My Top 5 Creative Financing Strategies

[Christopher Stanis]

Starting with no money in your pocket? Or do you have a little that you would like to stretch and use to buy 5 properties instead of one?  

Here are my top 5 strategies for investing with little to no money of your own into the game: 

1. Mom and Dad

Personal relationships can be great. You may still buy cash for a property, or have 20% down, but who said it has to be your 20%? Example: I'm working with my brother in law on a flip. He had the money in his investments, and we bought a single family rehab home together. I paid 15k a house in Binghamton NY, will probably have 35k into the house, and will set it for around 60k. 

Pros- Easier to get, and they can be lenient on lack of experience. Cons- make you you do your homework, otherwise you might not be welcome at Thanksgiving. 

2. Hard Money

Let's say you have 5k in your name, have a smoking hot deal, and need to come up with the money to buy it. Hard money lenders are the perfect way to go. If the deal is going to make you 50-100% return on the money invested (see above rehab example)- do you care about paying 10-15% on interest rates? I don't. 

How to get hard money: google it. Seriously. Dozens of websites will pop up. BP forums are good too. You may be required to put some money down, and you may get rejected by multiple lenders before finding a good fit. 

3. Credit Cards

What did he say?? That's Crazy- credit cards- that's stupid. 

Maybe. Maybe not. Some people will tell you that it is, but with any strategy, you have to do your homework and plan that if the worst case scenario happens, you're still going to be ok. 

Example- this year, I took out 100k lines of credit on new credit cards using Seed Capital. Of this 100k, I used 25k to purchase my first property- a 7 unit trailer park in disrepair for 125k. The best part- those credit cards are INTEREST FREE until May 2016. I am paying literally nothing to borrow the money for the first 18 months. We should be able to refinance soon, at an improved value of 270-300k. Worst case Scenario- we can't refinance before May, and our tenants rent covers my monthly payments. 

4. Owner Financing

This is beautiful. A LOT of motivated sellers are willing to consider doing this for you. It helps if they're an investor themselves and may be familiar with the idea. Bottom line- you don't know until you ask. 

Example: "Mr seller, we're interested in buying your 29 unit mobile home park. We know you don't really want to own it anymore. Would you still like to make money on the property even without owning it"

I used this strategy to buy second deal this year. We purchased a 29 unit mobile home park- valued at 600k based on their previous tax returns. The sellers are financing it to us at 6% interest, and we only put 30k (5%) down.  10k of which we borrowed from Mom and Dad. Pretty sweet huh?

5. Asking the Seller to make the Downpayment

What? You can do that? Of course- you just have to ask! Then negotiate the terms of the repayment to the seller. This will usually have to be second position to a bank loan. 

Example: "Mr Seller- I'd like to buy this property- but my money is tied up into several other projects right now. Are you willing to make the 20% downpayment to the bank for us? This is how you can make even more money by collecting interest on the property!"

In this case, they should give the downpayment to your lawyer to hold in escrow until the time of closing. The bank gives you a loan, the seller gets paid back all their money and then they get to collect interest on a 20% note on the property! 

I have two more mobile home parks I'm looking at currently- and plan  to ask the sellers to make our downpayment! 

Closing: 

Any of these strategies can work, IF you know what you're doing. I can't emphasize enough- ask yourself "if the worst case scenario happens, can I live with it?" And you should be well on your way! 

[Brian Gibbons]

Much is made of no money-down deals. From furniture to cars to real estate, we are constantly bombarded with ads touting “no money down.”

Even so, do you really believe you can buy a house in today’s market with no money down? Yes, you truly can.

Buying real estate parcels with no money down is not only possible; it is wise. To be a successful investor, you need several ingredients stirred into your investing approach.

These include

(a) a creative imagination,

(b) personal and professional credibility born of integrity,

(c) a sensitivity to the seller’s needs,

(d) a degree of wisdom to accompany your thoughtful analysis of a given deal, and

(e) a willingness to take an educated risk.

These ingredients should be considered one at a time.

A creative imagination.

Every self-made millionaire has been able to think “out of the box.” That is, he or she has been able to think beyond the routine way of structuring a deal. In real estate, the environment in which to do this is endless. When a seller is motivated, and their need is firmly established, as a wise and creative investor, you can put all of the elements of the deal together. There is no end to the possibilities of how you structure a deal; and the more creative you become, the more successful you will be in accumulating wealth.

