Would you like to learn the insider secret about how you can create wealth without risk in real estate? Actually there are three secrets, and you are going to learn all three powerful wealth-creating strategies right now.
The benefits to you once you have mastered these concepts are clear: less risk (or even zero risk!) in the deals you do and the confidence to go out and buy more property. How? Because once you learn how to invest risk free, you'll be making a lot more offers and a lot more money. It is that simple. Remember, the good deals go to those who take immediate action. The best way to motivate yourself to take decisive and intelligent action is to invest with the absolute minimum risk. Here are the three secrets that will allow you to do exactly that.
Make All Your Offers Without Risk
You are going to find motivated sellers who will allow you to control their property with 3 percent or less as a down payment. You can do this by either using a lease purchase or by getting the owner to carry back financing on the home. In a moment you'll see why this is such a powerful way to limit your risk, but first I want to share with you one of the most under-used yet powerful tools you have as an investor: the subject to… clause.
From now on in all the offers you make you are going to insert a subject to clause. This means that your offer is contingent upon some other factor such as a final inspection, or a partner's approval. It isn't so important what the condition is as long as it allows you to write your offer and tie up a property while at the same time you have an escape hatch from the deal.
Of course you will treat the seller with respect and make your final decision about the property in a timely fashion, but because you have locked in your deal with the seller while maintaining the right to walk-away, you can sign up a deal with total confidence. After all, if after you do your due
diligence the deal doesn't look promising, you can pass on it. Can you see what a powerful position this puts you in.
Make Sure the Deal is Profitable Before You Go Through With It
Once you've signed up and locked in your deal, it's time for you to do your due diligence and to discover whether the deal is going to be profitable or not and also how you are going to get out of the property.
Planning your exit strategy before you get into a property is the simplest and easiest way to make sure that you won't get stuck with a property you don't know what to do with. This is the second step of investing without risk.
The best way I've found to map out an exit strategy is to find an end buyer before I commit to the property. It's easy to do if you offer the property as a “Rent to Own” home (i.e. finding a tenant-buyer to lease purchase the home.) Because you won't do a deal until you already have a signed agreement with the end buyer you have guaranteed profits without risk when you do the deal.
Keep Your Up-Front Investment on Any Deal to Zero
Of course you realize that the less money you have in a deal up-front the less risk you have with the deal. Therefore you will always negotiate to have zero up-front money in a deal. However, you may need to offer some sort of earnest money to help the seller feel like you are a serious buyer. What you'll do is be careful to only give things as earnest money that you fully control such as:
- Promissory note, due at closing
- Promissory note, due after all contingencies are removed
- Check to be cashed at closing
- Check to be cashed after all contingencies are removed
- Cash in small amount ($10.00 to $100.00)
All of these ideas keep your up-front money down. Remember, you can bring money to closing (although you should still negotiate to keep that to an absolute minimum too) because by then you already have the deal profitably passed on to an end buyer.
I do this by finding a tenant-buyer before I go through with a deal. I collect 3%-5% of the property as up-front option money from them. Once I have this in hand I feel good about going ahead with a deal.
Investing this way is almost like being on that old game show Let's Make a Deal and sneaking backstage to look at what really is behind the three doors. Obviously when you see the old goat behind door number one and the $25,000 cash behind door number three your decision is pretty easy. That's what applying these concepts to your investing will do for you. They will allow you to know exactly which deals are money-makers and which to walk away from. This is the essence of creating wealth without risk.