agents on your side can lead to huge profits and a pipeline full of potential deals. The right agent can make a savvy investor a lot of money, if selling properties is what you want to do.  The same works in the reverse; smart agents should have a list of creative investors with whom to work because then…everybody wins. Most agents don’t want to deal with it because they need to get educated about it.  It’s really something they’re not comfortable in doing and it’s really not very lucrative for them, as in the traditional way they know how to do a real estate deal.  This is more creative.  Agents really aren’t lease option friendly but with the right education you can tap into a great resource one in which can produce the majority of deals for your investing needs.  For more information on lease options and strategies on how agents and investors can work together visit www.GuaranteeProfits.com

Attracting Realtors to be on your Real Estate Investing Team

Thursday, August 06

In our seminars we coach and teach attendees to tap into a vast resource....realtors!

Did you know that most real estate agents don’t know how to do a lease option?  Actually, they don’t want to do lease options. Some of them even think it's a scam and an illegal way to purchase real estate. For the most part, real estate agents shy away from leasing properties because it doesn’t pay a big commission like it would if you sell a property as an agent.  First of all, most agents shy away from doing leases because it doesn’t pay as much.  

Second, they really don’t like lease options because when the tenant is ready to purchase the property, that may be years from initially signing on the deal.  The agent doesn’t feel like they have a good grasp of when they will get the remainder of their commission, therefore, they really don’t like lease options.  Their payday is prolonged or they don’t get all of it upfront.

A way to alleviate this is to tell the agent that you’ll pay their commission up front, if they help you get lease option deals, whether they help the seller, or they help you find a buyer.  Ensure the agent is fully compensated, rightly compensated, or compensated in a way that is fair to them.  They have an interest in wanting to do a lease option.

Keep in mind that lease options are creative strategies.  It takes some understanding and a different mindset to do these types of deals.  For an agent who doesn’t want to learn, doesn’t want to be open to creative strategies, naturally they will turn away from it, say no to it, or even say it’s illegal to do it.  It's not your job to take valuable time to fight nor even educate them. For the most part, if realtors are not open minded about creative strategies, we educate our students to leave them alone and work agents who will only do lease options if they want to learn and understand it.  So it's a great opportunity to know that not 'everybody' is doing it, thus keeping the competition and all the realtors away.

Our workshops teach and mentor the 80/20 Rule when it comes to lease options and agents; 20% of the agents out there, maybe even less, are willing to do something creative because they are willing to help their client first, before themselves.

This may be a great business opportunity to also work with agents who are open-minded, and who are willing to understand and learn the process, yet be careful; there are some agents that can drag you down and rain on your parade because they don’t want to learn, they don’t want to be open to it, and they also criticize the strategy and even call it illegal.  Hopefully out there you have the right team working with you. For more details and strategies to get realtors to work with you so you can bring home the profits in real estate business check out www.GuaranteeProfits.com

Real Estate Coaching for Big Profits with Little Money and Risks

Thursday, August 06

What can you do if, after taking stock of the more "traditional" means of generating funds to purchase real estate, you find that none of them is right for you? There are, indeed, ways to buy property with very little or no money down, a true and legitimate business opportunity. It's quite likely that you've seen a late-night infomercial or two touting the ease of these concepts. Well, the truth is that they can be done. The further truth and we coach our mentees, however, is that they are not easy. No-money-down deals typically involve a considerable amount of risk and, as such, deserve a great deal of evaluation and care. They're also incumbent upon finding an owner who's willing – or can be persuaded – to sell on such terms. In short, they're easier said than done. If they weren't, everyone would be doing them so it's perfectly profitable and not a scam. But they can be put together, and here are just a few methods:

