Conventional Wisdom Advises Against Using This Nothing Down Real Estate Strategy… I’ll Let You Decide
Have you ever wondered what they mean when the say “creative financing”?
I get a kick out of the reaction of traditional lenders to the term “creative financing”. Creative financing for a lender is a deal with the most money down with the highest interest rate possible and terms that completely favor the lending institution.
And when I’ve talked “shop” with lenders and explain some of the creative financing strategies for zero down real estate deals they have one of two reactions. They either blankly stare off into space silent as a mime or they begin ranting at how impossible or risky it is to get deals like that!
Well today you’re in for a treat.
Today you’re going to receive a very creative strategy for purchasing zero down real estate. I won’t charge you a penny however in all honesty this strategy is for more advanced investors and I advise you to use it at your own peril. Don’t come crying back to me if you try this strategy with no real estate background. I would recommend you find a real estate mentor first. Anyway here it is.
When To Use This Strategy
To successfully use this strategy you need the magical combination of two factors…
First, a motivated seller
Second, high equity in the property
Some real estate investor’s claim finding this combination is like finding a pearl in an oyster. Ok, so you’re not going to find a pearl every time you open an oyster, but you know if you work at it hard enough eventually you will.
Here’s How It Works
Let’s say you find a seller with a free and clear property. Let’s say he’s asking $97,000 for it and with $25,000 upfront he’s willing to carry $72,000 at 7% interest for 15 years or about $650 a month.
We will also assume that it needs $20,000 to fix it up so it will be in good enough shape to resell it for $159,300 with owner financing.
So now you go borrow the $25,000, along with the $20,000 for repairs plus an extra $20,000 for a total of $65,000 from a private lender. To make this happen your private lender will have to get a first lien and the seller will have to take a second lien. And don’t forget to get the seller to agree to subordinate to any new first lien on the property in the future, otherwise you’ll mess up the deal when it come to sell it later.
Ok, here’s how the terms may work out. You’ll get 13% and 5 points with a 3-year balloon on the first from the private lender. Payments worked out to about $825 a month so combined with the second it totals $1,475. We’ll say market rent is $1,395.
Yes, you’ll have a small negative cash flow which is no big deal because at closing you’re going to pocket $36,750 cash including the rehab money (minus a couple thousand closing costs.)
Ok, now you put the house on the market for:
"$159,300 fixed up- or make offer as is.
Owner can finance."
So now a couple of weeks fly by and you’ve got no buyer in site. What do you do? Get real–you begin fixing up the property! After spending $4,000 a buyer finally shows up. Your buyer agrees to buy the home for $ 156,000 on an “agreement for deed” and they negotiate to do the rest of the work themselves in exchange for their down payment. They agree to pay $1,300 a month and obtain their own financing within two years.
To you it’s like getting a $16,000 down payment… because that’s what you have left over now that the buyer is going to finish the repairs themselves. Some "real estate investing advisors" go absolutely insane if you “over borrow”. So how do they define over borrowing? In this scenario you only owe $137,000, and you’re collecting on a $156,000 note. You still have $19,000 coming.
Pretty creative wouldn’t you say? It’s extremely lucrative as well.
This is one example of numerous techniques of doing nothing down real estate deals. Some call them “secrets” but the only reason they’re a secret is because you don’t know what they are… yet. You’ll get tons of techniques like this and many more in our unique real estate training programs. Check them out if I’ve peaked your intererest.
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