Finance Roll

The truth is, anybody can put a deal together. At it's most basic, it's a simple process of agreeing on terms and then spending a couple of quality hours making sure every i is dotted, and every t is crossed. There's really not a lot of mystery to it...unless, of course, you're looking to do it with no money down. Then it becomes something more than a mystery.

It becomes an art.

There is a variety of ways to accomplish the coveted No Money Down Deal. None are particularly tricky or unusually complicated. Where the art comes in is finding the additional parties required to make these deals work and, more importantly, discerning which No Money Down Technique will work best given the individual situation.

Creative, no money down deals were something of a necessity for me when I was starting my business. I had no money, so I had to figure out creative ways to put deals together using OPM...Other Peoples Money! What I found as my business grew was the techniques remained reasonably constant regardless of size when it came to putting my deals together; the key thing that changed was the number of zeros on the checks! As such, nearly all of my real estate assets have been acquired using one of my 5 Favorite No Money Down Techniques.

Owner Financing

Owner financing is when the current owner agrees to sell you their property and essentially acts as the bank for your transaction. In this scenario, the seller is selling you their property, and they are lending you the money to buy it with! This is one of the greatest techniques to use, especially if you are in a situation where you have absolutely no money, or if you have bad credit history and will have trouble qualifying for a loan.

Owner financing is not that uncommon when dealing with an owner that owns a property free and clear, this is sort of a win-win situation. For you, it's a way to reach a financial agreement that does not entail putting money down. For the seller, it's a way to, in the long run, possibly make more than the sale price off a given property.

I own a 17 acre parcel of prime land in Augusta that I bought with 100% owner financing. I found this property by looking on a map at areas I would be interested in buying land. From there I contacted the listed owner on the tax records. It turned out her father had bought the land 50 years ago. She had inherited it, and owned it free and clear, but was too old to do anything with it. Over the course of a few weeks of negotiation, I developed a relationship with the owner, who happened to be a real estate agent. I agreed to give her the exclusive right to sell anything I did with, or developed on the land, in turn, she carried 100% of the financing for me. It was a perfect win-win situation.

Two-Step Refinance

The secret here is getting your name on the title. Then, you can immediately refinance the property and work the deal with the difference between the appraised value and the actual purchase price.

Step One: Acquire the property with financing from any resource available; a bank loan, private money, credit card, owner financing, etc. The objective here is simply to get on title. If this process is approached correctly, this will be a very short term loan. Typically under 30 days. As such, it may be acceptable to look at a much higher interest rate than you normally would with long term financing.

Step Two: Refinance the property for 80% of Appraised Value. If the property is bought right, 80% of appraised value will cover all acquisition costs, repair costs, holding costs, and some front end profits.

This was the technique I used on my very first deal, before I even knew it was a technique. I found this approach entirely by accident. It was an accident however that was so profitable that I built the foundation of my single family business on this one technique. Not knowing any other direction to go with buying my first investment property, I began networking. I talked with everyone that would listen about my new deal, and my new business. Fairly quickly I was introduced to a small local lender who introduced me immediately to the mortgage arm of her bank. The mortgage lender pre-qualified me to refinance the property as soon as I owned it. With this commitment in place, the small local lender gave me a 100% loan to buy the property. Once I had bought the property and was on title, the mortgage lender began the underwriting process. In under 30 days, I had new financing in place that paid off my loan with the local branch, gave me all my rehab money, and put an additional $11,000 in my pocket at the closing!

In time, I learned there are a plethora of techniques to get on title without getting a bank loan for the first step. Over time, this has saved me thousands and thousands of dollars in loan fees.

Equity Investment Partner

This one is pretty straightforward. You find someone that has the down payment money for your deal and partner with them. They bring the money to the table, you bring the deal. It is again a win-win situation, for without you, the investor has no where to invest their money.

How you split the ownership interest is where the art, the creativity really comes into play. There are as many ways to structure a partnership as there are deals to structure partnerships around. For me, I began by following the KISS principle...Keep It Simple (Insert your favorite S-adjective)...I brought the deal to the table, my partners brought the money. We split everything right down the middle, 50/50. We split cash flow, equity growth, appreciation, everything.

