No Cash Real Estate Investing

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No Cash Real Estate Investing

By Pierre Mouchette | Real Property Experts LLC

Many people would love to be real estate investors, but they lack the cash for down payments. These people think that buying and holding or buying and flipping properties are the only ways to make money! Some of the techniques that will allow you to make money from real estate without having any cash are:

Bird Dogging – through traveling, research, and investigation, the bird-dog finds homeowners who need to sell and have not been able to, or homeowners with mortgage difficulties, or foreclosures before they are listed. These homeowners want out and are willing to sell at deep discounts for the quick sale. A bird dog places the homeowner and the investor together. The bird-dog receives a fee, and the investor pays less for the home. The lower the purchase price, the better the investor’s return on investment (ROI) from cash flow, and the sooner they will have locked-in equity.

Assignments – a simple process where you lock-up a property with the seller, by signing a purchase contract indicating “Your Name and/or Assigns." The caveat in this process is that you to have a buyer lined up prior to locking yourself into the purchase contract. This allows you to assign the contract to someone else (your buyer), without further consent of the seller. Your buyer must be a cash buyer, but that is normally the case when you are doing these kinds of deals. The seller will just be informed that your buyer is now the buyer, and that the transaction will proceed as normal according to the purchase contract terms.

Another consideration when assigning deals is the earnest money deposit you give the seller. This money is deposited with the title company or attorney handling the closing, and you will not get that refunded. So, you will want to keep this amount as low as possible as there is still some risk that the deal will not close.

Sandwich Leases – this is two lease options with the investor in the middle. That is, you (the investor) want the option to purchase the property at a discount at the end of the lease period. To make this work, you need to find a tenant/buyer who wants to purchase the home at the end of their lease which matches your lease date with the seller.

To make this transaction, you locate a highly motivated homeowner (loss of employment, job transfer etc.), who has not been able to sell their home. You make a verbal deal like the following:

Offer to lease their home for three-years with lease payments equal to their house payments (principal, interest, taxes and insurance), PITI.
You pay them a non-refundable lease option payment to have the right, but not the obligation, to purchase the home at the end of the lease for $XXX,000 (lock in the price).
With a verbal agreement, you (the investor) use marketing or other methods to locate a tenant for the home who is willing to pay $XXX / month to lease it. They will sign a minimum of a one-year lease.
With this strategy you have:
Cash out (to Seller from Investor): refundable option money, first and last month lease payments, and a security deposit.
Cash in (from Tenant to Investor): non-refundable option money, first month and two month’s securities. You add an additional $XX per month for the monthly rent.
Tenant/Buyer has a locked-in purchase price.

Conclusion – the above gives you control of the home for three years. If the tenant does not purchase the home during their tenure, they:

lose the option money
are covered for any damage that they do by the security deposit
have a property that has increased in value

If the tenant purchases the property you:

have made $XX each month
you have made money on the increased purchase price

Note: the above is a basic sandwich lease. You can expand upon this.

RPE Category (Digital Digest)

REAL ESTATE

INVESTOR
Strategies

PUBLISHED:

December 4, 2020

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