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How To Make Money On No Equity Properties

Aug 17, 2007
As a real estate entrepreneur, you will often run against problems with no equity properties. This is because you will be buying property from homeowners who sell foreclosed property. This is the reason why most real estate investors do not buy no equity property. The only way to deal with it is to persuade the credit lending bank to take less than the amount owed to it.

Making Profits On No Equity Property
Discussed below are some ways to make money on no equity properties.

1. Deal directly with the Homeowners. Until the time the court orders the foreclosure of the property, the banks are not the owners of the home. You need to deal directly with the homeowners to buy the property, and then buy the mortgage from the bank to transfer the ownership of the property to you.

2. After getting in touch with the homeowners, get them to sign a release of information form that will allow the bank to talk to you about the homeowners' mortgage.

3. Now you need to convince the bank to discount the mortgage. Once you can prove that the property is in bad shape and needs extensive repairs, and the owner is unable to repay the mortgage loan, the bank will probably agree to lower the amount. You may need to negotiate a little, but most banks do not want real estate on their hands. They just need some way to recover the money owed.

4. Once you have bought the property, you can sell it for a higher amount. The bank is relieved to have the real estate off its hands and get back some of the loan. You have made a profit and the buyers of the house will probably have some equity on it.

Why Homeowners Will Want To Sell To You
A no equity property is a liability for the homeowners, especially if they are making a distressed sale. The options they have are limited. Paying off the mortgage is difficult. Renting out the property means spending money on maintenance and repairs. Foreclosure means a bad credit record. Short sale could invite a huge tax penalty.

If you make a reasonable offer to the homeowners, chances are that it will be accepted. Since what you pay will get them more money than what the options above could get, they will accept your terms. Then you will draw up a sale contract and discuss it with the bank.

With a little creativity and out of the box thinking, you can convert a no equity property into a money making proposition. So the next time you come across a no equity property, do not walk away from it. It may be your chance to make significant profits.
About the Author
David Gass is President of Business Credit Services, Inc. His company publishes a free weekly e-newsletter on Small Business Consulting at their web site http://www.smallbusinessconsulting.com.
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