Building your real estate portfolio with nothing down
No Money Down?
A lot of you real estate wanna be's who keep saying or thinking you can't get into real estate because you have no money, or have heard about these "no money down" deals but don't know how to do them, well listen up. I've got a treat for you tonight.
Creative Financing
Creative financing is simply this: You make an offer that simply gets the deal done, doing whatever it takes to make it happen. You trade, wheel and deal, offer them deferred payments until it's cash flowing, you can offer your trade service to cover the down payment, maybe even trade the whole thing out in services. This lowers the cost of the house, and thus reduces capital gains for the seller, which can be attractive, provided your services are of high value.
For example, if you are a handyman, go find a landlord who has a lot of houses. Chances are they need some work done on their homes, and they might be willing to sell some of their properties on contract. So you trade out the down payment in sweat equity or hard work for them, and then buy the house from them and they act as the bank. You make payments to them directly just like a bank.
Just remember to have positive cash flow
The rule to every deal is positive cash flow. I've read all these formulas in various books, where you add up the net operating income after PITI and calculate vacancies and all this other mumbo jumbo. To me, a good deal will cash flow at least 50%. So if your total rent is $500, you'd better be making at least $250 a month after all expenses. Otherwise its just not worth it in my book.
Creative loan structuring
Lets say a deal only cash flows 25%. There are ways to restructure a loan so that it can cash flow better. Either go longer on the term, or have a balloon payment at the end, or throw in sweat equity payments along the way. Trading is good because you don't have to pay income tax on trades, and the seller doesn't have to pay capital gains on trades.
Why would anyone sell a house on contract?
There are a lot of reasons some people will. For one, capital gains taxes. If they don't have a 1031 exchange lined up, they might have to pay a ton of income tax. If however, the payments come in montly installments over 10 years or so, they don't have to pay much taxes. If they sell and make a big profit, they might have to give up a huge chunk of it. For someone retiring or just wanting more monthly cash flow, selling on contract is a big plus.
Another reason people sell on contract is often they might be overpriced. No offers came in to buy with a bank, etc. So selling on contract is a way to get out from a burden for them. If the buyer flakes out, they get their property back, and in many cases they don't have a lot to lose.
Not every seller will be in a position to sell on contract, in fact probably only a few will. But it never hurts to ask. You just might find some good deals that didn't work for anyone else by doing it this way. I've read you can even sometimes make an overpriced deal work by offering 0% interest. They get their asking price, but since you aren't paying interest it could be worth it in the long run for you to buy a property this way.
A lot of you real estate wanna be's who keep saying or thinking you can't get into real estate because you have no money, or have heard about these "no money down" deals but don't know how to do them, well listen up. I've got a treat for you tonight.
Creative Financing
Creative financing is simply this: You make an offer that simply gets the deal done, doing whatever it takes to make it happen. You trade, wheel and deal, offer them deferred payments until it's cash flowing, you can offer your trade service to cover the down payment, maybe even trade the whole thing out in services. This lowers the cost of the house, and thus reduces capital gains for the seller, which can be attractive, provided your services are of high value.
For example, if you are a handyman, go find a landlord who has a lot of houses. Chances are they need some work done on their homes, and they might be willing to sell some of their properties on contract. So you trade out the down payment in sweat equity or hard work for them, and then buy the house from them and they act as the bank. You make payments to them directly just like a bank.
Just remember to have positive cash flow
The rule to every deal is positive cash flow. I've read all these formulas in various books, where you add up the net operating income after PITI and calculate vacancies and all this other mumbo jumbo. To me, a good deal will cash flow at least 50%. So if your total rent is $500, you'd better be making at least $250 a month after all expenses. Otherwise its just not worth it in my book.
Creative loan structuring
Lets say a deal only cash flows 25%. There are ways to restructure a loan so that it can cash flow better. Either go longer on the term, or have a balloon payment at the end, or throw in sweat equity payments along the way. Trading is good because you don't have to pay income tax on trades, and the seller doesn't have to pay capital gains on trades.
Why would anyone sell a house on contract?
There are a lot of reasons some people will. For one, capital gains taxes. If they don't have a 1031 exchange lined up, they might have to pay a ton of income tax. If however, the payments come in montly installments over 10 years or so, they don't have to pay much taxes. If they sell and make a big profit, they might have to give up a huge chunk of it. For someone retiring or just wanting more monthly cash flow, selling on contract is a big plus.
Another reason people sell on contract is often they might be overpriced. No offers came in to buy with a bank, etc. So selling on contract is a way to get out from a burden for them. If the buyer flakes out, they get their property back, and in many cases they don't have a lot to lose.
Not every seller will be in a position to sell on contract, in fact probably only a few will. But it never hurts to ask. You just might find some good deals that didn't work for anyone else by doing it this way. I've read you can even sometimes make an overpriced deal work by offering 0% interest. They get their asking price, but since you aren't paying interest it could be worth it in the long run for you to buy a property this way.
posted by Joel Huenink at
11:47 PM
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