Does the "No cash No credit" financing really work??
Property Manager · san mateo, CA · Member since 2009 · 7 posts · 1 vote
Does the "No cash No credit" financing really work??
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Real Estate Broker · Rochester Hills, MI · Member since 2009 · 2k+ posts · 2k+ votes
17yOf course it is possible - that is how I got started in this biz - no cash and no credit. I found partners with cash and other partners with credit - I did all the work and split the profit 50/50 until I had enough to work on my own.
A lot of those guys also talk about a sub2 deal - where you find a distressed homeowner who needs to sell and you lock up their home on a sub2 deal and then you do a lease option with a buyer or sell to an investor and you make some cash in the middle.
You can search sub2 in this site for lots more info.
But yes - it can be done - but as others have said not the easiest way but a way lots of us started out.
31 Replies
- 17yCurt DavisBusiness MemberFlipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
Shawn,
To an extent it is possible but its not something a new investor is really going to figure out.
There will be some money involved, and it also makes it easier if your credit is good. What is your strategy? Are you wanting to buy and flip, or do assignments or do you want to buy and hold?
Curt Davis - KAIZEN Realty538 Reviews - Property Manager · san mateo, CA · Member since 2009 · 7 posts · 1 vote17y
ideally id like get into the business of flipping sfh's as well as holding apartment buildings with positive cash flow.
- Member since 2009 · 15 posts · 3 votes17y
There are ways to get finacing without using personal credit, but no credit at all is unlikely. You can get financing based on your company's credit if you have a strong business credit score. If you have good personal credit and business credit, well then that is the best case scenario.
- 17yBrian LevredgePro MemberInvestor · Chattanooga, TN · Member since 2009 · 1k+ posts · 903 votes
There are ways to do it, but they are not easy, per se. You could borrow from a friend's self directed IRA. Since your friend knows you and presumably trusts you, you don't have to meet income and qualification like you would a bank. The deal would still have to be structured above board though.
- Real Estate Investor · ten mile, TN · Member since 2009 · 1k+ posts · 374 votes17y
In all reality, most of the so called deals are comming into the scrunity hairs of the SEC as if you form a business and get people to loan you money based upon what you can do to return their investment in XXX period of time this is considered a perspective and only family can do this without the proper paperwork.
Therefore, it must be as a loan with required payments for you to make and therefore affects your credit (business or personal) it is still your credit.
So therefore the answer to "no finance, no credit" is that it does not work and may, in fact, be illegal!
- Real Estate Broker · Rochester Hills, MI · Member since 2009 · 2k+ posts · 2k+ votes17y
Of course it is possible - that is how I got started in this biz - no cash and no credit. I found partners with cash and other partners with credit - I did all the work and split the profit 50/50 until I had enough to work on my own.
A lot of those guys also talk about a sub2 deal - where you find a distressed homeowner who needs to sell and you lock up their home on a sub2 deal and then you do a lease option with a buyer or sell to an investor and you make some cash in the middle.
You can search sub2 in this site for lots more info.
But yes - it can be done - but as others have said not the easiest way but a way lots of us started out.
- Real Estate Investor · Weston, FL · Member since 2008 · 47 posts · 28 votes17y
Scott nailed it.
Sub 2 is the best way to accumulate a porfolio of properties based on no cash - no credit.
But realize this, if you don't have a buyer lined up, you will have to make (up) the payments to the Lender.
So make sure you have a solid and extensive buyer's list, and you'll be just fine. :mrgreen:
- Real Estate Investor · ten mile, TN · Member since 2009 · 1k+ posts · 374 votes17y
I stand by my statement!!!
People have been taken to court and had their credit runied because they could not purchase after the buyer backed out.
These cases becomming more common as the economy turns south along with compliant to the government about being screwed out of some of their money by someone who was supposedly working for them who knew the business. ( This is always their viewpoint even though we know it is not true.)
This alone by happening shows that your credit is tied to your good name and that your credit is on the line, even though you do not borrow any money on credit of yours.
- Wholesaler · Amarillo, TX · Member since 2008 · 1k+ posts · 659 votes17y
Originally posted by jawsette:
I stand by my statement!!!
People have been taken to court and had their credit runied because they could not purchase after the buyer backed out.
These cases becomming more common as the economy turns south along with compliant to the government about being screwed out of some of their money by someone who was supposedly working for them who knew the business. ( This is always their viewpoint even though we know it is not true.)
This alone by happening shows that your credit is tied to your good name and that your credit is on the line, even though you do not borrow any money on credit of yours.
