21 ways to finance your real estate deals

8/8/2019 21 Ways to Finance Your Real Estate Deals

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Copyright © 2008 CM Yates Inc.




21 Ways To Finance Your Real Estate Deals

…Without Using Your Own Cash or Credit By: Chris Yates

TABLE OF CONTENTS

Introduction

The Best Game in Town: Private Money

1. Cash2. IRA

3. 401k

4. Non-Retirement Investments Accounts

5. Home Equity

6. Credit Cards

7. Personal Credit Lines

Alternative Strategies:

8. Hard Money

9. Business Partnerships

10. Contract Assignments

11. Assumptions

12. Lease Options

13. Subject-To (Existing Financing)

14. Owner Financing

15. Buy/Sell in an LLC

16. Cross Collateral - Real Estate or Stock, etc.

17. Fun With Notes – Re-Fi into a Purchase

18. Credit Partners

19. Rezoning - Parcel Splits or Combining20. Limited Partnership & Private Placements

21. Commercial Bank LOC

Conclusion




Real Estate Financing Strategies

Why there is NO reason not to jump into the greatest time to buy real estate in this

lifetime.

Introduction:

Welcome to what may be the greatest financial opportunity of your life! The mortgage market

meltdown, the housing “crisis”, and the volatility in the stock market have all culminated to

make real estate investing one of the smartest, safest, and most lucrative investment strategies

available.

This opportunity, however, does not come without its

challenges. Restrictions on lending guidelines havemade real estate investment a challenging endeavor

to those who are unable to think beyond the standard

plain-vanilla methods of acquiring and profiting from

real estate investments. If you’ve run out of cash or

have been told that you cannot qualify for an

investment property loan (regardless of your credit

status), then this e-book will provide you with the

strategies you need to continue building your

investment property portfolio regardless of marketfluctuations.

Many people know by now that there is a great opportunity to be had in real estate

investments because the record number of foreclosures in the United States has led to

unbeatable deals available to those who can obtain financing to acquire them. The obstacle lies

in their inability to obtain financing for more than a handful of deals. Mortgage lending

restrictions have made it more difficult to obtain conventional financing even with substantial

cash down payments. These restrictions have prevented all but the savviest investors from

expanding their real estate investment portfolios to more than a handful of properties.

In this e-book, we will explore 21 different ways to fund your real estate deals without the use

of your personal cash or credit! These are not conceptual, theoretical, what-if scenarios.

These are real strategies that we use in our business every day to take advantage of real estate

opportunities regardless of changes in the mortgage, housing, and stock markets. Applied

wisely, these pages contain enough information for you to acquire as many great investment

properties as you can get your hands on without ever having to use your own cash or credit.




Here’s to your success!

The Best Game in Town: Private Money

Why Private Money?

Whether you have a long term or short term investment strategy, private lending is the single

best way to fund the growth of your real estate portfolio. Private lending works the same way

as borrowing money from a bank, but the bank is a private individual with little or no stringent

lending criteria who simply receives a Note and Deed of Trust or Mortgage (depending on the

state you are investing in) in exchange for funding your deal.

Private lenders can bring speed and efficiency to your transaction by asking fewer questions

and moving money faster. Being able to offer a fast closing with private funds will motivate

sellers to take your offer over your competition, and will entice them to take a much lower

price from you than they would from a conventional buyer.

Low Costs, Flexible Terms:

Private Money Loans are very cost effective, with rates usually ranging from no points and 8%

interest, to 3 points and 15%. Pricing and terms should vary depending on the overall risk

associated with the deal. Private lenders can provide various types of funding starting with

“flash cash” (when you only need funds for a few days) to longer term notes as long as 5 years

or more. Lenders may elect to receive interest payments monthly, quarterly, annually, or at the

time of loan maturity.

Transaction fees on Private Money Loans are much lower than most as private lenders do not

have underwriters, processors, etc. on staff, and do not require nearly as much paperwork as

conventional or government-backed loans.

Why you should protect them, and how:

As a professional investor, you will want to protect the interests of your private lenders as well

as your own. We suggest providing them with the following documents to secure their

investment capital:

o Promissory Note o This is your lender’s collateral for their investment capital

o Deed of Trust, or Mortgage (varies based on state) o This is the document that is recorded with the county clerk and recorder to

publicly secure their investment against the real property that you are providing




as collateral

o Hazard Insurance Policy

o List the Private Lender as the “Mortgagee” to protect them in case of fire or

natural disaster, etc.

o Appraisal (optional)

o Many private lenders will simply research the value of a property online before

making an investment decision. As many of your acquisitions will be properties

that require significant renovation, an appraisal may not be necessary to

establish value if your purchase price is obviously well below market. If a lender

does require an appraisal, be sure to give the appraiser a copy of your

renovation scope of work with total renovation cost and ask the appraiser for an

ARV (after repaired value) figure on the appraisal.

100% financing still exists!

Private lenders rarely require a down payment from you and may fund both your purchase and

renovation of the property, or more! In many instances, we have purchased a property so far

below market value that our lenders have actually funded our purchase of the property, all the

renovation costs, AND allowed us to receive cash at the purchase closing to put towards our

operating expenses and receive an initial profit up front.

This sounds great, but where do I find these lenders?

Private lenders can be family members, friends, business partners, professional or personal

acquaintances, attorneys, accountants, business owners, or strangers. Anyone that you come

into contact with could be a potential private lender for your real estate deals.

What’s in it for them?

Fixed returns on their capital providing better profits than almost all other investment vehicles,

secured by real assets at below market value, insured against fire, theft, vandalism, and natural

disasters, and the ability to do all of this completely tax-free within their retirement accounts if

they desire. Need we say more?

Where do the funds come from?

