How to Profit from a Zero Equity Deal

Here’s how you keep a deal profitable even when the seller has no equity in their property.

How do you turn a property with no equity into a profitable deal for you? We literally do it all the time.

One of our most recent deals was exactly this. And it isn’t the first time we’ve run across this type of situation.

It Can Be a Win-Win When a House Doesn’t Sell

Because of a recent refinance, the seller didn’t have much equity for this deal. The seller wanted to sell his house so he and his wife could move across the country and spend more time with their grandchildren.

Even though the seller was in the banking industry, he had never heard of creative financing deals before. He said he wished he had known about them when he had originally tried to sell his house, so he could have moved sooner.

The seller had put his house on the market a year ago with a realtor, and he didn’t sell. He would have had to come out of pocket at least $25,000 between the realtor commissions and closing costs—remember, there was no equity to cushion those fees.

In this post, we’ll show you exactly how we were able to create 3 Paydays™ amounting to over six figures!

But first, think about that: Right now, you have the ability to use techniques that could save someone in this situation $25,000 or more, still be able to make it a profitable deal, and allow someone to become a homeowner who would otherwise be unable to. One of the many reasons students flock to this niche and that we love this niche is because it’s a win/win/win.

It’s all in getting creative with the terms.

The Deal

The solution we came up with was for our company to buy the seller’s property “subject to” the existing loan on the property. We bought it for exactly what the seller owed—$290,000. And we negotiated a 10-year term. As a reminder, when we buy the property this way, the loan stays in the sellers’ name and we put nothing down.

After doing research and running comps on similar properties, we found we could sell the property to a rent-to-own buyer for almost $350,000. Because the market supported that via recent comps, we were able to position ourselves to already put a $60,000 premium on the property.

We marketed the property and soon found a tenant buyer we felt would be a great fit for our program (after our due diligence in checking out his finances, of course).

Now that you can see how the whole deal laid out, how did we make money on this deal? Let’s take a look at how All 3 Paydays™ broke down:

Payday #1: Placed the tenant buyer in the property and collected a 3% down payment. The plan is to get them to a 20% down payment within 36 months.

Payday #2: The spread, which comes to around $140 per month, is calculated by taking the rent from the tenant buyer and subtracting the PITI payment we are making. We have the flexibility to extend the deal to the full 10 years with owner financing—and if it goes that full 10 years, it will come out to $16,800 for Payday #2.

Payday #3: If the tenant buyer comes up with a 20% down payment at the end of the 36 months, then we will sell the property—owner-financed for the next 5-7 years—at which point he will have to find traditional refinancing. We also gain the benefit of principal paydown (because of the existing loan) of $540 every month. The pivot from rent to own to owner financing is a bit advanced for this article, but super lucrative.

If we do the 3-year term with no owner financing after that, our combined 3 Paydays™

will be $84,000. If we go for the full 10 years, it is over $112,000.

Just think about how powerful these tools are! You have the ability to buy a property from a seller who has zero equity and still create a six-figure income. Plus, you saved them the $25,000 they were going to come out of pocket with if they sold their home traditionally.

This is one of hundreds of deals like this we’ve been able to do within our community. Head over to smartrealestatecoachacademy.com and dive into our Deal Structure Overtime to see the mechanics and all the numbers for all these deals.