Realtors- Can You Really Buy Property With No Money Down? – Real Estate Investing

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Joe: Hey, it’s Joe. I’ve got another question. “Dear Joe, how is it possible to buy with zero down? I know an agent here in Philly who lost his license and went to jail last year because they were doing zero down deals. Apparently, they would raise the price of the house and get a kickback at closing to cover their down payment. They took all of the money and then the houses went into foreclosure. Can you really buy with no money down or are you teaching the same method this guy was using?” This one’s from Michelle in Oklahoma.

Joe: Well, Michelle, what he was doing is illegal. And he’s committing loan fraud because he’s lying to the lender. He’s raising the price of the house, which is harder to do these days because there’s a lot more scrutiny for appraisers. But still, it’s possible, and especially when the markets change, those types of things can happen. But they’re also getting new loans on the property and then they’re pulling money back out and creating shadow seconds. So what they’re doing is defrauding the lender. Obviously you don’t want to do that.

Joe: What we’re doing is perfectly legal, though. Let me give you an example of a zero down deal so you’ll understand the structure and how it works and maybe a little bit of some of the ins and outs of this process. I have a hierarchy of structures that I use from best to worst, depending on the type of deal that it is, what the seller needs, what they’re trying to accomplish and what you’re going to do with the property after you get it. The hierarchy is subject-to at the top, then multi-mortgage, then land contract or contract for deed (it’s the same thing – just different names in different states – if you’re in a trust deed state its contract for deed, and in a mortgage state its land contract). Then there’s lease option, and then assignable cash purchases. Those are the five zero down structures that you can use and I use them in that order, based on the type of deal that we’re going after.

Joe: So let’s take just one of them. Let’s take subject-to because that’s one that I like the best and that I think is the strongest. It’s at the top of the hierarchy. It’s very easy to use with no risk, no credit, and no money down; really a nice process. Basically, what subject-to is – let’s say you’ve got a property that’s worth $150,000. Let’s say they owe $145,000 on it now. If you were to sell it for them as an agent, it would cost them $10,000-$15,000 to come to closing, to be able to pay the commission, for any negotiation, repairs, the title and all of that stuff – it would cost them that much to sell that property at this time. And they’re not in a position to do that for one reason or another, or maybe they just don’t want to. They can’t pay a realtor to sell their property for them. We all know that about 85% of for sale by owners don’t succeed so the likelihood is that they’re not going to sell it for sale by owner and save the commission, either. So they don’t have a whole lot of choices. If you go to them and say, ‘I’d like to buy this property. Here’s how I can structure the deal.’ They owe $145,000 on it. They’re making payments on it. A lot of these interest rates they’ve got are still pretty good. They’ve got interest rates of about 6-7%. Some of them have ugly interest rates and you’ve got to deal with those in a little different way. But most of these properties out there that people need to sell but can’t sell because they don’t have the equity – they have decent interest rates. So you can take over this property.

Joe: There’s a lot of different things you can do with it, but the way you’re going to take it is that you’re going to have them deed you the property. Now, you’re not qualifying for the loan, you’re not applying for the loan, you’re not pulling your credit, and you’re not giving them any down payment – you’re going to just start making the payments. Basically, what I like to do is ask them to make the next 30 day payment. So if their payments are due on the 1st, I have them pay on the 1st. That gives me 30 days to find a tenant or a lease option buyer to put into the property before I have to make the next payment. Now, if you’re brand new at this, and you don’t want to take the risk that you’re going to have make a payment without having a tenant (and I wouldn’t suggest that you do this if you’re brand new anyway because until you’re positive that you can fill those properties, you don’t want to take on that debt) the way you do it instead is to put together a purchase agreement. I have a purchase agreement for subject-to deals, and basically what it does is it gives you 90 days to go out and find a buyer that you can assign the deal to. So you don’t even have to close it. You don’t have to deed it to you at all – you could have it deeded directly to another person who gives you an assignment fee to buy that property, or you can buy the property and you can sell it on a lease option. That protects the seller a little better, and I like that way better, plus it builds your wealth – it builds your portfolio of properties, which is something that is really important to be doing if you want to have a good retirement.

Joe: As an agent, you don’t have a retirement plan or at least most of you don’t have retirement plans, and when you stop working or when you stop making commissions, you stop making income, and that’s not a good situation to be in. You really need to own rental property – every agent should own a bunch of rental property – at a minimum, 2 to 5 pieces of rental properties; everyone should own that. And I would go so far as to say that it’s a better investment than the stock market. If you look at the leverage position, and if you buy good, solid, stable properties that you can rent for the long term and don’t have negative cash flow, it’s a great way to save for the future. It’s a great way to leverage your money. And, there’s no tax implications on the money that it’s making. In fact, it saves you money on depreciation. So you want to keep those properties.

Joe: I’m getting off on a tangent here… Anyway, on subject to deals, you take these properties, they deed them to you, and you’ve got the property – that’s a zero down deal – it’s as simple as that. Multi-mortgage gets a little bit more detailed. Land contract is a little bit different. Lease options are a little bit different. I spend 2 or 3 hours at my buying events teaching these structures, plus it’s in all of my programs, because this is the core material of what I teach.

Joe: So I hope that helps. Good luck with it.