The first seven strategies we will cover in this e-book highlight sources that private lenders can

tap in order to take advantage of the incredible investment opportunities that you are about to

open up for them.




Keep reading to discover the power and possibilities that private money lenders can bring to

your real estate business.

Strategy #1: Private Lenders and CASH

Overview:

If you’ve ever heard the expression “fast money wins”

or “cash is king”, then you know why this is the best

way to fund your deals….. with one condition of

course. The cash you use in funding your deals

should belong to someone else!

Your own cash reserves are there for you and your

family to live on. Do you think Donald Trump puts his

own cash into his real estate deals? Of course not!

Conventional lenders will want you to have a cash

down payment so that you have “skin in the game”. It’s ok to combine cash with other types of

financing. Just make sure that the cash comes from someone else. Just as you would, the

private lenders you work with have funds allocated specifically for investment purposes. Utilize

their funds to maximize your leverage and ability to accumulate the most profitable real estate

portfolio possible in the shortest amount of time.

Pros:Cash held in most types of bank accounts can be accessed quickly and can fund your deals in

minutes instead of hours or days. Fees are generally minimal for wire transfers and cashier’s

checks.

Cons:

Most people don’t have large cash reserves that are not in some other form of investment

account like a CD, IRA, or money market account. This could limit the amount of funds

available to you very quickly, so be sure to keep cash moving for your lenders to entice them to

hold their cash in reserves to fund your deals.

Strategy:

Although it is not always necessary for you to pay points to your private lenders, doing so may

entice them to keep their cash in a liquid state rather than tie it up for longer time periods in

low-yielding financial instruments like CD’s and bonds. Consider offering your lenders the

option to withdraw their funds early with no penalty in case of an emergency. As long as they

can give you 30-45 days notice, offer not to charge them for an early payoff request. This is a




great benefit to private lenders to build confidence and comfort as they are used to early

withdrawal penalties from most financial institutions on fixed term investments.

Strategy #2: Private Lenders and IRA’s

Overview:

Most people believe that an IRA can only be used to purchase investments like stocks and

mutual funds. Not true! When IRA’s were first introduced, the only companies that offered

them were large brokerage firms that sold only stocks and mutual funds. When you chose to

open an IRA with them, they gave you a variety of investment options to choose from. What

they didn’t tell you, however, was that all the options given to you were investments that they

sold and would make commissions on. They left out all the other things that you are allowed to

invest your retirement dollars in because they didn’t sell them and would not make any money

on those investments.

Enter the Self-Directed IRA. The IRS has set forth guidelines

on what you can and cannot invest in with your IRA. You

would be shocked at the scope of options available to you.

From gold bullion, to tax liens, to real estate investments

and real estate notes, IRA’s are much more powerful than

most people ever realized. Add to that the power of a Roth

IRA which allows you to enjoy your earnings tax-free, and

you’ve got a fast road to retirement.

Most of the private lenders you speak with will have funds in

an IRA account, but many of them won’t be aware that they

can invest those funds, via a self-directed IRA, in real estate

Notes that are fully secured by a Deed of Trust or Mortgage,

and insured. Imagine having a fixed, secured, insured, tax-

free gain of 10% to 15% or more annually, then

compounded over the next couple of decades! That’s a beautiful blend of safe, secure

investments, with the high yields normally found only in more aggressive and risky investments.

Pros:

Most people’s IRA accounts have seen a large loss in recent times which has caused them to

either watch their account statements nervously, or even move their funds to a money market

account within their IRA yielding a mere 1% interest. The return and safety that you can offer




these investors right now will knock the socks off any options they’ve seen lately, so recruiting

new lenders for your business will much easier than you think.

Cons:

Most of your new private lenders will have IRA accounts, but not with a custodian that allows

for self-directed investments. Your lender will need to roll their current IRA account (or 401k

from a previous employer) into a new account with a custodian that offers a self-directed IRA.

As the company losing the account will want to do anything they can to retain the business, the

transfer process could take as little as a week, or as long as 1-2 months.

Strategy:

Once you’ve found a lender that has an IRA and wants to invest the funds with you, get them

started with the account transfer process right away. Since the funds could take a while to

become available in their account, you won’t be able to rely on their funds until the transfer is

complete.

Talk to some self-directed IRA custodians yourself, review their websites, and learn about their

paperwork and procedures in advance. Your ability to walk your lenders through the

application and transfer process will add to their confidence in you and will show your

professionalism and commitment to servicing their needs.

There are a dozen or more IRA custodians that offer self-directed options. Look for one that

specializes in real estate notes to ensure that your transaction structures look familiar to the

custodian company and your deals close smoothly.

Recommendations to begin with:

Equity Trust Company

http://www.trustetc.com/

Entrust http://www.theentrustgroup.com/

Strategy #3: Private Lenders and 401k’s

Overview:

Even more elusive than the self-directed IRA is the self-directed 401k. Although individual

employees have very little control over their investment options, business owners can move

their 401k to a company that offers self-directed 401k options. Those funds can then be

invested in real estate notes.




Pros:

If you can get even a small company with a few employees to become a private lender for your

deals, you also open up the possibility of building relationships with all the employees of that

company and offering them individual opportunities to fund your deals. The employees will

often have more invested in their IRA or savings than they do in their 401k account.

Cons:

Business owners that offer 401k benefits to their employees are often looking for the “quick

fix” by selecting a 401k plan that is easy to setup and forget about. These plans usually offer a

handful of mutual funds to choose from, which makes the employers involvement in the

management of the 401k plan very minimal. In order for the business owner to convert their

current plan to a self-directed model, they will have to be fairly savvy and willing to do a small

amount of hands-on work to move the funds to you and ensure investment security for their

employees by fully understanding your investment opportunity.

Strategy:

Read up on how a self-directed 401k works and request some brochures from a company that

offers them. The brochure will sell the idea for you. You simply explain what you do and what

you are offering. The brochure and the company you refer the prospective lender to will

handle the rest.

