Transaction engineering for the real estate investor is akin to a carpenter having a well-equipped tool box or a surgeon having all the necessary operating instruments to get the job done correctly, safely, and in a way that everyone involved benefits. In our business it includes acquisition, property management, asset protection, negotiating, and tax planning to name a few. Today I want to introduce 10 no-money-down techniques (note: no-money-down means none of your money) that you can use alone or in a combination because no two real estate deals are alike.
I encourage you as you read this to think “how many techniques, how many tools, can I add to my tool belt that will allow me to deal with every opportunity that comes along?”
Don’t be a one trick pony…
Many investors use the same technique to do every deal that comes along – they are doomed. Only occasionally can they find an opportunity where they can employ the one technique they’ve learned.
When other investors don’t know what to do, you’ll be able to pull a different tool out of your tool belt, a different technique or a combination of techniques, and be successful when they weren’t. And when you master these techniques, you’ll recognize opportunities and complete transactions others can’t!
Build your buying machine…
To begin building your buying machine you need to learn how to generate leads, identify motivated sellers and then buy below market with deep discounts using cash, Private Money, or Hard Money.
Existing Financing is a powerful option…
Another favorite is to use existing financing by acquiring the property “Subject to.” With this technique, you take over the payments on existing debt without originating a new mortgage. Options and Lease Options are another pair of great techniques to control properties without ownership and still generate great profits.
Partnering with the seller…
Seller financing is my all time favorite. Sometimes it even presents an opportunity for creating a Deal After the Deal for increased profits. All of these transaction techniques can be structured as no money down. Consider Split Funding (some money now and some later); With or Without Payments; With or Without a Balloon Payment, or virtually any combination you can negotiate.
Now, sell it creatively…
When it comes to selling properties creativity is again your best strategy. How do you sell in a tough market? What do you do when the banks won’t lend? You become the bank! It is the most powerful way to build a fortune, while helping other people resolve their problems or achieve their dreams. And you won’t do it with adjustable rate mortgages or other exotic forms of financing that got this whole mess started.
Cash or cash flow? Your choice…
We can sell or lease properties to create either cash or cash flow. Lease Options and Rent to Own programs can help more people qualify for home ownership while reducing vacancies. Selling homes with Owner Financing, Wrap Around Mortgages, and Agreements for Deed can help you market properties to a broader buyer base than the traditional buyer who will get a traditional bank mortgage. These creative techniques also help you overcome seasoning issues and maximize cash flow.
Well there you have it, at least 10 creative ways to buy and another 5 ways to sell without using banks. All the traditional avenues remain available but doesn’t it make good sense to have alternatives that work in any market? Using these creative techniques in an ever-changing array of combinations can give you hundreds of possibilities.
If some of the terms above are unfamiliar to you, don’t worry, you’ll have an opportunity to learn about them and put them to good use during our Quick Start Workshop Series.
Join Us on June 16th at the Bohemian Hotel in Celebration from 9:00am – 5:00pm
Creating Your Real Estate Money Machine Workshop
“Inaction breeds doubt and fear. Action breeds confidence and courage. If you want to conquer fear, do not sit home and think about it. Go out and get busy.” Dale Carnegie
To your success…
I am often asked the best way to acquire investment properties; my answer is usually, “It depends.” Those who know me know I have a sense of humor… but this answer is not intended to be either evasive or funny.
My favorite acquisition technique is with owner financing, but that usually requires a free and clear property. How many of those free and clear properties come along with a motivated seller attached? Certainly there aren’t as many as I’d like. Then there’s buying with cash…I’d rather save that resource for the killer deals that have to be closed quickly in exchange for a massive profit.
For houses with an existing mortgage, my favorite way is to purchase the property “subject to” the existing mortgage. It’s a great way to buy pretty houses without spending a pretty penny. Simply put, I step into the seller’s position and begin making their payments at an agreed upon date. The ownership of the property is transferred to me or my entity and the mortgage remains in the seller’s name until I, or more typically my tenant/buyer, pays it off when they obtain new financing and purchase the home.
Close in a matter of days.
Why is this a good deal for the seller, you ask? The first thing you have to remember is that successful investors only deal with motivated sellers! This is a good deal for the seller because I can close within a matter of days as there’s no lengthy loan qualification and approval process. Additionally, I can typically pay them a higher price because I don’t have any financing costs.
Banks want payments, not houses.
When a loan, which is an asset, becomes delinquent, the lender’s income stream is interrupted. When their assets become non- performing, the lender is required by the Fed to increase their reserves. These reserves reduce the amount of capital available for new loans. So, does the bank prefer payments or would they rather foreclose and take the house back? The easy answer: with foreclosure costs running at about $40,000 per house and defaults at historically high levels, banks want payments, not houses!
Broadest range of exit strategies.
Finally, why is it good for the investor? First, we have no funding cost. Second, since the loan is not in our name it doesn’t appear on our credit report. Third, our creditworthiness doesn’t come into play because we are not qualifying for a new loan. But the best reason is that “subject to” transactions offer you the broadest array of exit strategies!
