- Mentor Coaching
Owner Financing – You as the buyer get the seller to finance the property for no money down, or little money down, or whatever you come up with. The attraction for the owner may simply be cash flow for their free and clear property. The beauty of owner financing is that there are a lot of options. I’ve seen a lot of deals were there is no interest involved. It can be a secured loan against the property drawn up by an attorney (individual practices vary from state to state). That way the owner can foreclose on the property if you stop paying them back, giving them more security.
Land Contracts – You make a deal directly with the seller to pay for the property in installments. Day one, they sign the deed over to you but they put the property in escrow. As long as you perform to your agreed terms, the escrow company will go ahead and report that deed when the contract is fulfilled.
Lease Options – This is also referred to as “Rent To Own”. It is a favorite way to sell a house, but it’s also a good way to buy a house with no down payment, under the right circumstances. For example, you can offer to rent a fixer-upper property for one year, with an option to buy the house outright at an agreed-to price. In the meantime, you find a lease option buyer who is handy. Structured right, this can be a win-win for all parties.
Zero Down Mortgages – This is a traditional mortgage, and the least preferred method. In rare cases, it may make sense. You may have heard that traditional mortgages can require up to 20% down payment because they’re only willing to finance 80% of the home value. In the right circumstance, if the seller accepts an offer 20% below the appraised value of the home, the mortgage will cover the other 80%.
Finance Companies – This is similar to a standard mortgage, but the source of financing is different. Finance companies charge very high interest rates but unlike banks, they are more willing to take chances on people with poor or bruised credit. As long as there are no pre-payment penalties, by flipping the house early, the exposure to the high interest rate is minimized.
Hard Money Loans – Many times the best use of the hard money strategy is to fund a 3 to 6 month flip. Interest rates are truly high, usually 12 to 18%. On top of a high interest rate, the lender usually charges points, anywhere from 5 to 10 points. For the lender, security and safety is their first priority. They typically don’t lend above 70% of the property’s appraised value.
Double Closing – This is an immediate flip strategy for the right situation. Essentially, you find a seller eager to sell in 30 days for a low price, with the closing scheduled 30 days later. You immediately place an ad offering that home for $15K more than you got it for that says “3BR House worth $X, must sell for $X”. The two deals can close on the same day, leaving you a $15K spread.
Contract Assignments – This is also used when you find a great deal that you would rather not handle yourself. Capitalize on deals you don’t want. If you run into a great deal, but it’s not perfect for you, always remember it is worth something. You simply allow a clause in your contract that allows you to assign the deal to a new buyer in your place. You call up fellow investors and show them the deal you locked up. Offer to assign it to them for only $10K, and there is still plenty of room for them to make profit. Essentially, you just made a $10K finders fee.
Investment Partners – Let’s say you find a house worth $180K, but the seller wants out and is willing to sell it for a fast $95K. It is such a good deal you put the house under contract with the right contingency clause in place, even though you don’t have the $95K. You go to your investor club and show off your attractive deal, looking for a partner willing to put up the money; this is an environment in which you may have many takers who’d be willing to put up the money in exchange for a percent of the profits. Or, an investor may want half ownership of the property, in which case would record both of you as owners on the deed. Of course, it doesn’t have to be 50%, it can be any amount you agree upon.
Subject-To – I saved my favorite for last. Hands-down, the best way to buy a house today is subject to the existing mortgage. This way you never have to deal with qualifying for a new loan. You’re simply taking over the payments on the seller’s property, and the seller deeds it over to you through proper escrow for protection of both parties.
In real estate, there is no such thing as a “typical result”. Results vary, dependent on time and effort expended.