Personal and professional integrity.

Perhaps this ingredient is the most important of all. There are so many dishonest people doing business that they have created an environment of mistrust. Even so, a person’s reputation precedes them. If you want to do more than one deal in a given community or area, you will do well to establish a reputation for yourself.

It must flow from your personal life, and how you conduct yourself, into your business dealings. The most successful millionaires believe in Stephen R. Covey’s concept of having “win/win” relationships.

If you are as concerned for the seller (and their needs) as you are your own, you will become one who is trusted and respected.

It is the best calling card in the world.

Being sensitive to the needs of the seller.

This concept feeds into the previous statement. Still, it stands alone as an essential ingredient to amassing wealth. It involves the principle of empathy. Having empathy is having the ability to put yourself in someone else’s shoes. In this instance, it is you, the investor, putting yourself into the shoes of the seller. If he or she can see that you understand their position and that your objective is to help them solve their problems (or liquidate their real estate, or what have you), they will want to do business with you.

A thoughtful, wise approach to each real estate purchase.

While many good deals must be acted on at once (the early bird therefore getting the worm), no deal should be made without a thorough, methodical approach to making an offer to purchase. Knowledge is the accumulation of facts (in this case real estate facts).

Wisdom, on the other hand, is the ability to sift through those facts and make a decision that will bear long term fruit. When starting out, you may feel a need to rely upon the judgment of others who are more seasoned in the market than are you. It is wise to acknowledge your limited knowledge. As you become more and more seasoned, however, you will instinctively know when a deal is good. The important thing, especially in the beginning, is to take the time to consider all options and variables in a given deal.

A willingness to take an educated risk.

Our nation’s economy is based on what is called the entrepreneurial spirit.

This is the willingness people have to take a chance. It is only with this attitude of willingness that innovative real estate transactions are designed and implemented. In the professional sports arena, Professional golfers epitomize the risktaker. Still, they doe not do this willy-nilly. Every shot they take is an educated one, and is born of repeated, up-close involvement in their gold “business.” From my experience, the most successful real estate investors are those who make the same effort, and of course take the same level of educated risks.

Define what constitutes “money down” or a down payment on a specific property.

Money given to the seller as earnest money. This is totally negotiable and can range from zero to thousands of dollars

(Hint: When you buy an investment property, you often stay close to the zero end. When you sell, go for the gusto!)

Earnest money or other real estate contracts bind the contract. Such contracts demonstrate to the seller that you are serious enough about buying their property that they can confidently remove their house from the market. This generally means that even if the sellers are approached by another buyer, they will not sell until you have a chance to finish your purchase in the agreed-upon time.

Do not become extreme about this.

Down payment money is no different from the rest of the money in a deal. It all gets counted in the end. It is amazing how many sellers will be satisfied with $500 down or with another modest amount tendered.

The more motivated the seller, the less crossing of the palm with green-backs it takes to get them to agree to your terms.

Your contract is a legal document, and putting some small financial binder on it is like a visible “seal” of your intentions. Lawyers call this financial binder “legal consideration.”

The difference between the amount the bank will finance and the sales price.

If you are financing a property, depending upon your credit worthiness, a bank may approve a small percentage of the purchase price as a down payment. This amount may vary, but can be as low as the required three percent up to ten percent. This amount, along with other miscellaneous closing costs, is the amount of money invested in a given project.

Again, you have lots of options here.

Sometimes you may find a wholesale house you can put on a credit card. Yes, they can often be purchased this cheaply!

Or, the selling price may be low enough and even under the appraised price so that the lender ends up covering all closing costs.

They may even cover the down payment if the price is right.

Your share of closing costs.

This can include things such as points to the lender, documentary stamps, recording fees, appraisal fees, survey costs, prorated taxes, insurance, and part of the next house payment.

Often many of these fees are negotiable between the buyer and seller.

Remember: There is no such thing as a “customary” fee that you alone are responsible for.

Everything in a real estate deal is negotiable.

Whatever you and the other party agree to, or do not agree to, is entirely up to the two of you.