Did you know that lease options are great and smart strategies for new investors as well as seasoned investors to profit big with a cashflow business opportunity?  For the new investor, it’s a way to get into a property with very little risk.  Imagine not having to take out a loan, put down a lot of money, or take the risk of having a lot of your capital tied up in a deal.  Where you have little at risk, it’s always best, especially when you are starting out as a home based business opportunity.  For new investors, it’s a great strategy in that regards. Because it doesn’t require a lot of capital, as well as not requiring you to take out a loan, it also is a smart strategy there.  If you have money at risk and your good credit at risk, that could be something that could be ruined if you don’t know what you’re doing.  Lease options are a great strategy for new investors and for all of you aspiring real estate entrepreneurs and investors who want to make money in the real estate game. Lease options  are great way to accomplish this with little money or no credit. Let's examine the beauty of making money in real estate using this creative way. Lease options are a great way to take control of a property without owning it. In a lease option scenario you would take control of the property by leasing it from the owner with the option to buy it. 

For experienced investors, it’s a great way to add a strategy to your arsenal.  You’re out there solving problems, out there providing solutions for sellers, for people in situations they can’t solve on their own, and if you know how to do a lease option and know how to structure it correctly, you can help more people.  Lease options are also a great strategy for seasoned investors to really shine because now you have more to offer, more expertise, and more solutions for people who are in trouble.  Lease options are definitely good for new, as well as experienced investors.

A lease with the option to buy is a great way to create a win-win solution for both the buyer and seller alike. The seller gets to sell their house quickly for top dollar and the buyer gets the option to own a house regardless of credit history or qualifying through a bank. Both parties benefit during the leasing period of the agreement. The seller gets a positive cash flow in the form of monthly rental payments and the buyer get time save money and/or prep for future financing while enjoying the house in the meantime.
 

A property owner who's highly motivated to sell may consider leasing his or her investment property to a prospective buyer and giving the buyer an option to buy the property at an agreed-upon date in the future. This type of transaction can be used very effectively when a seller needs to get out of the ownership or management of his or her property, perhaps due to illness or relocation from the area. The purchaser agrees to lease the property for a specified period of time, while preparing financially to purchase it. Depending upon the contract terms agreed to by both parties, part of the lease payments might be applied toward the down payment. Buying a home with a lease option is one of the simplest ways to buy and sell real property. It may seem a little intimidating at first, but in the end, the benefits far supersede the challenges of getting started as a lucrative business opportunity. 

Another little risk method with little money required is an option contract that simply is a contract between a prospective buyer and seller that provides the buyer with an option to purchase the seller's property within a given period of time. As consideration for the option, the buyer pays an agreed-upon sum of money that's non-refundable should he or she choose not to exercise the option to purchase the property. If the buyer decides not to purchase the property, the 'option money' is forfeited, going to the seller. If the buyer chooses to exercise the option, the money becomes part of the down payment.

An option is a unilateral contract, which means that all rights to buy or not buy the property belong to the option purchaser. Once the contract is executed, the seller has absolutely no more control over the sale. For this reason the seller will often request a fairly substantial option deposit. The contract, in effect, forces the seller to take his or her property off the market for a period of time, at the end of which it still may not be sold – depending upon whether the buyer decides to exercise the option to purchase the property or not.

An option contract can be an invaluable tool for a prospective buyer. For example, you might find a property that you're very interested in, but at the present time your available cash may be limited. However, you know that in just a few months you'll have enough cash available to purchase the property. Or perhaps you might be waiting for another property that you own to sell or close. Your money might also be temporarily deposited in certificate of deposits or other vehicles, and withdrawing the funds prior to maturity would result in substantial interest penalties. Whatever the case, you don't want to lose your opportunity to buy the investment property in the meantime, so you use an option contract to gain control of, or tie up, the property.

One other way to buy properties without using your own money is that you can offer the seller a share of the profits generated by the property as added incentive to sell the investment with no down payment requirement. In doing so, not only will the seller receive a portion of the income produced by the building, but he or she will still be carrying back a second mortgage as well. The method of determining the profit distribution and the length of time that it's to be paid are negotiable. 

There are other ways to buy properties and we coach our students thru them all to make money now and the above are some of the strategies that have helped many investors getting started or experienced investors to minimize their risks.  For more information visit www.GuaranteeProfits.com