A hot topic in the Real Estate arena is, how to invest in Real Estate without money. This to many might seem like a myth and impossible. The truth of the matter is that it is possible but takes knowledge, negotiation skills, and research. No money down real estate investing is complex and should not be attempted without in depth knowledge of Real Estate. The truth of the matter is that it can be done relatively cheap, with proper research and self education. People often say it takes money to make money but in reality that statement is not true when it comes to real estate. Throughout the history of real estate, the desire to get rich quick without risking your own financial security is a huge question. This article is dedicated to providing a door to the knowledge required to successfully complete this endeavour.
Every night on many television stations there are many people who advertise how easy it is to make money in real estate without spending money. They offer you the key to financial freedom for 3 monthly payments of $19.99. Every single night people call the 1-800 numbers at the bottom of the screen and purchase the plan failing to realize they just spent money to figure out a way to invest without spending money. The unfortunate fact is that yes there are ways to invest in real estate without spending money, but spending giving 3 payments of $19.99 is not the way. The following is a step by step way to invest without throwing away money on advertising gimmicks.
The first step to investing in real estate is doing proper research, to educate yourself. If you are interested in making money in real estate the first thing you have to understand is the real estate market. Without solid research of market trends and the individual property, it will not matter if you pay $1 for a piece of real estate, you will lose money. A property that you pay one dollar for that requires $75,000 in repairs in a market where the home in pristine condition will only sell for $80,000, means that it will take $75,001 to sell the property for $80,000. When it comes to investing in real estate with no money buying a lemon will cost you money that you do not have. If you buy that property for $1 but do not have the required money to repair the home, you will be stuck paying property taxes on a home you can never sell. With that being said, here is a list of items that must be considered before you put into effect any no money real estate ideas:
Research a 10 year statistic of the area. Researching the area to find out the crime rate, and property values for the last 10 years will give you the investor an idea as to whether it is smart to invest within that region. If home prices keep dropping and crime keeps rising, the beautiful area is not worth it because this is what potential home owners look at when deciding whether to buy.
After you find an area that passes the 10 year statistics test, the real fun begins. You must locate and inspect properties. This includes getting public records on the Real Estate of interest. This information can lead to information such as foreclosure risk of the current owner. Obtaining this knowledge means obtaining valuable leverage against the banks and the current owner. The second step is the most vital step in investing. The information will lead to knowledge of liens as well.
Are there liens on the property (companies or government assigning debt to the property)? This is important because if a lien of $20,000 in unpaid taxes is attached to the property, the debt will become yours when you take possession of the title. If this happens you will not close on the property and if you pay cash nobody will buy it from you due to lack of clear title.
Is the property damaged? It is important to understand that a property may look like a good investment but under the beautiful surface may be a defect that can bankrupt the beginning investor. Plumbing leaks, damaged roof, and crumbling foundation are just a few of many items that can destroy the unprepared investor.
Once you have done your research and found a property that passes the test of the three areas above, it is possible to invest with no money down. A simple reality that get rich quick advertisers and potential investors fail to mention and realize is that without the ability to sell a deal, there will never be a deal. An individual must be able to convince someone that they should trust you to sell the home or turn over rights to the property.
If you have read this article thus far and feel you have done your homework and you can sell a deal, the rest of this article will give you the keys making money, it is up to you to sell the deal. This means breaking contact, building rapport, and strong negotiation. With this type of deal you must be able to negotiate with the owner and the bank that lacks sympathy. The strength of finding a financially distressed owner, is that the bank realizes they will ultimately foreclose and own a home. This costs the bank a lot of money and because of the economic crisis in the United States they will try to avoid this. They do this by forgiving debt and allowing a major discount on the sale. This process is the short sale technique.
The one true way to make money from real estate investing using little or no money is by using the option technique. An option is a contract between the owner and the investor granting the sole right of sale to the investor. This may sound confusing but it is fairly simple. The following is a scenario of how it is used. The description below is an example of one method, and it is important to understand that there are many different ways of doing this process.
The process begins with the Investor finding a property that is worth about 60% of the value it should be due to cosmetic problems. Investor Tom asks owner Bill if he is interested in selling his house. Bill says yes I want to sell my house. Investor Tom says great, I lack the ability to purchase the home right now but I will be able to purchase the home within a year. Tom asks bill to sign an option to purchase the home for an arranged sum of money to serve as the purchase price of the option.
Once Tom has secured the option to purchase the home he has one year to find someone who will buy the option from him or try to sell the home himself. While it is possible to make money investing in real estate using an option, you have to be a salesperson to convince the owner to take the home off of the market for a year while you secure financing.
It is important to understand that nothing in this world is free but things can be cheap. Offering the owner $500.00 for a one year option to buy with right of access and an equity position is a realistic way to approach options. What this means is that the investor and seller agree to the option and the seller grants the investor the right to remodel the house and sell the home for an arranged price plus 25% of the equity gained by remodeling the house. For example say the house could be worth 150,000 once it is remodeled, and it will cost $3,000 to remodel. The investor agrees to let you sell the house for $100,000 and 25% of the equity. This deal would cost the investor $3,500 which is the remodeling and the option price combined. The house then sells for $150,000 having a total equity of $50,000. After deducting the $3,500 dollars from the equity the investor is left with $46,500 to be split between the owner and the investor.
There are other methods being offered to buy houses with no money such as lease options but you must understand that either the investor will be paying that rent or the investor will be finding someone to rent the house. Before you consider that to be a great idea ask yourself two questions:
Is paying rent spending money?
What if you do not find a renter?
A great site that explains in depth this whole process and describes all aspects of Real Estate in the form of a Real Estate Encyclopedia is www.realestate-encyclopedia.blogspot.com. Another great link providing valuable information on no money down real estate investment is www.realestate-encyclopedia.blogspot.com/2010/06/no-money-down-real-estate-investment.html
While it is possible to invest in real estate using no money, it is not likely and will require a investor with superb sales ability. A realistic way to approach investing is to think in terms of little money down instead of no money down because nothing in the world is free but things can be cheap. The process is not simple, as it requires many things from the investor. It requires research, patience, negotiation ability, and commitment.