This is the second article in a series about no money down deals. 

Something that is implied by the term “investor” is that you use money to make money.  The problem with this approach in real estate investing is that most people I know have finite amounts of money.  Hello! 

If you put a 20% down payment on every piece of real estate you buy, you will soon be out of money. 

It’s even worse if you have to do a bunch of repairs to the property.  That’s even more money that you will have tied up in the property.

So how do the pro’s get arround having down payment and repair money tied up in the property? 

An alternative approach that’s I’ve used for years is to have some working capital that I recycle.  The beauty of this approach is that I don’t have my working capital tied up for very long. 

Phase 1 of this plan is to buy a property with cash.  Usually it needs work.  Sometimes, it needs LOTS of work.  Again, that requires money.  I’ll get that work done on the property so it’s move-in ready. 

Phase 1 takes anywhere from 2 to 6 months to complete. 

Then I’ll move to phase 2.  During phase 2, I’ll refinance the property once the work is done.  I’ll usually do this with a small, local bank.  True, that does mean that you have to have some decent credit to make this one work. 

But once you’re finished with phase 2, you have your original working capital back all over again. 

Not only that, but you have a property that is making you money. 

In Part 3 of the series, I’ll be telling you all the ways that you can expect to make money on this type of cash flow property. 

My first exposure to real estate investing came almost 15 years ago from a “No Money Down” course.  At the time, I thought it was the best thing since sliced bread. 

The most important thing that course did for me was to open my mind to the possibilities of what real estate could do for me. 

The reason I was attracted to the material in the first place was that – you know what – I had no money.  Since I couldn’t borrow money from a bank or mortgage company, this concept was VERY compelling. 

The central idea in their no-money down system is calling property sellers from the classified advertisements in the newspaper.  Target sellers who are looking to carry the note for the seller.  In addition, ask the seller if you can pay out the down payment. 

I actually ended up with a few properties using this method.  The problem was that using this way to find sellers was actually attracting very unmotivated sellers to me.  Their goal was to find a sucker like me who would buy the types of properties no one else was willing to buy. 

This brings me to three conditions that must happen for a no money down deal to make sense for you as a buyer. 

1)      You need a truly motivated seller.  If you don’t have the right seller, someone who is just looking to dump a piece of property, forget it.  They have to be in pain over the property or they will not be willing to make a deal with you that makes sense from your prospective  as a buyer. 

2)      The property must have enough equity built in.  Most people live in homes that are overleveraged.  They plain owe too much for it to make sense for you to buy their property.  Even if you can go in and get 100% financing, it still usually doesn’t make sense to buy the property unless you have at least 20% equity right away. 

3)      The underlying financing must be favorable.  Remember the days of subprime loans?  You know, the ones with outrageous interest rates.  I turned down many sellers who begged me to take over their payments.  Why would you want to take over somebody else’s problem?  If you can’t get a monthly payment that allows you get a decent positive cash flow, don’t do the deal. 

Have you ever seen one of those pay loan stores? The basic idea is that someone can get a short-term loan by borrowing money against their next paycheck or next number of paychecks.

This can be a life saver for someone who is about to loose something very important to them because they don’t have money for the car payment or their rent.

The downside for the person borrowing the money is the amount of interest and fees they end up paying to the finance company. If you calculate the interest paid, it far exceeds any type of usury limits. I’m not really sure how they get around usury laws, but that’s not the issue in this blog post.

In other words, if you are the one taking out that payday loan, you’ve got to be very motivated for this type of arrangement to make sense to you. Some call this taking advantage of people, but I don’t agree with that. The individual who’s in that situation needs to be the one to decide whether or not that’s a good deal for them at the time they are making the decision.
Successful real estate investors know how to put together creative offers that solve all sorts of problems for those involved. Again, someone looking from the outside at one of these offers might say the investor is taking advantage of the seller. I’ve gotten that before from a relative of the seller.

However, when it comes down to it, that relative isn’t going to do anything to solve the seller’s problem. They aren’t going to buy the property, and they don’t know anyone else who’s going to buy it either. They just end up being a temporary roadblock at best, or a permanent deal killer at worst.

One of my favorite creative offers are no interest, no money down offers. He’s a video where I explain one of these types of offers:

This philosophy of creative problem solving goes way beyond buy properties. It extends to the customers you sell these properties to. For example, I offer most of the houses I have on rent-to-own terms. If I’ve got a prospect who really loves one of my houses, I can usually find a way to sell them the property regardless of their situation as long as they have one the key ingredients to work with (See my last blog post about recipes for success).

