Let's jump right in where we left off on Part 1 of “Is It Possible To Buy Real Estate With No Money Down?” real estate investing training article. Just to catch you up to speed – we discussed that it's best to use other's people money and your goal as an investor should be to find a $100,000 house that you can buy for $60,000. You many want to get caught up on the deal example. Let's continue……
Profit From A “No Money Down” Deal
Now that you own the house, you can wait 6 to 12 months for something called “seasoning of the title”. Then you can go to your mortgage broker and you tell them that you want to refinance your loan. Your goal is to pay off your private lender and get a conventional loan from a traditional bank. You want to get a conventional mortgage at say 5% to pay off your loan to Uncle Bob at 10%.
This is called a refinance since you are refinancing your interest rate from 10% down to 5%. Now for the refinance, the bank will require an appraisal. If your original assessment that the house is worth $100,000 is correct then your appraisal should come in at $100,000. If prices are rising then your appraisal might even come in higher since 6 to 12 months have elapsed since you purchased the property.
If the bank agrees to give you a loan for 70% of the $100,000 appraisal, then they will loan you $70,000. Assume closing costs, points and fees are $5,000 so you will net $65,000. Since Uncle Bob has a first mortgage on the property he will be paid off on his $60,000 loan and you will have a new loan for $70,000. After paying Uncle Bob back the $60,000 you are left with the following scenario:
House value $100,000
Bank Loan $70,000
Cash left over from refinance $5,000
You just purchased a house with none of your own money down. AND you now have $5,000 in your pocket and $30,000 of equity in the house. This is called distressed real estate investing.
Real Estate Investor's Biggest Challenge
Your challenge is not finding an Uncle Bob. There are many Uncle Bob’s out there. They are called hard money lenders or private lenders. I loan money to investors every day to purchase real estate. Your challenge is to find a $100,000 house that you can buy for $60,000. That is the hard part. That is the challenge. To do this you are going to need to find a distressed seller. If you can learn how to do that then you will have no problem finding the money.
Beginner distressed real estate investors think that not having cash, finding access to capital, or not having good credit are obstacles to their beginning to invest in real estate. This is not true. The biggest obstacle is training and education. If you know how to find $100,000 houses for $60,000 then do you suppose that investors like myself might pay you a fee of $5,000 or $10,000 to buy that property? Of course they will. Investors will have no problem paying you a finders fee to find them good deals that they can buy, fix and flip or buy, fix and rent.
This concept of selling houses to other investors for a fee is called Wholesaling. And it is the best place for you to get started especially if you are a new investor who has never flipped a house before.
If you can learn and understand how and why you can buy a $100,000 house for $60,000 then you can find many cash buyers who would be willing to pay you a fee to get that property. If you understand and know what a desperate seller who is motivated to sell looks like, and why they would sell their house for less than what it is worth then you can literally find unlimited deals. And each of those deals can be wholesaled to another investor for a profit.
You Can Always Wholesale
A few weeks ago, Adina( an investor I work with) put out some bandit signs with her boyfriend Henry. A landlord who was sick and tired of owning a rental property and dealing with her problem tenant called Adina from that bandit sign. Adina offered her $45,000 to buy her house. Less than a week later Adina found another investor who was willing to buy this property for $55,000. Her profit on this deal was $10,000. After paying for closing costs and fees her net profit was $8,109. Her money invested in this deal was zero. She structured this deal and then came to me and asked me if I would fund her purchase of $45,000 so she could buy the house before reselling it to the other investor for $55,000 which I agreed to do.
This is yet another example of no money down real estate. She purchased and flipped a property using my cash and created a profit of $8,109 without putting any money down at all.
Real Estate Investing No Money – No Problem
So if you want to do this, learn and understand how distressed real estate works. Figure out how to find a wholesale deal at a wholesale price from a desperate seller. And if you can find a private lender then you too could be doing no money down deals.