{"id":44986,"date":"2013-06-25T05:33:47","date_gmt":"2013-06-25T11:33:47","guid":{"rendered":"https:\/\/www.biggerpockets.com\/renewsblog\/?p=44986"},"modified":"2023-03-28T14:59:07","modified_gmt":"2023-03-28T20:59:07","slug":"2013-06-25-buy-a-house-with-2000-or-less","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/2013-06-25-buy-a-house-with-2000-or-less","title":{"rendered":"5 Ways to Buy a House with $2,000 or Less"},"content":{"rendered":"

Me<\/i> – Do you want to buy a house, either to live in or as an investment?<\/p>\n

You<\/i> \u2013 Yeah!!!<\/p>\n

Me<\/i> \u2013 How\u2019s your credit?<\/p>\n

You<\/i> \u2013 A prolonged sigh…<\/p>\n

Me<\/i> \u2013 Do you have 20% cash for the down-payment?<\/p>\n

You<\/i> \u2013 No\u2026tears start coming on\u2026<\/p>\n

Me<\/i> \u2013 Do you have any savings?<\/p>\n

You<\/i> – $2,000 is all I\u2018ve got to my name.<\/p>\n

Rules of Engagement<\/h2>\n

In this article I am making the assumption that the buyer (you) has bad credit, which means that a short-term refinance will not be possible.\u00a0 Thus, I will only consider options which would allow you to get into a house with at least a 5 year horizon, which should be enough time to either sell for a profit or to improve your credit enough to be able to refinance.<\/p>\n

I will not be discussing houses that you can buy for $2,000 using your credit card \u2013 only houses that are worthwhile to own; only houses that you would want to live in yourself if need be.\u00a0 Just cause it\u2019s cheep \u2013 don\u2019t make it good!<\/p>\n

Many of you know from listening to Podcast 14 that I do not do very many deals \u2013 perhaps one or two per year.\u00a0 Partially this is because I buy almost exclusively undermanaged multiplex properties which take time to bring into good working order.\u00a0 But also because I pull the trigger exclusively on those deals which accommodate a very creative financing package that requires me to contribute very little money to the purchase.\u00a0 Those kind of deals don\u2019t come along every day, which reflects why I do so few deals.<\/p>\n

I tell you this because even though every technique I am about to discuss is doable, do not expect to find it easily and everywhere.\u00a0 In this article I am not talking about building a business model, only how to buy 1 house.<\/p>\n

Also, I am assuming that you do not have 100k of cash stashed under that mattress, nor do you have a primary residence in which you own significant equity that you could bridge via a HELOC.\u00a0 If you have one or both of the above items, you don\u2019t really need to read any further \u2013 write a check and buy a house<\/a> and be done J.\u00a0 However, if you got nota, then keep reading\u2026<\/p>\n

Related<\/strong>: BP Podcast 014 : Cash Flow, Creative Finance, and Life with Ben Leybovich<\/a><\/em><\/p>\n

Lastly, I will not be discussing techniques such as Taking the Deed subject to underlying financing (Sub2) or wrap mortgages.\u00a0 Most conventional mortgages include the Due on Sale and Acceleration clauses which comes with a possibility, be it a slight one, that the underlying lender will accelerate the pay-off.\u00a0 I do not feel comfortable advocating these techniques for this reason.<\/p>\n

And with this, let\u2019s dig in.<\/p>\n

1.\u00a0Owner-financing<\/h2>\n

The best game in town has always been and will always be owner-financing for several reasons.\u00a0 As a generalization it would not be wrong to say that when dealing with an owner in lieu of an institutional or even a private lender \u2013 everything is negotiable, including the price, down-payment, interest rate, amortization, monthly payment amount, and everything else.<\/p>\n

Also, all of the qualifying standards put forth by Fannie Mae, Freddie Mac, and the primary originators are not in play with owner financing.\u00a0 This means that while the owner will want to know your credit score, he will likely be a lot more understanding of the blemishes that may be there.\u00a0 And as to down-payment, you need to understand the following:<\/p>\n

Owners sell on contract by and large because they\u2019ve tried but could not sell for cash.\u00a0 Specifically with single family residences, it is not wrong to say that the owner will usually choose to participate in financing only as a last resort, having tried everything else.\u00a0 This means that you, the buyer, have more negotiating power than you\u2019d think\u2026<\/b><\/i><\/p>\n

Thus, owner financing the house with $2,000 is possible and even probable if you find the right deal, and by that I mean the right owner. \u00a0Don\u2019t believe me?<\/p>\n

Here is something I found in my e-Mail in-box not too long ago:<\/b><\/p>\n

Hey Ben,<\/i>
\n(I) secured my first deal within 3 weeks! I found a private seller desperate to relocate and she agreed to seller finance the ENTIRE purchase price. And get this: at 0% INTEREST! I will pay $300 per month for 5 years for a total purchase price of $18,000. NO BANKS INVOLVED. I have the property rented out for $600 per month and I am looking for my next deal\u2026<\/i><\/p>\n