Recommendations to begin with:

Equity Trust Company

http://www.trustetc.com/

Entrust http://www.theentrustgroup.com/

Strategy #4: Private Lenders and Non-Retirement Investment Accounts

Overview:

Stocks, mutual funds, CD’s, bonds, real estate notes, shares of businesses and many other

assets can be liquidated to create funds for your deals. If your private lender prospects are not

happy with the returns they are currently receiving, then it would be worth a conversation to

determine what it would take to move their funds into a more flexible and readily available

format.




Pros:

As most people are not happy with the returns they are currently receiving in the above

investments, they should be receptive to your opportunity and willing to talk to you. For those

people that have most of their assets in mutual funds, they are generally used to not having to

manage their assets more than reading their monthly account statement. The same will be true

when their funds are invested with you as their returns are fixed and don’t require any

management on their part.

Cons:

Your private lender will need to liquidate their existing investment account and deposit funds

into a money market or checking account before funds can be moved to your deal. Many stock

brokers, financial advisors, etc. will try to prevent their client from doing this by telling them

that what they are doing is risky. The main reasons are often a genuine concern for their client

and lack of understanding regarding their new choice of investment, and their inability to profit

from the transaction coupled with the loss of investment capital in an account under theirmanagement.

Strategy:

Educate your prospect about the pros and cons of your investment versus their current

investments prior to asking them to move their funds. The more educated your prospect is, the

less trouble they will have moving their funds, and the more confidence they will have in your

opportunity. Confidence and results will lead to referrals and more lenders.

Strategy #5: Private Lenders and Home Equity

Overview:

Home Equity is often one of the most overlooked assets in anyone’s portfolio. Equity, much like

your credit rating, is not “real” until it is converted to profit or gain of some sort. If you believe

that you have 40% equity in your home and that makes you feel financially secure, but your

local real estate market drops by 20%, how do you feel now? Equity is really not very useful

unless it is leveraged for your benefit.

If you are consistently paying down the principal balance on your mortgage in order to “buildwealth”, but have limited liquid resources at your disposal, then you are not increasing your

own financial security. You are simply reducing the mortgage company’s risk in the case of a

market downturn. Notice that your monthly payment does not decrease each month as you

make principal reduction payments on your fixed rate mortgage. Who is really benefiting in

this transaction? If you think that you may ever need to tap into your home equity in case of a

financial emergency, consider that the bank may not approve your request in order to protect




themselves (due to a market downturn, or signs that you have become a greater financial risk),

and all those extra payments you made towards principal are now unavailable for your use,

regardless of your circumstances.

Here’s an idea: Ask your lenders if the rate you are offering them is higher than the rate they

are paying (or would pay) on their mortgage. If the answer is “yes”, then it’s time to introduce

them to a concept called “arbitrage” (see the Strategy section below).

Pros:

This is a great way for you to help out some people that thought they had nothing left. Most

people think of their personal residence as an asset, but this really is not true if it costs them

money (taxes, insurance, maintenance). If you can show a few people how they can make a

living from their home equity without putting that equity at risk, you just might change their

lives forever.

Cons:

For older generations, this can be a difficult concept to get past their existing financial belief

systems. Even though they will receive an income out of thin air, and their investment is fully

secured by another property, some people’s minds just don’t think this far out of the “box” that

they were trained to stay in. Most people are living a MUCH lower quality of life than they are

CURRENTLY capable of, simply because they didn’t have the financial intelligence to rearrange a

few things.

The other “con” here is that mortgage are not as easy to obtain as they once were. The process

can take a while, but the advantages certainly outweigh the disadvantages. Also, note that therecent mortgage meltdown has temporarily eliminated the availability of lines-of-credit in many

local markets. Fixed rate (non-LOC) loans are not as useful in this type of transaction as the

monthly interest payments would be due from the borrower even if the funds were not

reinvested elsewhere. This could create a loss for the borrower if they were unable to place the

funds in a safe investment producing a higher rate of return than the underlying loan.

Strategy:

Arbitrage

Definition: The simultaneous purchase and sale of an asset in order to profit from a difference

in the price. Also known as a "riskless profit".

Case Study:

Frank and Mary are in their mid-60’s and preparing for retirement. They have some retirement

savings and their home is free and clear, but they are concerned that their savings and social




security benefits still won’t be enough to cover their living expenses throughout their

retirement. They are considering part time jobs to supplement their income, but Frank’s health

is not great and Mary wants him to stay home so she can take care of him. They cannot afford

rising health insurance costs, and are nervous that any unforeseen expenses could derail their

retirement.

The Solution:

Frank and Mary heard about your real estate note investments from a friend. They came to

you originally thinking that you could offer a better rate of return on their savings that currently

sits in a 5-year CD. You ask about their financial situation and they express their concerns.

They tell you about their home equity and you offer to have your mortgage lender contact

them. After a quick application, your lender determines that he can offer them a line of credit

for up to 70% of their home’s current market value. Your appraiser says the home is

conservatively worth $300,000. A 70% line of credit would allow them to access up to $210,000of their equity at a rate of about 7%.

You have 2 deals coming in that each require a $100,000 balloon note for 1-year in order to

purchase, renovate, and re-finance or sell the property. You offer to pay Frank and Mary 2

points and 12% interest, payable monthly, for funding these deals. Frank and Mary agree to

fund your deals and immediate receive the 2 point fee upon funding, totaling $4,000. Each

month, they receive an interest payment totaling $2,000 and make the payment on their line of

credit in the amount of $1,167, for a net profit of $833. Over the course of the year, they net

nearly $10,000 from the difference in the interest payments, in addition to the $4,000 fee that

you paid them upon funding. $14,000 is about what Frank was expecting to bring home from a

part time job, but now has the ability to stay home and rest while earning the same income.

