Part 1: The Three Keys to Every Profitable No-Money Down Deal

Part 2: If You Can’t Get Your Money Back in 6 to 12 Months, Why Do the Deal?

There are some sellers that you need to make all-cash offer to, such as offers on bank-owned properties.  In those cases, asking the seller to carry back the financing is an absolute waste of time, effort, and offer agreements. 

It doesn’t stop there.  Most people have been so conditioned by the “normal” way to buy real estate by realtors that asking for terms from the seller isn’t even a consideration. 

As a result, most real estate investors only negotiate on price when making offers on real estate. 

But when you are negotiating one-on-one with a motivated seller who has equity in his property, you can introduce any number of offers.

In his book “The 100 Absolutely Unbreakable Laws of Business Success”, Brian Tracy points out “the terms of payment can be more important than the price in a negotiation”. 

Price is only one factor among many others in a real estate deal.  For any real estate purchase, other factors include

1)      how much the seller plans to carry back,

2)      the interest rate of the note,

3)      the frequency of payment (monthly, quarterly, yearly, etc.),

4)      when and if a balloon payment is to occur,

5)      the length of time in which the note is paid out,

6)      any extras thrown in, like appliances, repairs, etc.

When you negotiate with a seller, you can use any or all of these factors when making offers. 

I’ve heard T. Harv Eker call a negotiation like juggling balls. 

When price goes down, some of the other terms go up.  That means more cash up front, right away.

When price goes up, some of the other factors go down.  That means less cash up front, more cash paid out over time. 

The important thing to remember of about no money down deals is that most people blow it when it comes to putting together the terms of a no-money down offer. 

On free and clear properties, I will almost always include an offer of the seller’s full asking price.  One of the corollaries of Brian Tracy’s law of terms is that “you can offer almost any price if you can decide the terms”.  So offer a high price, a monthly payment that will allow the property to cash flow, and a low interest rate. 

The trick is to make these offers every time you are in a position to make an offer to a motivated seller with equity.  Most of your offers will be declined, but you will jump for joy at every offer that is accepted. 

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.