No money down Contrracts??

Question

How to convince the seller to go into contract with me  no money down ?? I need help can any one give me ideas???

Mitch Stephen · Answer

I had success getting nothing down deals by showing the Seller a concise renovation plan and that I have the funds to complete the renovations.

EXAMPLE: Dear seller, would you consider a nothing down deal if I put $10,000 into the rehab of your run down property? I want to own this property but it's going to take everything I have to get it up to speed. After all, I will be vested and I will be fixing up your collateral.

--Mitch Stephen--

Bill Gulley · Answer

I have done many deals with no money down, you're not me. As Jason mentioned, it's all about trust and showing or projecting your ability to follow through.

I have to laugh when I see that $10 consideration. Any contract has to have consideration to be valid. Consideration can be the promise to perform, but consideration is clearly evidenced by any stated payment. That's why you will see "For and in consideration of Ten Dollars,  as well as other good and valuable consideration, the reciept ofwhich is hereby acknowledged, but not herein recited " or something to the effect. What does that mean?
It's nothing but a phrase used to validate the contract,saying that there was a financial consideration along with outher promises made by and between the parties that have not been stated in writing, as well as those stated, so that in the event of default by either party, there will be justifications for any damage claimed arising from the default. For any contract to be valied, there must be consideration.

I only recall, in all my years, of paying 10 bucks one time. (Years ago it would say $1.00!) That was a guy who was very simple minded and it was easier for me to hand him the $10.00 (probably for gas) than to explain something he would not understand. That $10.00 is not earnest money and it is not even considered a down payment! Think of it as paying ten dollars for the act of making the contract. It's a formal handshake.

Earnest money is only to show good faith but it is also a reserve for any damages. Not busting the door, but for any financial loss arising from entering into a contract where the buyer fails to perform.

To say that investors do not give earnest money is not really a true statement, while some may not, it is customary and done all the time, more often than not, but it does not need to be cash. I have used an Earnest Money Note, a promissory note which is required to be paid at settlement and is counted toward the down payment.    The note is payable regardless of the buyer performing. If I don't buy and I gave a note for the EM, I can be sued for the amount and I will lose (if I'm at fault), then owe that amount. Most standard RE contracts have a block for an EM Note.

If a property is listed with a broker, many brokers will not allow a contract without EM, or they will counsel their client to reject the contract until EM is deposited in some way.
One loss that can be suffered is the loss of the RE Commission to the broker.

What if a buyer has an inspection and the buyer faile to pay for it? The HVAC guy could put a lien on the property and who would get stuck with such bills if the buyer walked?

The reasoning for the EM is that when the property is placed under contract, it is off the market. What happens if another buyer who is willing to pay full price comes along? It can be done as a back up contract, but the seller has to wait on the contract agreed to, and the backup guy can walk as it is not accepted (unless accepted subject to, but you can not hold the buyer to it if they don't agree). Now, if the first contract falls through, the seller missed the opportunity to sell and thuse has suffered a financial hardship. If the second contract is for less, there is the loss of the difference as well.

Would I sell without any EM, sure, depending on who it was, their ability to do the deal, and so long as the contract period to closing was rather a short term, like 10 or 15 days. I'm not taking my proeprty off the market for 30 or 45 days, maybe longer as it may require to be extended, to some guy who drives up in a 95 Ford who claims to be some real estate investor (translation, some jobless guy who probably has questionablle credit and no money).

If the seller has tried to sell for 286 days and no hits, another 30 days probably will not be a problem, so a motivated seller might look at anything.

Alot will hinge on what is customary in your area and who the seller is, who the brokers are (if any) and the circumstances.

Thanks for the opportunity to get my mind off the torando, later...

Account Closed · Answer

I see many new investors get paralyzed by this. The answer is just sign the deal up! Don't focus on earnest money. Don't even mention earnest money! Focus on the solution you're providing.

As JScott mentioned, if they're motivated their primary concern is getting their problem solved, not earnest money. They won't even ask. Besides, if they have proceeds coming to them at closing well there is their money right there; they'll get paid at closing.

Think about it like this: they got themselves in a jacked-up situation...mortgage upside down, or the house is a dump, tenants skipped and/or trashed the place, behind in payments, or whatever. Here you come along with a solution to their problem...why would their mindset even take them down the path of "charging" YOU to solve THEIR problem?

Want in on a dirty little secret? Most investors don't give private sellers ANY money at all. Even though you're technically supposed to give them $10 or whatever, that rarely happens.

J Scott · Answer

First, you need to find very motivated  sellers.  Any seller who isn't desperate to sell can probably find a buyer who *IS* willing to come with at least some cash.

Second, you need to be able to instill confidence in the seller that you will be able to follow-through on the purchase of the property (or find an end-buyer if you're wholesaling).

Focus on those ways to instill confidence:

- Improve your negotiating skills
- Provide some examples of successful deals you've done
- Bring in a partner who has been successful to build your image

Mesbahul Hoda · Answer

In NYC, I have seen contracts filed at the courthouse where there was no earnest money deposit.

John Q · Answer

Wow thanks a lot everyone for your input.

Rob Gillespie · Answer

I operate on double standards, I never give earnest money, and ALWAYS require it when I am selling. I have always heard about the 10 dollar thing, and It is probably true, but I never give it. It has worked for my few hundred deals so far, Lol! Just be aware, when you are dealing with bank owned stuff, it is a different ball game. 
Good luck!

Ryan Webber · Answer

Well "technically" you don't have to give earnest money.  I will say that "culturally" or "typical societal pressure" alludes to giving earnest money as the proper thing to do, but it is not required to have a valid, enforceable contract.  And I don't think its a dirty little secret.  I've been telling people publicly on this forum that you don't have to legally give earnest money for the last 5 years and yet we still have these conversations.

Either way, Archie is exactly right about focusing on something else.  I never bring up or discuss earnest money when I am dealing directly with a seller.  There are extremely few sellers that even ask me about it.  Probably about a dozen people have even ASKED me about earnest money out of hundreds of deals I've done directly with homeowners.  And I've only given earnest money on 2 or 3 of those.  One was an attorney and he said he wouldn't do the deal without it, and one was a title agent who said pretty much the same thing.  If I am asked about it, I just explain that it is not legally required and that I don't give earnest money.  Then I move on to something else.

John Q · Answer

Thanks everyone for your help I appreciate it. Mr. Holdman I am talking about just to agree to sign a contract to purchase the house with no earnest money. Then to assign the contract.

Jon Holdman · Answer

Not sure I understand your question.  Do you mean you want the seller to sell it to you with owner financing with no down payment?  Or, just to agree to sign a contract to purchase the house with no earnest money?

No money down Contrracts??

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