This is why I'm glad that this is a public forum. This is a great case of rumors spreading about the legalities of something with no real substance behind the claims. Frankly, Jawsette, it appears you're flapping your mouth without knowing the slightest thing about what you are talking about.
How exactly is someone going to be taken to court when their buyer backs out? Did they not put a simple contingency in their contract to be able to back out legally? Where did you see this alleged court case? Why do you think that these cases are becoming more common? What is your source?
As for people loaning your business money, the SEC's regulations are less relevant here than your state's "Blue Sky" laws as they're called. Most of what these laws say have absolutely no bearing on what we are talking about here except for in how you can advertise for investors. Public advertising is regulated by these laws and if you plan on doing any advertising for investors then I would highly recommend you research your state's laws.
The SEC and at least Texas' Blue Sky laws have no bearing on if you partner up with your friend, your family, or even a complete stranger for a 50/50 split or 20/80 split or even a yearly percentage payment (i.e. 12% a year on the investment).
Yes, Shawn, you can do this business with no money and no credit, but you need to make sure that gaining capital and credit are your primary goals if you wish to invest long term.
Money from friends, family, hard money lenders, other investors, and complete strangers is all available without having good credit or any capital of your own, necessarily. Combine that with seller financing, lease options, contract for deeds, subject to's, and wholesaling and the bottom line becomes that you do NOT need capital or credit to invest in real estate. But having either or both does always help. :D - Real Estate Investor · ten mile, TN · Member since 2009 · 1k+ posts · 374 votes17y
You make an offer to a bank or anyone and you are liable to complete the offer. It does not matter to them if your buyer backs out or whatever happens to cause you not to complete your part of the arrangement. Neither do the courts care. Yes this has happened many times and credit has been ruined because they can not pay as required by the courts.
I am supprised that you do not remember these cases. You can look up the warnings right here on BP from many members that you had better be ready with a backup buyer or ready to pay cash if your buyer backs out. It has been stated many times and there are penealties if you do not follow through.
Credit is more than what you get from the bank or financial institution, it is your reputation as well. Credit was started by a handshake and your word. If your word is no good neither is your credit. So everytime that you give your word on any deal it does affect your reputation and your credit.
Nothing that I said was incorrect.
I even spoke of homeowners complaining to the government of those who they felt were in the business that treated them improperly. This is also true and is the reason that there is so much more regulations that we are having to endure everyday (so it seems) with our actual lending and borrowing practices.
- Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes17y
If you sign a purchase agreement with a bank or any other seller, there will be an alternative to choose "specific performance" or "liquidated damages" as the remedy for not following through. As a buyer you ALWAYS want to choose "liquidated damages". If you're using your own contract, it should specify this as the remedy for not completing the contract. Banks will not balk at this choice.
With this choice or this clause in your contract, if you don't find a buyer, the seller will keep your earnest money. End of story. You have no further liability to complete the contract, the seller has no basis for a lawsuit (they can always still try), and nobody's credit is going to be ruined.
If you deal with that seller again in the future, maybe they will just trash your contract.
If it was an individual seller, you may have caused them considerable pain by not following through. You certainly should not do this to an individual seller who's counting on you to come through. But, legally, the contract specifics their remedy for a failed contract.
- Real Estate Investor · ten mile, TN · Member since 2009 · 1k+ posts · 374 votes17y
Thank you Jon, I stepped in here to try to show some of the newbies that the full story is not told by most of those who claim "No cash No credit".
There are things that you must have in those contracts or you will lose your reputation, which in this industry, does affects your credit.
Ryan, these are the type things that I want to bring out to most of the newbies, as this is an area of guru influence that I am afraid they do not have the full story of, which is why I put out some things that can and will happen if they are not careful.
I do value your judgement and most of what you said is correct, but the cases that I spoke of have also happened to some who were not taught to be diligent in their contracts.
CAN it be done? YES., most definately but be sure to have the approiate clauses in any contract that you use. This is of the utmost.
- Wholesaler · Amarillo, TX · Member since 2008 · 369 posts · 75 votes17y
Consider wholesaling!
I put a house under contract with no money down for 25K then assigned that contract for a 5k assignment fee.
Ryan Webber might know a little something about that! :D
The only money I used for that particular deal was the cost of bandit signs.
