Closely Guarded Millionaire Secrets to Invest in "Real Estate" with "NO Money Down" Part1
Dario Lorenzo has been buying and selling real estate for over 20 years. He knows the business of real estate investment: from buying at the right time, finding the right property, making the right improvements, and selling at a point in the market cycle that produces the highest possible profit.
Dario began investing in real estate in Canada where he grew up. While learning the business, Dario began to research different markets including the United States.
Knowing how to recognize emerging markets is one of the key factors in Dario’s successful investments, especially in markets with bad economies. Once the economies improved, Dario created tremendous value in his real estate assets.
With the techniques he developed, Dario has been able to buy and sell real estate worth over $100 million dollars. He knows how to structure deals especially those done with no money down and other creative financing methods. Now Dario is ready to share that information with you.
Dario speaks from his own extensive experience when he shares his techniques. Some of these investment methods are commonly used, others are less known. All Dario’s tips are useful, whether you are just starting out or you have all your money tied up in other investments.
Not every deal can be done without money down. However, having knowledge of these techniques will help you analyze opportunities that come your way so that you can identify those that can be successfully executed with no upfront money.
For investors who want to control as many properties as they can, Dario’s tips are essential. Here’s his checklist for creating new wealth.
1. Owner Financing
A typically common way to buy a property with no money down is to use owner financing. This occurs when an owner agrees to finance all or some part of the purchase price, instead of getting the cash now.
You’ll be surprised how many people own their properties free and clear, and are willing to finance the entire amount or a good portion of the mortgage. Usually, though, you will be getting secondary financing from the owner. That means you will get the majority of the money (the first mortgage) from another source, like a bank, and the seller will give you the rest in the form of a second mortgage.
There are four types of owner financing that you could ask for:
Type 1: Ask for the principal to be paid at a certain later date. If you notice, I didn’t mention monthly payments for interest; only that the principal be paid at a later date. Why pay monthly payments or interest if you don’t have to?
Who would go for this? Most sellers won’t... but some will. You only need one to get yourself a great deal, so ask for this each time. If they do insist on interest or payments, go to the next offer.
Type 2: Principal divided into monthly payments. Again no interest; you’re paying off 100% principal. That’s a great deal for you!
Example: A seller agrees to finance $100,000 over 20 years. 20 years times 12 months per year is 240 payments. $100,000 divided by 240 equates to payments of $417 per month.
Type 3: Ask for interest-only payments, with the principal to be paid off with a “balloon” (also called “bullet”) mortgage in 5 years.
In this example, we offer 8% interest on $100,000 of owner financing. Multiply $100,000 by .08 and get $8,000. Divide the $8,000 by 12 and get a monthly payment of $667 per month. You then must pay off the entire principal balance at the end of the fifth year. You would typically do this by either selling the property or refinancing it.
Type 4: If the owner insists on getting principal and interest, then you would structure the deal accordingly. Owner financing, $100,000, 8% interest, amortized over twenty years with a five-year balloon.
Your principal and interest payment is amortized over a long period—twenty five years—because the longer you make the amortization period, the lower the monthly principal and interest payments will be.
2. Borrow from a Private Lender for Down Payment
If you’ve got a great deal, but don’t have the money for a down payment, find a private lender. This is any individual that has extra money set aside that you can use for your purchase.
The person can be a family member, friend, dentist, doctor, dry cleaner, a member of your real estate investment club, etc. Private investors are everywhere; you just need to start asking.
What do you ask for? Ask if they have money in an RRSP saving account or a savings account that they would like to get a return on, of 8-10%, secured by real estate.
After you get one or two lined up and you start to use them successfully, watch what happens. They will tell their friends, who will tell their friends, and so on. It is human nature to brag at cocktail parties or at the gym about what a great investment you just made. Before you know it, you will have all the funds you need, and your business will explode.
3. Personal Loan
Take out a personal loan at your local bank for the down payment. Don’t use the same bank that you used for your first mortgage on the property.
4. Subject To
Just like single family houses, you can take over multi-family properties subject to the existing mortgages. The mortgage stays in the current owner’s name, but the deed is transferred to your name.
It’s is a great way to take over a property with no money down. This situation usually arises when the property is not performing and the owner is in trouble with the bank.
5. Equity Partner Investor
This means you will share what equity is created in the property with an investor who will give you the money for a down payment.
For example, an investor gives you 20% of the purchase price to put down on a property. In return for this down payment, the investor will get 20% of the monthly cash flow, and 20% of the profits upon the sale of the property.
Additionally, the 20% that is put down will be treated like private money. Private money is a second mortgage on the property. Depending on the interest rate environment, the rate for the private money is 3-4% higher than banks are getting for primary financing.
6. Equity Share Owner
You can also do an equity share with the owner. The owner transfers title to an entity in which the two of you are partners. The property is refinanced for the purchase price. The owner gets out as much of his equity as he can, and becomes an equity partner for the rest.
For example, an owner has a property he is selling to you for $1,000,000. His current mortgage amount is $650,000. He transfers the title, and the property is refinanced for $800,000. He gets $150,000 of his equity and he becomes an equity partner for the remaining $200,000.
The benefit to the owner is that he gets 20% of the monthly cash flow, plus his 20% equity stake will be worth more when the property appreciates.
7. Repair Allowance
When using a repair allowance, you inspect the property and determine what needs to be done in repairs. You add up the cost and have that money given back to you at the closing.
Doing this gives you money for closing that you wouldn’t have had. You can use this money for a down payment. I know someone who bought a property for $800,000 and got a $100,000 repair allowance. Not only did he use that for his down payment, he did some repairs that needed to be done immediately. He’s planning on using the rest as a down payment for another property!
8. Refinance with Seller Carrying Back a Second Mortgage
This scenario is very similar to the Equity Share Owner situation but the owner does not become an equity partner; he becomes a second mortgage holder. You save a great deal of money in the long run, because you do not give up 20% of the profit and 20% of the equity.
Just as they did in the old west, you can barter the down payment for anything else that you hold ownership to. This includes equity in other real estate, notes you own, personal property, services...the list does not end.
Use your imagination, and get creative. Perhaps the seller has a need that you can fulfill.
10. Use Part of the Seller’s property as Collateral to Borrow Down Payment
Many times you will buy a multi-family building that has several different parcels associated with it. To get the down payment, get the property under contract and coordinate the sale of one of the parcels to use as your down payment.
A real estate investor colleague of mine is using this technique to buy a 100-unit complex. The property was built with the intention to sell as condos, so each unit was separately deeded. My colleague is selling 40 of the units to other investors, making enough profit to purchase his 60 units, free and clear.
11. Substitution of Collateral
If you are purchasing a property below value (property A) and own a property that is being used as collateral for the financing that is on it (property B), you may be able to transfer the collateral from property B to property A. This would free up the equity in property B to be used as the down payment.
Who is Dario Lorenzo http://www.squidoo.com/dario-lorenzo
- Contact Information
- Dario Lorenzo
- Affinity Investments
- Contact via E-mail
This news content may be integrated into any legitimate news gathering and publishing effort. Linking is permitted.
News Release Distribution and Press Release Distribution Services Provided by WebWire.