Just how exactly does buying and selling real estate with no money down work?

Canada
January 22, 2007 11:19pm CST
I'm sure almost everyone has seen those night infomercials where they advertise on teaching people to "buy property with no money down". I want to know if anyone has tried it, and can give some explanation on just exactly what they teach in there. The tips.., or if you have put it in a blog of some sort, or a site, please by all means do post the site url.
3 responses
• United States
6 Feb 07
I have gotten information from some of these companies (who do infamercials). I did learn a lot. Just as with any business, there are those who are offering a legitimate product and those who just want to steal your money. Anyway, on to no money down deals. They do exist, but you need to know what you are doing. (As a side note, it is obvious that proj1423 does not, sorry proj.) There are multiple possibilities: 1. Lease-options/Land contracts. You can obtain a property from a seller who really wants out on either a lease-option or land contract. You can also sell properties that you own this way. Something that some people are able to do is be the middle man, buy a property on lease-option, sell the property on lease-option with the same terms/conditions but a higher payment/price and collect the difference. This is not easy, but it is possible. 2. Hard money. Most non-investors are unaware that there are legitimate hard money lenders out there. I am not talking about a lender that charges 50% interest and will break your legs if you don't pay. Traditional lenders have to lend off of the sale price, regardless of how much the property is worth, this is due to government regulations I'm not going to get into. Private individuals can legally lend money for any reason and any amount. What a hard money lender does is assess how much the property is really worth and will lend you money based on that amount, not your contract price. Here's an example: You have a house under contract to buy it for $45K. It needs ~$25K in fix up and after that it will be worth ~$100K. A hard money lender will look at the deal and realize that they can lend you the full $70K, no problem. You pay no money out of pocket. They get a mortgage on the property, so if you don't pay, they foreclose. Assuming you are legit, you do the fixup, then sell it for ~$95K (You wanted to sell it quickly, so you gave the buyer a "deal"). You repay the $70K, plus interest and closing costs on both the purchase and teh sale and can walk away with ~$15-20K. Not bad, huh. The key is finding (a) a good hard money lender and (b) the property for $45K that needs $25K of fixup anc (c) the contractor who is going to do the $25K worth of fixup so that you don't have to do it yourself. Once you start looking, finding these kinds of deals is not that difficult, at least not in a large city. Proj is correct that the hard money lenders usually charge more in interest. Expect to pay ~15% annually, plus 2-4 points. But, if it means you can make $15K with no money, that's not so bad, is it. Another warning, be sure you know what you are getting in to and over estimate your costs, especially the first time. If you're lucky, your overestimate won't still be too low. Don't worry, your next house will go better. Good luck. It's a lot of fun, to some.
@Proj1423 (35)
• United States
6 Feb 07
You can buy a home with no money down easily. A mortgage company will finance 100% of the cost and you'll have to pay just the closing costs. However, if you are buying a home that you won't be living in, the mortgage company will only finance 90% of the value of the house. The trick with these programs is that they have you finance the extra 10% plus closing costs with private investors or with the seller. This is a very risky business because, if the extra loan uses the property as collateral, you are commiting bank fraud. In addition to that, the bank will want the property to be in good condition. You won't be able to get a loan at all if the property "needs work". Then, you'll have to use their private investors with high interest rates and shrewd collection methods, I'm sure. You're much better off putting some money aside over time. Put down 10% plus closing costs but have some more left for emergencies and property improvements. If you have excellent credit you can do a renovation loan but in most cases you'll have to have a contractor do the work. They make it seem so easy but they're methods are dangerous. I'd suggest buying and renting until you have a nice reserve fund to use as investment capital. Best of luck!
@EvrWonder (3577)
• Canada
25 Jan 07
Hi mrseeker; I have a friend who does this. He gets houses for like $25 bucks, does a bit of work and flips them for way more. I am not 100% sure where he gets them from. He is in the know I guess. Start getting to know the whose who in the realestate/property management industry. Also there are houses that one can get cheap that happen to be historical but must be moved. Just have to pay for the cost of moving and the property to put it on. New Westminster, BC Canada had some this past summer. There are also home builders that have houses that they come across under the same circumstances. I must find the link and will send it to you. The houses there are not 25 bucks though but they are out there. On a last note for now, habitat for humanity is looking for help building houses. The deal with them is that you volunteer helping for so many hudreds of hours and in the end you get your own house built for you. A great deal if you have the spare time. www.habitat.ca and darn, I just can not recall the name of that company at this second who has cheap houses. I mean cheap but have to moved to your property. Perhaps this is the catch in those infomercials. There is no money down on the ones I have mentione deither. I will be in touch.