Once your deal is complete, you return their loan principal and their line of credit is paid back

down to zero. Frank and Mary will gladly fund another deal for you and refer several of their

retired friends in a similar financial situation.

Strategy #6: Private Lenders and Credit Cards

Overview:

Credit cards are extremely powerful, and often overlooked tools that can be used in your real

estate business. You or people you know probably have credit cards with large available credit

lines that are rarely utilized. More than this, you probably receive offers in the mail of “0% until

March” on balance transfers or even checks that can be used for anything you want with a

minimal transaction fee that come with no interest or a very low interest rate (2.9%, etc.) for a




fixed period of time. Why not turn these credit card offers to your advantage and use them to

make a profit?

Pros:

If used properly, credit cards can be a very inexpensive way to fund a deal. Transaction fees are

often as low as $150 on a 0% offer, and, if paid off within the given time period, offer you a way

to fund your deals nearly free of charge.

Cons:

Credit cards come with a lot of small “trap door” clauses that can turn your great deal into a

bad deal if not watched very closely. That 0% offer can jump retroactively to a 30% interest

rate if a minimum payment is missed by even 1 day. Also, if you can’t pay off the credit card

before the introductory rate expires, or at least transfer the balance to another card, you could

end up paying more interest than your real estate deal can afford.

Strategy:

Consider using your or other people’s credit cards, for short term financing only. If a card offers

you an introductory rate for 12 months, try to only use the card for a deal that you can feasibly

get sold or re-financed in 6 months or less.

Schedule the minimum payments for your credit card to be auto-debited from your checking

account at least 1 week before the payment is due. This will limit your risk of missing a

payment and having the interest rate increase.

Once you have funded your deal with a credit card, don’t use that card for any regular

purchases until the card is paid off. Purchases you make will be billed at the regular purchase

rate which is typically 8% to 21%, and the minimum payments you make will be applied to the

highest rate balance on your card, not the introductory rate balance.

Credit cards are a great way to use arbitrage in your favor. Whether you have high-limit cards

yourself or not, use other people’s to fund your deals and help them make some extra income.

Case Study:

Nancy has found a great deal on a banked owned property. The house has a repaired market

value of $200,000 and she has a contract to buy the house for $100,000. She will need tocomplete $20,000 of rehab work to bring the house up to retail quality, but already found a

buyer on Craigslist that is pre-qualified for an FHA loan at $185,000 and has offered her

$165,000 for the house once the rehab is complete.

Nancy has a private lender named Susan that will loan her $100,000 to purchase the house, but

does not have any additional funds to fund the rehab of the house. Susan will fund the loan




from her IRA and does not require monthly payments. Nancy offers to pay Susan 1.5 points and

12% accruing interest on a 12 month balloon, and Sue accepts.

Nancy calls her friend John who has high limit credit cards that he is not using. Nancy offers

John 3 points and 15% interest for a 6 month balloon note in the amount of $30,000. She asks

for the additional $10,000 to fund the 1.5 points ($1,500) that she agreed to pay Susan to fund

the $100,000 note, plus the 3 points that she will pay John ($900), and a reserve account of

$2,250 which is enough to cover 6 months of interest payments to John at $375 per month.

John requested that Nancy make monthly payments so that he would not have to come out of

pocket to cover the credit card payments for the loan.

Nancy has now funded the entire purchase and rehab, has paid the funding fees to both lenders

up front, and still has an extra $5,350 in her pocket to cover any unexpected expenses that may

arise from the project.

Nancy’s contactor finished the rehab project 6 weeks

after the purchase, but her buyer cannot close the

purchase of the house until 90 days after the date she

purchased it due to “seasoning requirements” of the

buyer’s FHA loan. The buyer agrees to move in right away

and rent the house from Nancy until he can close his loan.

He agrees to pay $1,200 per month in rent until he can

close on day 91. Nancy’s total interest expense is $4,125

for the 90-day loan, less the $1,800 in rents she collected

during that time, equaling a net holding cost of $2,325.

Nancy sells the house for $165,000 less $5,000 in closing

costs, less her total payoff to both lenders of $134,125, plus rents collected of $1,800, which

equals a total net profit to Nancy of $27,675. Her return on investment is infinite, as she

invested none of her own money.

Nancy’s first lender, Susan, received a tax-free gain to her Roth IRA in the amount of $4,500 in

only 90 days, which equaled an 18% annualized yield.

Nancy’s second lender, John, paid a $150 transaction fee to his credit card company to obtain

the $30,000 that he loaned to Nancy, and paid no interest as he had a 0% introductory rate.

John received 3 points ($900) and interest for 3 months at 15% ($1,125) for a total income of

$2,025 less the $150 transaction fee that he paid, for a total profit of $1,875 in 90 days. John’s

annualized yield was infinite, as he used none of his own money.




Nancy’s buyer was able to purchase a nicely rehabbed house at $35,000 below market value,

which Nancy was happy to accept as she is not greedy, and knows that “a fast nickel beats a

slow dime”.

Everybody won!!!

Strategy #7: Private Lenders and Personal Credit Lines

Overview:

Personal loans and “signature lines of credit” can be obtained from most banks or credit unions

by anyone with good credit and a stable income.

Pros:

Personal credit lines can be a good source of funding for down payments or rehab projects and

are typically “unsecured” so title to your property is not obstructed. Loan terms can often be

obtained for several years before repayment is required.

Cons:

Unsecured credit lines may be capped at $15,000 to $20,000 or less and often carry an interest

rate at 12% to 15% or higher.

Strategy:

These funds can be handy for longer-term deals. For example, if you buy a property subject-to

the existing financing and only need to make minimal repairs (carpet and paint), this could be a

good way to borrow the funds needed to fix up the property and allow the rents to make the

payments for a few years.

