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How to Buy Houses with Little or No Money and No Credit

Mar 28, 2008
Buying houses with little or no money and no credit is not a myth. In fact, the process of using creative financing is exclusive to real estate investing and offers the buyer the maximum leverage possible - zero investment. So technically any profit the investor makes selling or renting the house is an infinite return on his capital ($0)! If there is a myth about using no money to buy a house, it is the myth that an investor must give the seller a monetary consideration to "seal the deal". This is a myth because all contracts read "for the sum of $___ dollars or other good and valuable consideration..." and in this case, the valuable consideration is always the purchase of the property. Hence, no good faith money is needed to put the house under contract. An escrow deposit or "earnest money" deposit may be required depending on the seller and the offer the buyer makes.

It sounds good so lets look at the most common ways to make it happen:

The seller signs a Purchase and Sale Agreement with the stipulation that an escrow deposit will not be made until after the inspection period elapses. If the investor makes a good case for the reason, he may be able to get a 60 day inspection. This may sound outrageous, but it is common practice in our business. It works because we ask for it and compromise to 30 - 45 days instead of the usual 10 or 15 days that most investors get. This extended period gives the investor adequate time to find a buyer either wholesale or retail.

The investor can use seller financing in a couple of forms:
1.The most popular is "Subject To" financing where the seller allows an existing mortgage(s) to stay in place and the investor immediately starts making the monthly payments usually when the homeowner has vacated the property.

2.The homeowner allows a "Subject To" financing with his first mortgage and the buyer gives the seller a second mortgage for his equity for most of or the rest of the purchase price. This is appropriately called "Owner Financing" and can even be more than the purchase price if the seller agrees to help finance the funds needed for the investor's rehab of the property.

3.The seller can lease option the house to the buyer who has a pre-determined time to re-lease option the property to an end buyer. The investor collects a larger "option consideration" that the seller gets, and he charges a markup of the lease payments to have yet another profit center. Lease options have come under regulatory scrutiny for investor abuse so get professional legal assistance before you try one. The industry secret to a lease option with a buyer is to do a "double contract" which is a lease and an option separately, but do a single contract with the seller. The single contract accrues equity with each payment while the double contract is a true lease and the buyer can be easily evicted versus a foreclosure in the case of a single document.

4.An option contract is just what it sounds like "an option with a pre-agreed upon "strike price" or purchase price for a set period of time. The usual "financial consideration" to get an option from a seller is $100 or whatever can be negotiated. The beauty of the option contract is the investor doesn't have to have any carrying or overhead cost for the house.

5.An Equity Agreement is a contract between the seller and the investor that stipulates how the house is to be rehabbed and sold and the proceeds to be split among the seller and the investor. If you do one of these it is critical to have everything in very detailed writing so there is no misunderstanding between both parties.

In summary, the most popular of this partial list of purchase methods for little or no money and no credit is the "put it under contract for the longest possible time" and sell it wholesale. The really large profits come when the investor can work at getting at or near retail when he sells. The limiting factor for the investor is an accurate determination of all costs, expenses, and a salable market price so the house can be priced attractively enough to sell very quickly.
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