By Steve Gillman - 2005
What does zero down mean? It doesn't really mean no down payment.
Sellers usually want a down payment if they are providing financing,
and most banks won't do 100% financing on real estate that is
bought as an investment. Zero down just means the down payment
won't be your money. Where will you get it then, and can
you really profit from real estate without having money to start?
Zero Down Flipping
The other night, at our local investor's meeting, an investor
told me he recently found a fixer upper, but couldn't arrange
financing. So what did he do? He sold or "assigned"
the contract to another investor for $6,000. All he ever had
into the deal was a $500 "good faith" deposit, and
he made a $6,000 profit. They call this "flipping."
He didn't need a down payment, and he didn't even have to
buy the property to make money. The deal had enough potential
profit that other investors were happy to pay to take his place.
The important points here are that he knew how to find a good
deal, and his offer included the right to assign the contract
to another investor if he wanted to.
If he had put the $500 deposit on a credit card, it truly
would have involved none of his own money, except enough for
gas to drive around looking at properties. He would have had
to pay an outrageous 3% cash-advance fee and 18% annual interest
for a month, but the this would have only reduced his profit
by $22.50. Zero down is possible and profitable.
A Zero Down Example
Want to actually complete the purchase, renovation and sale
with zero down, and none of your own money invested at any point?
Fortunately, there are dozens of ways to do it. For starters,
you can find a partner. As a matter of fact, tomorrow I'll be
talking to an investor who wants to use my money to complete
the profitable renovation of a property. Naturally, I want a
share of those profits. Trust me; if the deal is good, there
are people who want to bring their money into it.
Time for an example of how you might combine a couple investing
techniques to keep your investment to zero. We'll suppose you
found a seller who's tired of being a landlord, and has a run-down
house he wants $80,000 for. You see that with $4,000 worth of
clean-up and repair it could sell for $116,000. All the costs
will add up to around $9,000, leaving $27,000 potential profit
in the deal. Ah, but you have no money.
You could offer the seller more than he wants. Offer $85,000,
using a $500 credit card cash advance for a good faith deposit.
The catch? $5,000 down, no payments, and the entire remaining
balance to be paid within one year, with 7% interest. Why would
he say yes?
He will get more than he wanted - maybe even a few thousand
in interest too. The collateral will be safe, because unlike
his renters who ran the place down, you'll be pouring money into
fixing it up. He'll have a first mortgage on a home that will
soon be worth much more than what he is owed.
When he agrees, find an investor who has $15,000 to put into
the deal. This covers the down payment, repairs and other expenses,
with a little left over for unexpected costs. When the house
sells, the investor will get his investment back and half the
profits. Complete the house quickly and on budget, and this means
over $10,000 for each of you.
Consider this for a moment. The seller gets more than he is
asking. Your new partner gets a great return on his investment.
You make over $10,000 without investing a penny. Make sure that
everyone wins. This is the surest way to make a deal work with
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