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Real Estate Investors: How Make No Money Down Offers on a House That is Free and Clear

By Michel Lautensack

Republish: EasyPublish™ Published: 02Oct2009 Word count: 618 Viewed: 166 time(s) Get Free Content For Your Site

The first one is probably the easiest. This is a free and clear house. There is no mortgage on the property.

The scenario I created is real simple. The house is worth $130,000 and the owner wants $100,000. Again, the property is free and clear.

Develop Rapport

You spend some time and you must develop what's called rapport with that seller where you and they are congruent. You're together and the conversation is moving in the right direction. They have something they want done - which is sell the house - and you have something you want done, which is to buy the house at a profit, and it appears the conversation is heading down that way.

If you are not in rapport and things aren't going well, if the seller's combative in some of their answers or they're difficult to deal with, then ultimately you're not going to make offer. At least if you make one it's not going to get accepted.

So it's very important as part of this process that you're in rapport with that seller. You've spent some time and there's a comfort level between the two of you. There's some trust in terms of the conversation. That's when you move into what's called the offer stage and you would start to make offers.

The Offer Stage

The free and clear house that is worth $130,000 and the seller wants 100K, the offer you would make is this. You would simply offer the person a $95,000, or maybe $90,000, first mortgage and the seller takes back this first mortgage. You don't go to the bank and get the $90,000 or $95,000. The seller would get $5,000 or $10,000 in cash and balance in the form a mortgage and promissory note. You would give the seller at closing $5,000 or $10,000 in my hypothetical example.

The $90,000 or $95,000 is coming from the seller. You would create a mortgage just like you would any other transaction with a bank and you would create a promissory note - promising to pay that individual - that the seller would get the mortgage as security against that promissory note. If you failed to make the payments the seller would be able to take back his own property.

You can create this at very advantageous terms with relatively low interest rate. I'd recommend something in the nature of a 3-5% interest rate. That is what I would offer the seller.

Security

The security for this transaction is a mortgage on the property and rent from a renter. You get your money from rent less expenses. That is their mortgage - their security.

The alternative security is the mortgage which says if you don't make the payments they'd get the property back. That is a tremendous way to make an offer.

If you don't have the $5,000 or $10,000 in free funds, you can use alternative ways to get it. If you have a line of credit on your house - I'm not a big fan of doing that, but for a relatively small amount its fine - if you had a personal line of credit with a bank or something of that nature, we're talking about a relatively small amount of money to get the deal closed.

So the deal would be that the seller would essentially put up $95,000 and you would put up the $5,000. You could do this through even a credit card if you had to or even a private lender. If you have the private lending process cranked up you could get a second mortgage from private lender for $5,000 or $10,000 or maybe even a few dollars more if you wanted to do some rehab or cosmetic improvements.

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