I have personally acquired homes where I agreed to cover closing costs because of a very low purchase price, or I have negotiated closing costs that I knew my buyer would cover. This is where you are flipping on a "double close" wholesale deal.

Not until you put your signature on the contract does it become binding and unchangeable.

Assumable Loans.
Sometimes you still find mortgages and trust deeds that can be assumed without any qualifications required. You can literally give the seller a few hundred dollars moving money and take over the existing loan. Many loans are “assumable” in this way. They are getting quite rare though.

In today’s real estate environment, most new mortgage loans are either non-assumable, or “assumable with qualifying.”

Many homes with assumable first mortgages have paid over half their original term, been refinanced at lower interest rates (to get equity out of the house), or have had second mortgage loans added to them.

Even so, in many cases you can structure a deal on a house with an older loan, which will allow you to step into the house with little or no money down.

Owner-financed.
Sometimes an owner has no loan whatsoever, or has already paid off the old mortgage on his house. This may therefore be a dream purchase for you, a real estate investor. You may still be able to make a deal if the seller is motivated enough to do an owner-financed sale.

In this deal, the seller becomes your banker.

You, in turn, find a buyer who cannot qualify for conventional financing, but one who has saved some down payment (your profit in the deal). With the ready seller and ready buyer, you have a match made in heaven.

There are several ways to make a deal like this work, depending on the house, the existing loan, the seller, and the buyer.

If you let your personal advisor walk you through one or two of these options, you will soon find they are a relatively easy source of revenue requiring “no money down.”

Quite often you can buy homes from sellers who own the property free and clear, but are willing to sell to me for “low or no money down” in order to get a higher interest rate from me than they could get at a bank.

You will also find sellers who want all cash for their house.

Most deals are “all cash” since the seller (or his mortgage company) receives a check at closing.

I have never had a single seller ask if the money came from a loan, a credit card, or a bank. It is all cash to them.

Likewise, “no money down” can mean several things.

The definition of “No Money Down” is simply this: getting into a house without paying money down.

In this type of transaction, the owner either

(1) agrees to finance the house, himself, or

(2) you as a buyer assume any existing loans on the property.

In any case, the seller receives no additional money for their equity. These transactions are the ultimate two no-money-down deals, and I have seen this often.

Forever put out of your head the notion that you need cash to be in this business. It does not take excessive cash to make money in real estate. “No money down” is real, it works, and there are hundreds of techniques used to accomplish this. It may take a while, but learn as many of these methods as you can.

Will every deal be no money down, or limited money down? Certainly not.

The key is, you should always assume and expect to do each deal without touching your own money in the process if this is your selected approach to real estate investing.

Your job, as a real estate investor, is to collect checks rather than to write them.

How to use it:

Even if you have excess cash to use in this business, build it as though you do not. Often an experienced mentor coach can assist you with your first few deals.

WHAT ABOUT YOUR CREDIT CARD EXAMPLE?

“Who would ever buy a house on a credit card? After all, the interest would kill you!”

And, “Isn’t that really paying money down? Even though it is on a card, isn’t it real money?”

Credit cards often have a grace period of thirty days or more between statements, and you then have thirty or more days to pay off the balance with zero interest.

So, depending on when one uses the card, you often have four to six weeks of free use of the bank’s money. You could buy six rental homes, using only several credit cards as the source of the down payments. The key is to have a clear exit strategy before purchasing the property, and whenever possible, to have a ready buyer waiting in the wings to whom you immediately re-sell the property.

The key to doing a no-money-down deal is simple:

Structure it so you do not have to take out-of-pocket cash to make it work.

With the guidance of a mentor/trainer or professional advisor, you will find no-money-down deals a powerful way to acquire instant equity in properties with little or no money out of your own pocket.

Here is a great example:

A new real estate investor called on several “For Sale By Owner” ads in his local newspaper and internet ads.

He found that one elderly couple was selling their home in order to free them to get into an elderly care center. The investor purchased the house for nothing down, but at full asking price.

The sellers were excited to get a note back from the buyer which paid two percent higher interest than they would have received by taking all cash and depositing the proceeds in a low yielding bank savings account.

This transaction was a win/win for both parties.

Remember, If you believe you CAN or you believe you CAN'T, YOU ARE RIGHT!

Attitude is everything.