Additionally, even if you have a super credit score, most lenders will limit you to a maximum of number of 4 loans (if you can get them) and you’ll be required to make a substantial down payment (25$– 30%). If the loans aren’t in your name and you don’t have to qualify for them, just how many of these transactions will you be limited to? That’s right, no limits! I met an investor from Ohio who has over 200 properties; not a single mortgage was in his own name. That’s quite a retirement portfolio he’s built.
My preference is to be a “transaction engineer” rather than a specialist in any one area of investing. I love finding profit opportunities in all types of transactions from pre-foreclosures, renovation projects, owner financing to split funding. But a core element of my acquisitions strategy is using “Subject to” transactions and it should be a critical part of yours.
To your success…
What comes to mind when you hear the word, “dummy?” I tend to think of a ventriloquist’s doll or a replica of a person that isn’t really a live person? One definition I looked up said a “counterfeit or sham.” With all the hucksters and self-proclaimed guru’s on stage, on-line and even on television pitching get rich quick schemes with real estate you’d think that there actually is such a thing as real estate investing for dummies. You know, “it’s so easy a caveman could do it!” At least the cave man was a living adaptable being…the dummy, well …not so much.
While I hate to be the bearer of bad news, anyone who buys into this get rich quick baloney is the dummy. Remember, a dummy lives in a trunk and doesn’t do anything until the puppeteer pulls their string or the ventriloquist puts words in their mouth.
Real estate investing is a great business for those people willing to exercise what I like to call the TEA Principle. TEA is an acronym I have used in my teaching for many years and I plan to continue its use for many more. The reason…IT WORKS!
Most people will tell you, “Take Action” and that is fairly good counsel however, what action? This is where TEA comes in handy. The philosophy here is to take effective action. Actions that move you nearer to your goals or bring your goals nearer to you are what make the difference between success and everything else.
This approach ensures a high probability of success. While you might think this is rather elementary, let me ask you this, how on target are you in achieving your goals? Have you achieved everything you set out to do 10 years ago? 5 years ago? Did you hit all of your goals for last year?
Here is a simple way to begin using this principle. First, set a goal or objective. Begin with something relatively simple and short term. Next write it down…yes write it down. Now think about what you need to do to achieve the result. Write it down in linear steps if necessary. Now it is time to schedule time to achieve the result you want. When and how will you execute the actions necessary to achieve your desired out come? The TEA Principle works best when you learn the discipline of time blocking.
Let’s assume my goal is to buy an investment property in order to produce passive income and tax benefits. I shouldn’t be looking for rehabs because they could require a lengthy vacancy period while they are being renovated. Vacancy is the enemy of passive income. Additionally, it would likely tie up my cash resources which could be better used to produce leverage (smaller amounts of cash to control larger amounts of equity and/or cash flow).
Next, I’d have to identify what skills and tools I’d need to achieve this goal. I’d have to answer questions like; how will I generate leads or find prospects? What buying criteria will ensure that the property will cash flow? Am I better off using the Multiple Listing Service to find the right deal or is there too much competition there? Once I locate a prospect, how will I pre-screen them and then negotiate either a price or terms that will increase my likelihood of success?
Once successfully negotiated, how will we document the transaction? Will I buy the property? If so, will I pay all cash (mine or a private lender’s)? Will I seek seller financing or use the existing financing (Buying Subject To) or another technique? Will I lease the property to control it and buy it at a later date (using a lease option)?
As you can see there are many questions to consider but by considering them up front, I can invest my time, energy and efforts in a very focused way. The TEA Principle allows me to take laser-like focus on my objective and as this becomes a habit, it grows easier and more natural to use for any goal I want to achieve. Every question I answer helps my actions become more effective. When I waste fewer actions on unproductive entanglements, my success rate increases and I free up time that would otherwise have been lost. Its sort of like what happens when I’m on Facebook or YouTube.
Buying or controlling the property is just the first half of the task, remember the goal is to create passive income and that comes when you start receiving those monthly checks so there are a few more questions to answer. Do I understand the rental market, how to prescreen tenants and manage property? What paperwork is requires, what is a 3-day notice? How would I do an eviction if necessary?
I’m not saying you need every answer before you begin because we are always learning and growing. We continue to get better over time as long as we keep asking more questions, seeking more answers and increasing the effectiveness of everything we do.
So why not get out there and Take Effective Action today! Simply taking one effective action every day will have a compound effect, which over the course of the next week, month or year can have a profound impact on your life and your business!
Please take a moment and let me know what Effective Action you took today?
To your success…
Are foreclosure properties a good investment? That was the question I was recently asked by a reporter for Investor’s Business Daily in New York. She was doing an article on alternatives to the stock market because, let’s face it, there are other investments out there besides stocks and bonds, right? The subject was profitably investing in foreclosures.
We talked about what it takes to make money in this segment of the market and where the land mines are. Based on an investor’s risk tolerance and experience, I shared the fact that there are basically three ways to buy foreclosure properties:
1. Before the final judgment – any time between the filing of the lis pendens (initial notice of the foreclosure action) and the final judgment whereby the property will be offered for sale at public auction. The most common way this is done these days is via a short sale whereby the banks accept less than the face value of the mortgage. These transactions sometimes involve a realtor and are relatively safe transactions because the investors get to thoroughly inspect the property and also receive a title insurance policy at closing. They still have to know their numbers but get to do their due diligence in evaluating the investment opportunity.