It extends to the contractors and handymen I use to work on my properties.

It extends to the lenders who finance my business.

What it all comes down to is finding out what the other party needs. If you can find out how to get them what they need while at the same time getting what you need, you’ll be very successful as a real estate investor.

Add a comment below if you’d like.

It’s ideal when the other real estate investor is motivated to sell that property. If the real estate investor has lots of money, no urgencies, he’s not in a hurry, he doesn’t have a good reason to get you a great deal. You pass on a deal like that.

But if your other real estate investor needs a quick sale, so they can make their car payment or their house payment, or buy groceries – that’s a motivated seller.

You can find these other real estate investors at real estate investing association meetings, and at the websites those real estate associations have up. You can find these people by networking at those meetings.

You can find this other real estate investors by looking for their advertisements. There are two kinds of ads you want to look for. One is the ad that says “must sell, quick for cash investors special”, so they’re trying to sell the house. There are other places where they have ads up saying they want to buy houses.

Look for bandit signs that say “I buy houses”, or ads at the newspapers that says “I buy houses for cash”. Call that person because sooner or later they’re going to have a property they will want to sell quickly for cash. Your opportunity will come when they want to flip a house quickly.

These real estate investors typically have a buyer’s list, and they like to send out email. Get on their buyer’s list. Check on these people regularly. Robert Elder tells about a wholesale seller who, when he was first getting started in wholesaling, brought him seven houses in a row. He bought every single one of them. This guy liked selling to Robert because the other real estate investor knew Robert was quick and reliable when it came to closing. Robert knew the this guy would bring him good deals. It worked great for the both of them.

You never know where you will find a great wholesale seller. You could find these other wholesalers when you’re out looking for houses. Talk to people. Network with, and don’t worry about the fact that people might be competing with you. Focus on instead of how they can help you, and how you could help them. And if you could help them, you know, chances are you’ll make money also.
To find more tips and techniques for finding great deals, go to www.replaceyourpaychecknow.com.

Please write a comment on the article – I’d like to hear your thoughts.

Because it’s a little bit different approach than people are used to, many people get frustrated and move on to something else. You can simply have your realtor do all the computer work for you. The problem is that the selling realtor doesn’t make much money on these deals, so with all the hassle it’s hard to convince them to do the work for you.

But it’s well worth keeping an eye on this site. Last year, I bought a 3 bed 2 bath house for $10,000 from this site. I couldn’t believe my good fortune. I ended up selling the property and making a quick $8,000. Not bad for not doing one lick of work on the property.

So take a look at what properties are on this site for your city. If you are in a high-forclosure state like Michigan, Florida, California, or Ohio, you will probably find dozens of properties.

1. The auction was poorly advertised.  It only showed up, as far as I could tell, on the on-line auction company web site and realtor listing sheets. You had to call an 800 number to find out how to get information on the auction.  They certainly made it difficult for you to find out about the auction. 
2. They offered very little incentive to selling realtors.  For starters, selling realtors were only entitled to a lousey 2% commission.  So if the house sold for $10,000, that’s a whopping $200. By the time they have split with their broker, they barely have enough for a fancy dinner.  The only way an individual could access to the properties to take a look was through a realtor. 

 With all those factors working in my favor, I carefully tracked the auctions.  The hallmark of on-line auction is a hard and fast end of bidding.  I decided in advance the absolute most I would be willing to bid on the properties. 

Then I tuned in a few hours prior to the end of the auction.  The minimum bid on all auctions was $1,000, with bidding increments increasing by a minimum of $500 per bid. 

I was outbid on all properties save for one.  My winning bid for that particular property, which had sold just 2 years ago for $65,000, was only $6,000.  Now, I knew based on my reveiw of the terms and conditions that this was only a bid.  In other words, it was not an absolute auction.  The seller could accept the offer, counter back, or decline the offer. 

So I waited.  In about one week, the seller (Fanie Mae) countered back at $19,000.  My counter back was $9,800.  About a week later, I was phoned to with word that my offer was accepted. 

I decided to wholesale the property because the location didn’t fit well with my buy and hold portfolio. 

So, be on the look out for on-line auctions in your area.  Another one that is currently going in my area is www.bidsellect.com  This particular auction seems to have mostly HUD homes.  My challenge with this one is that to get your offer accepted, I am told your bid must be somewhere close to 90% of the asking price (YUCK!!). 

We’ll see how many property they sell on that basis.  Anyway, good hunting!