If you find a deal that is good enough, then you can purchase, pay points, and rehab a house with no money down by using a Hard Money Lender. You may or may not have to pay closing costs. And you would need to make your monthly payments on the loan. That maybe a few hundred dollars a month for 6 months or so but that beats having to use all of your own money and you don't need any credit. - Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes17yDefinately a viable strategy Chris but I would disagree taht it beats using cash. Having the fees and payments for a HML requires just that much more spread allowance in your deal and thus removes you from some deals. Using cash or private funding requires no payments during the holding period, no points or very low points to pay and much more room for profits in the deal.
That said, this thread is about having no money and so your suggestion is certainly on track. Congrats on your successful wholesale deal. Are you implying Ryan trained you? If so, you had a good trainer, hence your success.
- Wholesaler · Amarillo, TX · Member since 2008 · 1k+ posts · 659 votes17y
Trained him? Shoot, I was the one who gave him $5,000 for it. :D
Jawsette, my point is that you started throwing the "illegal" word around when what you were referencing is perfectly legal and is done every day in every market across the country.
Now there's two different things you originally referenced. Backing out of contracts and SEC violations for private investors.
Backing out of a contract with a simple contract contingency is not illegal and is done every day. Contingencies of one sort or another are in every real estate contract I've ever seen. Every contract will at least be contingent upon clear title, and a financing and/or inspection contingency will be in over 95% of contracts.
Banks have even started putting built-in inspection contingencies into their addendums when they are selling REO's to non-contingent cash buyers.
For most standard contracts, you won't even lose your earnest money (liquidated damages) when you use a contingency.
And frankly every single guru I've ever seen teaches using contingencies in your contracts. Its the easiest way to minimize your risk in a transaction.
Now can backing out of contracts have an effect on your reputation? Yes.
But that does not make it illegal and it won't ruin your credit.The very first contract I got accepted was an REO and I put $500 earnest money down on it. I ended up backing out NOT using a contingency because I was so scared. I figured I lost my earnest money, but the bank even returned it to me.
Jawsette, you didn't have any response to what I said about your SEC comments so I'm concluding you don't have any facts to the contrary. - Real Estate Investor · ten mile, TN · Member since 2009 · 1k+ posts · 374 votes17y
look back to some of the posts prior to mine. Someone suggested using a friends self directed IRA and someone else a company that you own to solicit those funds needed. All under the SEC guidelines of one form or another.
And yes, guru's do mention "subject 2" clauses but do not go into what each one is for and what areas they will work in and how to modify them for the other areas because they do not want to be charged with legalities of giving legal advice. So even somewhat explained most newbies are still clueless and do have problems implementing them.
Everything done properly is ok, but anything left hanging and you might as well be also because you can loose your shirt and credit and reputation.
- Wholesaler · Amarillo, TX · Member since 2008 · 1k+ posts · 659 votes17y
The SEC does not regulate self directed IRA's, and under the conditions we're discussing here, the SEC does not regulate business partnerships.
Now the SEC, and really moreso each state's blue sky laws, do regulate the public offering/advertisement of certain types of business investments to non-accreditted investors. So if you plan on publically advertising for investors or doing massive syndicates then you need to study up, but if you plan on using your self directed IRA or your business partner's nest egg to buy property then you should talk to your accountant, your attorney, and/or your financial planner and skip the trip to the Securities and Exchange Commission.
And from my experience guru's heavily promote the use of simple contingency clauses. Your reference to "subject 2" phrases muttles a whole different investing strategy, but my point is that guru's DO teach the use of perfectly legal contingencies in the contract. I think guru's are very forthright with that. And really, as a new investor I think you are being foolish if you don't have a contingency in your contract so you can gracefully and legally and with all of your earnest money, IF you put any up, back out of the contract with no worries about going to court over it. - Real Estate Investor · ten mile, TN · Member since 2009 · 1k+ posts · 374 votes17y
Any contract with any clause in it is subject to that clause. This is one of the "secrets" of those guru that are not explained well. Which subject to clause to use and when. If the wrong subject to clause is used it will not protect you from that you think it does and litigation can follow.
That leads us to agreement in that you must have the proper full legal advice about those contingencies or you may face legal troubles which will in fact hurt your credit and reputation.
And todays far reaching governmental regulations can be used to affect those business who are using their credit as proposed to influence a friend who has an IRA to invest with them since they trust that friend, especially when the investment does not return what they thought it would. There have been several of these complaints filed with the SEC who investigated and applied their laws or turned over to the proper authorities and there are several proposed legislation changes in the works currently.Some of which affect "small business" according to the SEC because those small business have an investor relationship with some regulated securities.
Now my use of the SEC may be premature for the beginning investor as they are not traded companies in most likelyhood. But on the other side of things the SEC is and has been going after brokers/companies who use others funds and reap a commission/fee in mortgage securities.