2. At Public Auction (aka Sheriff Sale) – also referred to as buying at the courthouse steps. This is usually the most risky way to buy because frequently the properties are boarded up or otherwise inaccessible so completing a thorough property inspection can be a real challenge. Additionally, the utilities are rarely on if the property has been abandoned. Last but not least the successful bidder is only issued a certificate of title. You get no title insurance and there could be title defects that will need to be cured before the property can be resold.
3. After the Auction as a REO – The acronym REO stands for Real Estate Owned. As in, owned by the bank. These properties were reclaimed by the bank at the foreclosure auction or taken back via a Deed in Lieu of Foreclosure. REOs can be good deals because you can inspect the property before making your offer or once it has been accepted. The buyer also gets title insurance at closing. Depending on your market REOs can be a bargain or sell close to retail so just because it says bank owned doesn’t make it a good deal. Always check comps, repair estimates and know your exit strategy before jumping in to any real estate investment.
In addition we talked about the value of discipline when investing. We use a formulaic approach to evaluate properties in terms of purchase price, repairs and holding costs. If the numbers don’t work, we keep looking. We also look at the location of the property as well as and potential impediments to our ability to sell such as neighbors, commercial areas near residential properties, traffic and noise. We want to maximize the salability of the properties because the one downside of foreclosure investing is the lack of creativity when it comes to buying. When it comes to the foreclosure auction method or buying REOs cash is the only language for buying and that usually limits our exit strategy.
Our exit strategy on deals where we can’t get terms and have to pay all cash is usually to retail the property. With cash transactions we typically buy, fix and sell. This allows us to turn our cash over and produce profits with each turn. It is not my favorite form of investing buy it is a good way to produce chunks of cash.
I was only one of a number of the people interviewed for the article but I have to say it was an honor to be asked and included. I was interviewed on behalf of Homeowner Resource, alongside Sand Dollar Realty and Realty Trac. Thank you Investor’s Business Daily.
I wonder if I could talk them into a sister publication…Creative Real Estate Investor’s Business Daily! What do you think?
You can check out the whole article at: Foreclosure Market Gives Savvy Investors Big Profits
Why are you interested in the creative real estate business? What is it you are trying to accomplish? These are two questions we all need to answer for ourselves. The bottom line is to recognize that you are in the property investment business and treat it that way. It requires planning, discipline, and execution or else it can be a dangerous and unproductive hobby.
We have been property investors long enough to experience ups and downs, a market boom and bust, changes in target markets, even changes in our own strategy. We have fine-tuned our investment strategies, focused on target markets, built our team and systems and have a pretty good handle on things. Honestly, this is a good start, but we still have to ask ourselves, “What does our business represent and deliver?”
To answer this last question we started by defining what we do and then identifying our goals. We buy properties below market value or with excellent terms in order to produce positive cash flow. We constantly seek to improve operations resulting in greater effectiveness, efficiency and value. We generate profits from rents or the sale of the property.
While this is what we do it isn’t the entire story. There are still more questions to answer. So what are our goals? How do we do what we do? What is the result? What is our real estate investment philosophy? What are the most important things that lead to our success? How will we continue to succeed long into the future? What are the fundamentals that we live by?
These are the kinds of questions that help us get closer to answering the grand question about what our creative real estate business stands for. Here is what we came up with:
1. Minimize risk and maximize annualized return – This is our goal. We first understand and minimize the risk. This includes making sure worst case scenarios are not so bad. We focus on maximizing annualized return instead of your one time return. A 10% return is great. A 5% return in one month is twice the annualized return as 15% in 6 months. That’s a big difference especially when you compound it over the long term.
2. Control and manage our success – We do not speculate, as the market is out of our control. We buy based on solid fundamentals. Appreciation is an extra bonus. The numbers must make sense on every investment.
3. Stick to our criteria – We stick to our criteria of properties with 50-70% LTV, strong cash flow and a decent area. We also seek to upgrade our portfolio by periodically purging weaker properties and replacing them with better performers.
4. Strong and multiple exit strategies – We only do deals with tremendous equity and tremendous cash flow, which results in strong multiple exit strategies. This supports our goal to minimize risk and maximize annualized return.
5. Make informed business decisions – We do not make decisions based on hype, emotion, excitement or by following what everyone else is doing. We justify our decisions with thorough due diligence, thereby making the best informed business decisions.
These 5 keys are the foundation of our business and they help position us to be successful in any market for as long as we are actively investing.
So, if I had to say what our creative real estate investing business represents and delivers in a few sentences it is this, We represent creative real estate investing done the right way. We control and manage our success, stick to our criteria, ensure strong multiple exit strategies and make informed decisions that allow us to achieve our goals of minimizing risk and maximizing annualized return.
Whether you are a beginner or an experienced professional, you should go through this exercise as well. Doing so could establish the foundation for a long and successful creative real estate investing career.
Learn how to jump-start your investing business at www.quickstart.pactprosperity.com