Alternative Strategies

Strategy #8: Hard Money

Overview:

As a backup to all the methods described above, hard money is an essential part of your

funding arsenal, especially is you start to buy several properties at once. Hard money is more

expensive than private money, but can be found in any city, for almost any project or credit

situation, as long as the numbers are good enough.




Pros:

Hard money is often fast (3-10 days to fund) and may not require your personal credit to be

approved. Many hard money lenders are equity-based lenders, meaning that they lend based

on the strength of the deal, not the borrower.

Cons:

Fees for borrowing hard money are often 3-5 points up front, and 11%-15% interest. Many

hard money lenders will only lend a percentage of the purchase price, which will require you to

obtain secondary funding for the remainder of your purchase. Most hard money lenders will

only lend up to 6 or 12 months.

Strategy:

If you have a fantastic deal with a great profit margin and no other way to fund your deal, don’t

hesitate to call a hard money lender in your area. 5 points may sound expensive, but compare

that to the amount of money you’ll make upon successful completion of the deal. If you’re notmaking enough to justify paying 5 points, then your “deal” wasn’t really a “deal” to begin with.

Make sure you have an exit strategy and a backup strategy in place before buying a house with

hard money. If you plan to flip the house, but it doesn’t sell, you need to be lining up less

expensive private money, a credit partner, or a wholesale buyer to take out the hard money

lender before their balloon matures.

Strategy #9: Business Partnerships

Overview:

This can be a great way to get started in the beginning. You put in the time and energy, and

someone else puts in the cash and/or credit. You will agree to a split on the profits of the deal

in advance.

Pros:

Your deal gets funded without the use of your cash or credit, and you probably don’t have to

make monthly interest payments while the project is running.

Cons:

Giving up 50% of the profits (or more) of your deal is a LOT more expensive than paying a few

points and interest to a private or hard money lender.

Strategy:

This is a good way to entice someone to help you get started in the business before you have

relationships with lenders that trust you. If you have trouble recruiting lenders in the early




stages of your business, you can use business partnerships to gain experience and a track

record to show private lenders that will help you gain credibility and earn trust.

Strategy #10: Contract Assignments

Overview:

This is a great way to make some quick cash with no risk when you are new in the business.

Implement some basic marketing strategies to obtain a good contract at a low price, then

assign the contract to another investor for a fee.

Pros:

Very simple and clean. You get the contract, fill out an assignment of contract form, and

receive a check. Done! Assignment fees of $2,000 to $5,000 are common for a good contract,

or up to $10,000 for a great contract. You get paid when your buyer takes over the contract. If they don’t close the deal, you still keep the money.

Cons:

Your profit will be limited and you won’t make anything if your deal isn’t good or you can’t find

a buyer.

Strategy:

Go to your local real estate investment club and place ads on free websites like Craigslist. Find

out what types of deals investors in your area are looking for and what they think is a great

deal. Start marketing to motivated sellers to obtain a contract with a large equity spread.

Obtain as many business cards as you can from people at the real estate clubs and add them to

your e-mail list. Call all the “We buy houses” signs in your area and pitch your deal to them.

You’ll either find a buyer for your deal, or find out that you need a better deal.

Strategy #11: Assumptions

Overview:

Also know as “Assumable Loans”, many of these are becoming available again. VA loansespecially can now be assumed at their existing terms, so you may be able to pick up a house

with a very low interest rate without any cash down.

Pros:

You avoid down payment requirements and may get a below-market interest rate which could

increase your cash flow on a long term hold property.




Cons:

Assuming a loan is not always as easy as it sounds. You may be asked to jump through a lot of

hoops, which may be just as much trouble as applying for a new loan. The loan will report on

your credit just like a new loan, so combine this strategy with the “Credit Partner” strategy

below (#18) to avoid using your own credit.

Strategy:

If you come across a motivated seller that has limited equity, but a fixed rate loan with a low

interest rate, find out if the loan is assumable. If it’s VA, it probably is. Check with your

mortgage lender to find out what loans are currently assumable. This strategy eliminates the

risk to the seller over the “Subject-To” or “Lease Option” strategies below, as they would no

longer be responsible for the loan after you or your buyer takes it over.

If you don’t want the hold the house yourself, but have a buyer that can qualify to assume it

(but they don’t have a down payment), you may be able to have them assume the original loanand carry back the equity spread as a 2nd mortgage that would be paid to you each month.

Instead of taking a cash profit, you would receive a Note that pays your profit to you each

month, plus interest, in exchange for you assembling the deal between the buyer and seller.

Strategy #12: Lease Options

Overview:

Lease Options are a great way to “control” a lot of property without “owning” it. An Option will

give you the ability to purchase a property for a fixed price, within a fixed time period. You may

opt not to buy the property if the market does not create a good profit margin for you, or if you

don’t have an adequate buyer yourself. If you don’t like the deal, simply give the house back at

the end of your option, and your credit will be unaffected.

Pros:

For as little as $0, up to a few thousand, you can control a house for much less than a down

payment, and still have the legal ability to sell the property for a higher price at any time within

your Option period. This is a great way to put up very little money and potentially make a lot.

Cons:

Although you may able to obtain a Lease-Option for little or no money, some sellers will want a

few thousand dollars to give you the right to control the property at a guaranteed price for a

set time frame. If you don’t buy the property at some point, you will lose the option money

(which you may have borrowed and now owe someone else).




Strategy:

“Lease-Option Sandwiches” are a great way to build up a portfolio of investment properties

with little or no cash or credit in the game, and produce a passive income and potentially large

profit spread within a few short years, all with very limited liability.

