Is the idea of making it BIG in Real Estate with no money or no credit, is it just another white lie? Many people are skeptical and some are flat out non-believers that it is possible to make money in real estate without any money or credit. Some think that this simple concept is a real estate scam and not to be taken seriously. I can gladly say that I am okay with people who form their own misconceptions without being properly educated. I just figure that it’s less competition trailing behind me every time I go to cash another Check at the closing table (just my sense of humor here) J.
Real Estate has always been the highest paid profession known to man. Whether you’re a realtor, an investor or a developer the PROFITS has its perksJ. If you have checked out any of my other articles or blogs you will see that I am extremely redundant in saying that there are a million and one ways to make money in real estate.
If you want to make money in real estate without any banks, private money, hard money, or alternative lenders involved, your best choice would be creative real estate investing. This type of investing has many different branches and many different styles to pursue. They all work; you just have to pick which is right for you.
One highly favorable technique that I personally love to use is Real Estate Wholesaling. As a real estate wholesaler, your main focus is to acquire properties at heavily discounted prices. You want to find houses with a lot of equity in them that you can pick up for “pennies on the dollar”. People tend to think that it is enormously challenging to find these types of properties, but I beg to differ.
For starters, in this market, most sellers just want to get what they can get for their home and run away before it goes into foreclosure. Short sales are not the homeowner’s best friend because many times they can walk away with not even a penny to their name. Selling property substantially below market value is much more of a feasible approach then throwing every dime they have invested in the property away. Make sense? Now, not all homeowners have enough equity to make this happen, but believe it or not, this still remains an option to many.
Even when the market is at its best, locating property with low loan to value ratio (below market) is not a hard find for the savvy investor. The reason the wholesaling business does good in any economy is because there are always people who needed their home SOLD, Yesterday, for whatever the reason may be.
The following are characteristic of sellers willing & ready to work with a “wholesaler”:
- 2+ mortgage payments
- Relocation / Job Transfer
- Probate / Death in the family
- Sick / ill health
- Need Cash Now
And the list goes on and on…
The key is finding MOTIVATED Sellers. I often say that a key indicator to whether or not you have a possible deal is to ask the property owner how motivated they are to sale on a scale from 1 to 10 (one being the lowest & 10 being the highest). Anyone 8 to a 10 may qualify, classically 10’s are sure things, 8 and 9’s are maybes, and 7’s well, you’d just have to wait and see. If anyone states they are lower than that, you have your symbolic message that it is time to move on.
If you concentrate all of your efforts on finding MOTIVATED seller’s you eliminate hundreds of people a month that couldn’t even fit the bill. Moving on to the next one is a good thing, because out of 100 people you may only have 5 to 10 people that are going to be the cause of you making money in this biz, so isn’t better, to just get rid of the 90, that much quicker? This is a niche business and you are only to focus on those efforts that will produce your desired outcome.
Your objective is to construct relationships with investors seeking particular property types that will yield them a precise amount of return on their investment. The majority of investors out there are seeking property that they can purchase at a certain percentage below market value. For example, some investors will purchase any home that you can get them for 30% below market value. If you are dealing with a home that you confirmed is valued at $100,000, you would need to acquire it at $70,000 or less, in order for it to be an appealing deal to that specific investor. There are other factors to be taken into consideration (i.e. any repair needed, location of the property, etc.) when determining what will work for your investor and what will not.
The aim of the real estate wholesaler is to find motivated sellers that are willing to negotiate the price to a percentage that will work for the investor. If the wholesaler is able to structure a deal with the seller that makes sense number wise, they then get it under written agreement. In the real estate contract all of the investor’s requirements should be outlined and matched to the sale of the home.
I’ve put all my property under contract with $1 – $10 (even my million dollar luxury homes) with no problem. There are many real estate wholesalers that are nervous about not putting anything down and ultimately put hundreds, if not thousands of dollar in place as the earnest money deposit. If your negotiation and confidence is up to par, you will never have to worry about this a day in your life. Wholesaling is suppose to be a RISK Free business, so why in the world would you put more money down then you would spend on your own lunch?
Once the home is under contract, you then contact your investor(s) and give them all of the details on the property. Typically they know within 24 hours whether or not they want to proceed. If they decide to move forward, they pay you a real estate assignment fee, which assigns and transfers all rights of the purchase agreement from them to you.
There is no set amount of what one can get from an assignment fee. I would say that on average, it is between $3,000 – $5,000, however, this is not set in stone and you build your own value. I have absolutely no problem requesting $100,000+ on an assignment fee. Heck, I’d take a million. Things to consider are…. how much do you feel it is worth and why, what’s in it for the investor, and other similar thoughts.
If you are a bit nervous to start off contacting and negotiating property owners, you may want to investigate about another form of creative real estate investing called bird dogging that requires no seller foreplay.