In fact, I still structure some of my partnerships in exactly the same way. In January of 2006, I bought a 232 unit complex in Oklahoma City with 7 other partners. In this deal, I structured the ownership split in the same fashion as with some of my early single family house deals. I brought the deal together and retained 50% of the ownership. My cash investors then split the other 50% proportionately depending on their investment.

Another example of an ownership split; let's say you find an investor willing to put down 20 percent as a down payment. In return, they get 20 percent of the cash flow from the property and, when and if sold, 20 percent of the profits.

Of course, as I mentioned there are literally thousands of options for structuring your equity partnerships. My recommendation is to start simple, then as you gain a greater understanding of how to put your deals together, get creative. Think outside the box and look for that angle that no one else can see on the deal to make maximum profits!
Private Money

Private Money Lenders have cash available from time to time to make collateral based loans. These individuals will typically be much cheaper than the hard money rates and their terms can be much softer as well. Many of these individuals will look to you for what you are willing to pay rather than telling you their requirements. It would not be unusual to get money at 8% to 12% with no points and no pre-payment penalty.

Don't abuse these lenders! If you treat them right, you will have more money pushed at you than you can find good deal to place the money. More than a few investors have promised to pay the interest while the money sat in a bank account waiting for a new deal. This is extremely dangerous. When they didn't find a deal, they used the loan principal to pay the interest. Even worse, the investor feeling the pressure to get the money working, purchased property where the deal was mediocre. Then there was no room for contingencies or mistakes. The investor may have gotten into a property where there was no profit or where there was no resell market. In any case, the investor and lender were stuck. Have any private lenders send their funds directly to the attorney or title company closing the deal. The private lender then gets the note and security instrument back properly executed and filed. This is the best way to protect you both in a business like manner that the lender will respect.

More people than you realize would like to dabble in the real estate market. Many, however, would like to start small. Here's an idea that's good for them and you. By borrowing a down payment from a friend, business acquaintance or relative, you can offer them the thrill of real estate investment - and an eight to twelve percent return on their money - and you are able to enter the deal with no money down. Here's the best part. After a couple of successful deals, you may find that you no longer have to hunt for down payment investors. The quick and notable return on investments will soon have prospective finance rs coming to you.

Hard Money

Hard money lenders are referred to as such because they lend primarily on the hard asset values rather than the credit of the borrower. These lenders are sometimes referred to as collateral-based lenders as well. With a hard money lender you will not have to worry about your credit or how many other loans you have outstanding. Mind you, the money can be expensive. Hard money terms vary by private lender as well as by economic conditions. Today you will find most hard money from about 12% and 3 points up to the 15% and 5-10 points. In addition, there may have a "back end" fee to the lender when the loan is paid off referred to as a prepayment penalty.

Hard money loans can be ideal for borrowers in the following situations:

1. A property can be purchased at a bargain price if it can be closed quickly, requiring immediate financing.

2. To save a property from foreclosure.

3. Poor credit where traditional financing sources are reluctant to lend.

4. Environmental problems with the property where traditional financing sources don't want to lend until the property is cleaned up.

5. Property is not up to standard (significant repairs, possibly high vacancies or does not have enough of a track record to satisfy permanent financing sources). Cash is needed to bring the property to the point where it can qualify for permanent financing.

One of my first mentors once told me you can expect to get either the price or the terms. This is a great alternative when the price is just not right. Often, a No Money Down Deal can be secured when a higher interest rate is offered. The thing to be wary of here is that if the deal doesn't turn out to be the big winner you were looking for, you could find yourself saddled with those rates for some time.

It would be nice if finding private money for your real estate projects were as easy as going to a broker who would match you up with someone who wanted to lend their personal funds. Well, it is not that easy. One of the core differences a successful real estate investor and those that are not successful is persistently taking action. It is just as true here. Finding the money for your first few projects will be one of the hardest aspects of building your business. Persistently take action to find the money for your deals. Just remember that "No Money Down" does not mean free. Investment abhors a vacuum; if you aren't putting up money, you're going to be putting in something just as valuable - sweat (mental or otherwise) and smarts. So roll up your sleeves, and let's go to work!