Start by marketing for “Rent-To-Own”

Tenants that have $3,000 to $10,000 or

more to put down on the purchase of their

next home. They may be self-employed,

don’t have enough cash for a full down

payment, or have minor credit issues. Next,

start searching for motivated sellers that

would be willing to rent their home or allow

takeover of their mortgage payments.

Obtain a Lease-Option contract for the

lowest possible monthly payment, down payment (if any), and purchase price, but for the

longest term (2 to 5 years if possible). Now get a larger down payment from your Rent-To-Own

(Lease-Option) tenant, a larger rent payment, and charge a higher option price, but make the

contract for a shorter term (preferably 1 year). You create a spread for profit in several places,

and allow time for tenant turnover in case your first tenant can’t buy the house. You may be

able to make quite a bit of money before the option expires, even if the house never sells and

you end up giving it back to the original sellers.

Strategy #13: Subject-To (Existing Financing)

Overview:

Subject-To financing is just as it sounds: You buy a house Subject-To it’s existing financing. The

seller leaves the loan in place and you take over title to the property. This is a great way to buy

a house without ever having to apply or qualify for a mortgage.

Pros:

You will own the house, but the loan will never appear on your credit report. Although current

mortgage guidelines may limit the number of loans on your credit at once, there is no limit to

the number of houses you can own when the loans are in other people’s names.

Cons:

Risk and liability. Although there are ways to manage and reduce this, what happens if you pay

the seller and they don’t pay the mortgage, or you don’t pay the mortgage and the seller has a




foreclosure for a house they don’t own any more? Keep things honest, disclose all possible

risks, and run a good business. You’ll be fine.

Strategy:

If you find a motivated seller that has limited equity but is not behind on payments (so a short

sale won’t work), or a seller who has some equity and is behind on payments, this is a great way

to take control of a deal without obtaining a new mortgage. If the interest rate is low enough,

it may justify you bringing in cash from a 2nd

lender to make up the back payments. If they are

current on payments, but have limited equity, you may be able to make a nice spread my taking

over the loan with a 5% interest rate, and renting to a tenant for cash flow or selling via Lease-

Option, or Owner Financing at 7%+ and keeping the spread. There are a lot of possible, and

profitable, exit strategies for Subject-To deals that are well structured.

Strategy #14: Owner Financing

Overview:

This is a great way to buy a house from a seller that has a free and clear house, or wants to sell

it for much more than their loan balance. The seller can “wrap” their existing loan or give you

title Subject-To the first mortgage and carry back a new second mortgage for the balance. Lots

of combinations are possible here.

Pros:

Zero down is possible here. This is a nice way for a seller to unload a house, make additional

profit from interest income, and limit their tax liability by taking the sale proceeds in payments.

This is good for you because the seller may offer you much more favorable terms than the

current market, such as: no reporting to credit, small or no down payment, below market

interest rate, etc.

Cons:

If the seller is savvy enough to offer you owner-financing, be careful! They may be trying to sell

the house for more than it’s worth, or perhaps there is something wrong with it that they are

trying to cover by avoiding an inspector or appraiser coming to the house. Conduct your due

diligence thoroughly.

If the seller hasn’t considered carrying the financing, or has never heard of it, definitely pitch

the idea to them. There are many benefits to them, and there could be great benefits for you if

structured properly.




Strategy:

If a seller is motivated and has significant equity in the house (this is great for probate

properties with only one heir, or for retired sellers that are selling a property other than their

primary residence) try offering them full market price for the house, but they agree to accept

100% of the purchase price in equal monthly payments over 15 years. What’s the catch?

Notice I didn’t mention the interest rate. That’s because there isn’t one!

$200,000 at 0% for 15 years

= $1,111/month and a total price of $200,000

$200,000 amortized at 6.5% for 30 years

= $1,264/month and a total price of $455,088

Imagine what would happen if you bought this house with the first scenario, and sold the

house to a new buyer via Owner Financing using the second scenario. At 15 years and 1 month,

the house is free and clear, and you are receiving a $1,264/month income for another 15 years.

You just created a passive retirement income for yourself greater than social security benefits,

in a single transaction!

Side Note: What if you self-directed $1,000 from your Roth IRA as a deposit on the contract in

the first scenario, then held title to the property in your Roth IRA for the entire transaction?

“You mean all of that income could be tax-free even though I only had $1,000 cash in my Roth

IRA???” Yep.

Strategy #15: Buy/Sell in an LLC

Overview:

Much like an Assignable Contract, you can assign “membership” in an LLC. This strategy works

well for “flipping” properties to buyers when there may be “chain of title” issues with their

financing. In other words, you can buy and sell a property and make a profit, all without

anyone ever knowing that you were involved in the transaction to begin with.

Pros:

This is a great strategy if you want to be stealthy.

Cons:

Profits are limited and you may only get $4,000 to $10,000 per deal as the “buyer” has to pay

cash to take over the LLC from you and then may have to pay more cash to finance the

property.




Strategy:

Obtain a contract on a property at a wholesale price with the buyer name as an LLC that you

formed (use your attorney or CPA as the “registered agent” so your name does not appear

anywhere on the public documents). Instead of assigning the contract itself, you sell the

membership interests (ownership) in the LLC to another buyer. The only “asset” controlled by

the LLC upon transfer is the contract on the property. The buyer takes title to the LLC and gets

to buy the great deal “directly” from the seller. You make a profit without your name ever

appearing on title.

Strategy #16: Cross Collateral - Real Estate or Stock, etc.

Overview:

Many lenders (especially hard money lenders) may require some sort of down payment from

you regardless of the equity position in a deal. Instead of using cash of your own or a private

lender, some lenders will allow you to “cross collateralize” your down payment. This means

that you put up other properties (with equity in them) up as collateral in lieu of a down

payment.

Pros:

This is yet another way to purchase a property without any cash.

Cons:

This can get messy if something goes wrong with your deal and the lender needs to foreclose.

