Can I put a house under contract with no money down?

Question

Can I put a house under contract with no money down or is it up to the seller to ask for money? I am talking about when dealing with Wholesaling.

Cyrus Uible · Answer

True, it can depend on state laws, but as a general rule I always shoot for a promissory note that converts to cash at closing.  It works most of the time if there is good seller motivation.  Just my 2 cents.

Robert Angles · Answer

Ryan, 
What legislature are you referring to for title to change hands immediately?

Thanks

Ryan Webber · Answer

I'm not familiar with the Carlten Sheets material or many guru's materials at all, but I've wholesaled over 60 houses this year and I've put earnest money down on maybe 3 of them.  Now again, I don't know the laws for each state, but earnest money is not required for a valid contract in Texas.  Again, I only give earnest money with a property listed with a real estate agent (and that's because a good real estate agent will require it).

Now let me say this, I always require earnest money when I SELL a property.  I would agree with noobdog that it is in the best interest of any seller to require earnest money.  But in dealing with motivated sellers and distressed property, people aren't as level headed as maybe they should be.  Obviously they're selling their property at a significant discount so their rational strategic mental processing might not be the strongest at that point in their life, but I wouldn't say they're stupid, they are just motivated.  I've only been asked about earnest money from a non-represented seller maybe twice.

Now noobdog, in reference to "land contracts", I'm guessing you're referring to a contract for deed, which in Texas is not illegal but new legislation has opened one up to extreme liability for selling a property through any type of executory contract, where the buyer doesn't receive title immediately.  Lease options also fall under that statute and are pretty much dead in Texas.  I do all of my deals with a standard deed of trust.

Jluci, I would personally recommend putting the smallest amount of your own money into any wholesale deal with few exceptions.  You need to minimize your risk, especially starting out.  I would check with a local real estate agent or attorney to see if your state requires earnest money and then go from there.  If your state does require consideration to be a valid contract then I would follow prk's advice and put $10 or less as earnest money.  If it doesn't require it, I wouldn't put a dime unless you have to.

Tom McGiveron · Answer

jluci,

don't get so wrapped up into the whole "no money down" late night guru thing.  i mean, you can definitely buy real estate with little or no money out of your pocket, but it can be just as risky as any other type of investing.

why is it risky?

because no money down depends largely on leverage.  and with 100% of a deal financed, that could leave the borrower in a pricarious situation, especially if that person doesn't know what they're doing.

a question like the one you asked would indicate that you're new to rei.  while the late night guru phenom is sweeping late night tv watchers, it's important to keep your feet on the ground.  the carleton sheets packaged deal is a good start if you want an overall view of how things relate to each other.  it definitely covers alot, but the reality is these "techniques" that are referred to, i think, are easier to implement depending on where you live or plan to invest.  for instance, here in New York, land contracts are not common, but in Texas (i'm guessing), land contracts may be very common and in deed, be the norm.

know this, any offer you submit is considered a valid contract once it is signed by both parties.  do some states require earnest money for contract validity?  i guess.  i mean, the bottom line is, what seller is going to let you put their property under contract without any money on the table?????

they'd have to be very stupid.  i don't care what kind of "sweet deal" you offer the "motivated seller".  that's just dumb.

and you mentioned "wholesaling" - i know what that means, but i'm struggling with how you connected the two?  one doesn't really effect the other or am i missing something?   and you can't put anyone's property under contract without them signing one and you signing it as well.

:D

Ryan Webber · Answer

Well prk, it depends on your state.  In Texas, consideration is NOT required to make a contract valid.

Ryan Webber · Answer

I only put earnest money down when I am dealing with listed property.  Now some states used to require earnest money to make it a valid contract, so you might want to check with an attorney.

N/A N/A · Answer

it is only a valid contract with consideration.  A $ 10 deposit would make it valid.  Although $100 would probably makeit look a little more serious.