From the SEC site:
It is my contention that with all the current losses and complaints of homeowners upside down because of the recent economy that if the SEC can not reach the mortgage securites (trust deeds) with their regulations that the current governmental forces may try to accomplish something similar with their regulations for the homeowners losses. So we all need to keep privy of those proposals of such new legislation SEC and goernmental wise by the use of a competant local legal advisor despite what those guru's say because they have always done it. THINGS ARE changing and rapidly.
Especially in the "creative financing" areas. This term is what really triggered my red flags and why I feel the need for the warnings here.
- Real Estate Investor · ten mile, TN · Member since 2009 · 1k+ posts · 374 votes17y
Yes Ryan, I am beginning to get the feeling that as of now I may indeed be applying things incorrectly because of your responses and the research it has caused me to do, but I still do feel that these things are forthcomming and need to be watched for.
Please do continue to attack my thoughts and interpretations which you see as incorrect. It is how I learn. It is one of the many benefits of this board that I prize dearly. And am not afraid of showing my ignorance (when it does happen) so that I may learn more. - Wholesaler · Amarillo, TX · Member since 2008 · 1k+ posts · 659 votes17y
Originally posted by jawsette:
Yes Ryan, I am beginning to get the feeling that as of now I may indeed be applying things incorrectly because of your responses and the research it has caused me to do, but I still do feel that these things are forthcomming and need to be watched for.
Please do continue to attack my thoughts and interpretations which you see as incorrect. It is how I learn. It is one of the many benefits of this board that I prize dearly. And am not afraid of showing my ignorance (when it does happen) so that I may learn more.
I agree that one of Bigger Pockets greatest strengths is the opportunity to learn from multiple perspectives of new and experienced investors. I think having the ability and the humility to learn is one of the greatest attributes a person can have, and it's obvious that you have that Jawsette.
I do agree that government regulation and intervention into business dealings is becoming stronger and stronger with each bill passed by Congress. I think we are still a distance from the slippery slope of pervasive government control that is often portrayed by the far right but we are, nonetheless, headed done that path. - Indianapolis, IN · Member since 2008 · 759 posts · 185 votes17y
The Government is 100% against the investor right now, but there will always be a way, we will always find a way, and these deals will happen!
~Harrison
- Real Estate Investor · ten mile, TN · Member since 2009 · 1k+ posts · 374 votes17y
I do believe what I was remembering is actually covered by the predatory lending laws and there are several places on the SEC informational site that speaks of predatory laws which is why I confused the two. I do believe that they may be headed that way with the new proposed laws on owner financing.
But as of now it is not part of their domain. YET
- Residential Real Estate Agent · Lancaster, PA · Member since 2010 · 3 posts · 0 votes16y
The government is against the investor right now becasue they are so bitter about the money they are losing. They were being scrupulous so they hate the fact that the investor is benefiting greatly from their wreckless lending. So they look for ways to keep us out the game but investors are needed, so the more they try stop us it will back fire just like their wreckless lending plans did.
- Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes16y
Hi, as to the SEC. There are two different issues here. A mortgage broker (or anyone) who advertises or solicits funds from the PUBLIC for an investment can lead them into trouble with the SEC. If you are talking to a guy at the coffee shop and telling them that you make real estate loans and he asks how he can get into that, that is a completly different issue. If 5 or less guys at a coffee shop decided to enter into an investment, they may do so without SEC regulations being applicable. A loan secured by real estate is specifically excluded by individuals. The source of funding, ie, a self directed IRA (which has it's own requirements) is irrelevant as to SEC requirements being applicable to any investment. 5 or less parties and how you present your business are key factors.
I'd like to add too, that when we all look up statutes and regulations, there is a really boring section in the beginning that we really don't want to read, called definitions. This is where you will find the definition of an investor, creditor, etc. if that definition does not apply to the situation in question, then that statute or regulation does not apply to it.
Good Luck, Bill
- Real Estate Investor · Oklahoma City, OK · Member since 2009 · 86 posts · 39 votes16y
Originally posted by Chris Trook:
Consider wholesaling!
I'm with Chris's recommendation for someone like you who is just testing the waters...and wants doesn't want to put a bunch of your own cash at risk.Wholesaling will train you - FORCE YOU - to find real deals. If you can't find a real deal - one with a boat load of built-in equity, you'll have a tough time of it as a real estate investor.
As for credit, I don't guess any of the sellers or buyers with whom I've done wholesale flips have ever asked for my credit report.
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