Not only can they foreclose on the house you just bought, but they will go after the properties

you used as cross-collateral also.

Strategy:

Make sure you have a solid exit strategy (and a backup) before you get into this. This can be

very effective since you can borrow collateral from another person, but make sure your deal is

solid and your collateral lender understands the transaction and has adequate security prior to

closing this deal.

Strategy #17: Fun With Notes – Re-fi Into a Purchase

Overview:

Need a long term conventional loan, but don’t want to put any cash down? No problem. This is

an excellent strategy to utilize a loophole in conventional loan guidelines by using a few pieces

of paper to re-classify your “purchase” as a “re-finance”.




Pros:

You avoid any down payment requirements, even on conventional investment property loans.

Cons:

You need a very intelligent mortgage banker to pull this one off. This is an awesome strategy,

but there is no room for mistakes in the loan submission and underwriting process.

Although this will work for retail buyers, the loophole lies in the Fannie Mae rule that requires

no “title seasoning” as long as the loan amount is less than 80% of the appraised value of the

property on a rate and term re-finance. This literally means that you can sell the property for

no more than about 75% of the current market value (leave 5% in to cover the buyer’s fees if

they want a no-money-down deal) so a retail strategy is not great here. Also, your buyer

(credit partner) needs to be very well qualified (high credit score, W-2 employment for more

than 2 years, low debt-to-income ratio, good assets, etc.).

This strategy has become more difficult as lending guidelines have been changing a lot recently.

Consult with your mortgage banker to find out if current guidelines will allow this transaction

structure.

Strategy:

This can get a bit technical, but a very good mortgage banker should be ok with it. Here’s an

example of how it works:

1. You obtain a contract on a bank owned house at a $50,000 purchase price. Your

appraiser says it only needs carpet and paint and it will appraise as-is for $100,000

because the comps in the neighborhood are good.

2. Get your buyer or credit-partner (see strategy #18 below) pre-approved with your

mortgage banker for an 80% rate and term re-fi on this house with a $80,000 loan

amount.

3. Write up a sale contract (non-broker) between you (as seller) and your buyer with a

$75,000 sale price and set the closing date on the same day of your purchase.

4. Write up a Note and Deed of Trust or Mortgage (depending on your state) with your

buyer as borrower and a $75,000 loan amount. The lender can be:

a. Your mortgage bankers company: He or she can act as the initial lender even

though they are not “funding the deal”. This is for the purpose of closing the

purchase transaction on paper and using the re-fi to pay off the purchase. Your

mortgage banker’s warehouse lending company may not allow this, so check

with them first.

b. If “a” doesn’t work, you can be the lender and the seller at the same time. You

are structuring an Owner Carry transaction on paper in order to fund the




purchase of your buyer so they can “pay you off” with the re-fi funds. Instead

of getting your proceeds via the sale, you are going to carry the entire sale price

for a day, and then receive a payoff for the loan you carried (yes, this can all

happen on the same day).

c. If “a” and “b” don’t work for you, it’s usually because the title company orclosing attorney won’t do a “simultaneous closing”, or they won’t provide a re-fi

title commitment to your lender until a deed has been executed in the buyer’s

name. Don’t fret. If you must, go borrow some “flash cash” (a loan for 1-3 days

that will cost you 1-3 points) in order to close your purchase. Then deed the

property to your buyer so that they are the owner on title, and now you can

close the re-fi and receive the payoff.

5. Once the re-fi has closed, your buyer has a property worth $100,000 and a fixed, low

interest rate conventional loan with a balance of $80,000 and no cash out of their

pocket. You sold it to them for $75,000 and the difference between the sale price and

the loan amount went to pay for the re-fi fees. You have $25,000 less some closing fees

from the sale and any fees you paid for “flash cash” if it was needed.

6. If you sold to a credit partner, you’ll probably want to use part of the $25,000 profit to

rehab the property and place some cash in reserves if you plan to hold the property (in

case of vacancy, etc.). See the next strategy for further information on Credit

Partnering.

Strategy #18: Credit Partners

Overview:

Not long ago it was possible for an individual to obtain 10, 20, 30, 40 or more individual

mortgages in their own name as long as the properties were rented and cash-flow positive.

Current lending guidelines have made it difficult for even the most well-qualified borrower to

obtain more than 4 loans in their personal name.

Credit-Partnering allows you to team up with other individuals that have strong borrowing

ability and a willingness to build an investment portfolio. You do the work to build the

portfolio, they contribute the buying power, and you share the profits.

Pros:

Allows you to buy more properties than conventional guidelines will allow you achieve

personally, while enjoying the low fixed interest rates that conventional financing can offer.




Cons:

You must be very diligent in the management of your credit partner portfolio as a missed

mortgage payment could severely damage your partner’s credit rating and expose you to

serious legal liability.

This strategy works well in a lending market where an individual borrower can qualify for up to

10 or more loans. When loans are capped to 4 per borrower, this model is still effective, but is

less scalable if you intend to do big volume as paperwork and management becomes high

maintenance.

Strategy:

This strategy can be structured in many ways, so find an agreement that works well for both

you and your partner. Here is an example of one possible scenario:

1. Follow steps 1 – 6 in the “Fun with Notes” strategy above.

2. Complete all rehab of the property and put tenant in place.

Note: This is a great strategy for a long-term hold, but the process required to obtain

the financing is too lengthy if you intend the flip the property quickly. Also, consider

that your mortgage lender is likely to lose his/her commission and be charged a heavy

penalty for “churning” the loan if it is paid off within the first 4-6 months after the

original closing date.