WOW!!!\u00a0 How many of those do you need to be in a different place in life?\u00a0 Good job dude \u2013 you know who you are!<\/p>\n

Now let me ask you \u2013 do you think the MLS is the best place to find owners willing to play the bank?\u00a0 Hint \u2013 that\u2019s not what he did and it sure isn\u2019t what I do\u2026just saying.<\/p>\n

Related<\/strong>: How to Invest in Real Estate with No Money<\/a><\/em><\/p>\n

2. Private Money<\/h2>\n

If owner-financing is out of the question, and in the absence of a line of credit, the next best thing is to finance the acquisition fully with private money.\u00a0 The question is this \u2013 if someone has significant capital sitting in the bank drawing 0.2%, why wouldn\u2019t they chose to lend it to you at 5,6,7 or even 10 percent?<\/p>\n

Well, there are many reasons why they would NOT, all of which you\u2019ll find out as soon as you start asking.\u00a0 But, you should know that the main reason why they are not going to give you the money is because you are a dummy \u2013 you don\u2019t know what you\u2019re doing \u2013 you think real estate game is sexy and fast like your high-school girlfriends. \u00a0\u00a0Private lenders flat out don\u2019t trust you…Harsh?\u00a0 Oh yeah \u2013 but honest.\u00a0 Get educated and give people a reason to take you seriously!<\/p>\n

3. Private Money & Owner<\/h2>\n

OK \u2013 let\u2019s say you are in fact able to find someone who\u2019ll give you the money, but because you are such wildcard, they do not want to give you any more than 60% of the purchase price.<\/p>\n

In this case, you could structure the deal whereby the private lender gets a note and mortgage (deed of trust) in first position, while the owner takes back a note in second place.\u00a0 This technique will allow you to close many more opportunities than straight 100% owner-financing, because done the owner can only finance the equity he owns.\u00a0 Therefore, 100% owner-financing requires you to only look for free and clear properties.\u00a0 However, bringing the private money into the deal allows you to cash out an existing mortgage with the owner financing whatever equity he owns.\u00a0 This is not easy to put together, but it certainly can work with under $2,000 out of pocket.<\/p>\n

4.\u00a050\/50 Partner<\/h2>\n

One of my philosophies in real estate and life in general is:<\/p>\n

\"Pie2\"<\/a><\/p>\n

With this in mind, to make the deal attractive to an equity partner, why not give the money guy 50% of the deal?\u00a0 As a partner, as opposed to a lien holder, however, the money will have a voice in the deal, thus remember to choose your partner carefully, and remember the following:<\/p>\n

Money is an amplifier.\u00a0 It brings out and exaggerates what is already there.\u00a0 When dealing with a good and honorable person, money entering the equation will make them even more so.\u00a0 The opposite, however, is also true!\u00a0 Be wise as to who you chose for a partner; often enough the profit is just not worth it!<\/p>\n

5. Lease-Option<\/h2>\n

This is not a favorite tool of mine for the purchase of real estate for many reasons, which is a subject for another article.\u00a0 However, if there is no possibility of owner-finance or private money, then in lieu of doing nothing at all, a lease-option can get the job done.<\/p>\n

Let\u2019s say that there is just no way that you can convince this owner to participate in financing with $2,000 \u2013 he wants more money down, but you simply don\u2019t have it and have no access to it.\u00a0 Here\u2019s what you do:<\/p>\n

A lease-option involves two separate contracts \u2013 a lease, and an option.\u00a0 The lease contract is just like any other lease whereby you gain tenancy.\u00a0 The option contract, just like it sounds, gives you the option to purchase the house during a certain period of time (option window) and at specific price.\u00a0 As part of the option, you will be needing to pay an option consideration fee, which is usually non-refundable, but typically not excessive.\u00a0 Thus, $2,000 may be enough to get this done.<\/p>\n

Now \u2013 an option does you no good unless you have a way of exercising this option.\u00a0 At the end of the option window you must be able to pay off the seller.\u00a0 But, it gives you time to work on your credit, and to bank some money toward the down-payment.\u00a0 It\u2019s not a good way in, but it is a way\u2026<\/p>\n

Down-Payment<\/h2>\n

I am sure that there are 50 more ways to get into a property, but hopefully this is enough to get you thinking in the right direction.\u00a0 Before I finish, I want to address the issue of that $2,000 down-payment.\u00a0 There is a reason I used this figure – $2,000.\u00a0 I believe that it is achievable for most people!\u00a0 I am going to get your mind going in the right direction by asking you a set of questions.\u00a0 But, I won\u2019t provide the answers \u2013 that\u2019s on you\u2026<\/p>\n