3. Form a Land Trust or LLC as a holding entity for the property. The operating agreement

should outline the terms of your agreement with the credit partner. Example terms

might be:

a. Credit partner shall receive a $1,000 loan closing fee upon funding.

b. Credit partner shall receive 25% of all cash flow, equity, appreciation, and tax

benefits until sale of the assets, etc.

c. Your agreement should include provisions regarding the management and

maintenance of the property, who pays for repairs or loan payments in the

event of vacancy, and default provisions in case one of you cannot make the

payment or someone dies, etc.

4. Once you have confirmed that the conventional loan has been recorded on title,

transfer the deed into the entity for asset protection and management purposes.




Strategy #19: Re-zoning – Parcel Splits or Combining

Overview:

This strategy can be used to significantly increase the profit from your deal, or reduce the

number of loans needed to acquire multiple properties. This can be especially important in a

market where lending guidelines are tight.

Pros:

There is a lot of room for creativity here and profits can be created out of thin air. Combining

two attached units in a two-unit building will make it possible to buy both units with one loan.

Splitting the same two units from one duplex into two separately-titled units could significantly

increase the total value of the units (i.e., the duplex may appraise at $200,000, but the two

units separated may appraise individually for $125,000 which would increase the total value by

$50,000).

Cons:

Different counties have different rules. Some will allow you to split or combine parcels very

easily, while other may be nearly impossible to budge. Fees vary, as does the length of time

needed to process your application. You may find that one county will combine or split a parcel

for $50 and the process takes 1 week. Or, you may find the process will take several thousand

dollars and years to “possibly” approve your application.

Strategy:

Visit the zoning office at the county buildings in your area.

Ask them what their rules are for splitting and combiningparcels. Find out how long an average application takes to

get approved, and how much the fees will be. You will

probably be required to get a new survey done, so call a

few survey companies in your area to learn the range of

fees. $500 to $1,000 is a typical range for a residential

survey in most areas. If you find that fees in your county

are reasonable, and time frames to get a change request

approved are less than 60 days, start looking for properties

that can be manipulated using this strategy.

Start with small multi-unit buildings (2-4 units) or single-

family attached homes (also 2-4 units) with no HOA and

preferably no covenants. The more governing bodies there

are, the harder it will be for you to accomplish anything.




Note: If you can find a two-unit building where each unit has a separate deed and both

properties are for sale (bank owned or some other sort of distress), negotiate the first property

for the lowest possible price and the longest possible contract. Once you have control of the

first contract, the second is likely to sell to you for the same price and your competition for the

second unit will become very limited as most buyers of a distressed property of that type wouldwant control of the entire building. If you can control the contracts for long enough prior to

closing, you may be able to get the zoning change approved prior to, or very soon after your

purchase. Combine this strategy with the “Fun with Notes” strategy and possibly the “Credit

Partner” strategy above, and you’ve got a recipe for big cash flow.

On the flip side, find a duplex at a great price (say $200,000), get it split into two individually

titled units, sell one for $125,000 and own the other one for only $75,000.

Again, lots of room for creativity here.

Strategy #20: Limited Partnerships & Private Placements

Overview:

This is an advanced strategy that is mostly applicable to commercial or large multi-family real

estate deals, or packages of many small properties held under the same entity.

Pros:

You can build a very large portfolio with a large equity and/or cash flow position using other

people’s cash and credit with relatively reasonable interest rates.

Cons:

You’ll need to learn the SEC (Securities and Exchange Commission) guidelines before putting

this together. Laws vary from state to state, and you must comply with both state and federal

regulations which may differ.

Strategy:

Don’t go here unless you have a single deal that needs capital in the amount of $1 Million or

more, or you have a large portfolio of properties that you need to be funded all at once.

If this is your scenario, contact a good attorney that specialized in securities laws and

formations of limited partnerships, etc. Once you know the rules, you’ll need to file the proper

paperwork and raise the capital and/or credit.




Strategy #21: Commercial Bank LOC (Line-of-Credit)

Banks may offer you a line of credit to purchase real estate. You may be able to get $1 Million

up to $10 Million, though they may only lend on a 5:1 ratio to your deposits. In other words,

you deposit $1 Million cash into a CD at the bank, and they will give you a $5 Million line of credit to buy real estate, secured by your CD. They will still want to review your deal and may

not lend more than 65% of the contract price (or appraised value if you get a really great deal)

of your deal.

Pros:

You can buy a lot of property this way and rates are fairly reasonable. 1 to 1.5 points and 6% to

8% interest is a good range. You can raise the cash deposit from other lenders before you go to

the bank to apply.

Cons:The banker will want to see a business plan, your financial statement, credit report, etc. If

you’re not financially stable on paper, don’t even try this. Also, the bank will probably require a

personal guarantee on the line of credit, and may close it any time they get nervous (market

conditions, etc.).

Strategy:

Commercial lines have been hard to come by since the foreclosure boom has swept America.

Banks are often afraid of loans that have anything to do with investment real estate, so they

may not even talk to you.

If you feel that you are qualified, your best bet is to speak with the President of a small local

bank, preferably one that has been around for a while and has no more than 4 branches in the

entire organization. A personal relationship will get you far, and cash deposits say a lot. Plan

for a long-term relationship, and maintain it accordingly.



Conclusion

The most important part of these “21 Strategies to Finance Your Real Estate Deals... Without

Using Your Own Cash or Credit” listed above is in knowing that most of them can be combined

and utilized in both purchase and sale transactions. The result of this is that you now have the

tools to fund any real estate deal, and as many deals as you want for that matter, regardless of

market conditions. As long as all parties in a deal are truly motivated to see it close, there is no

reason it shouldn’t. Keep this e-book handy as your reference manual, and consult it every

time the next deal comes across your desk.

Successful Investing!

Disclaimer

We are not providing any tax or legal advice. Consult your attorney or tax professional. This is

intended for entertainment purposes only, etc. blah blah blah…

21 ways to finance your real estate deals

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