It Just Wont Work In My Area
by Bill J. Gatten
QUESTION:
I'm a novice investor in Los Angeles and becoming more and more discouraged because every article or testimonial I read by successful RE investors is ALWAYS about people who live in those Utopian parts of the country where a house still costs $20,000 to $40,000. Now, Where I live, this is so unheard of it's funny. A single family home in my area will run you somewhere between $200,000 and $400,000 minimum and that's not necessarily prime real estate. Not to mention that positive cash flow is IMPOSSIBLE because the loan amount is too high for the rents received to pay it off.
I was lured into this business by the promise that a person with little money and bad credit could earn a good living. Getting a $40,000 loan from a bank or broker is one thing; but going after a whopping $250,000? I keep hearing that "No Money Down" techniques work EVERYWHERE yet I have not heard ONE testimonial or read ONE article that relays a success story in Los Angeles. IS THERE SUCH A THING? Can I really succeed starting out with bad credit and extremely high property value? Who is going to let me borrow $300,000 with little or no money down and bad credit?
ANSWER:
No one! I am in the L.A. area too, and so are hundreds of my students and seminar graduates. And within that group there are hundreds upon hundreds of success stories here just like the ones you say you'd like to hear. A couple of things you really ought'a know before proceeding, however:
If you think that Creative Real Estate Financing is going out and getting a loan on a property, while convincing someone to carry the down, and then renting or leasing the property out...then you are waaaaaaay off. In my book, that's called "speculative investing": and it's just not very "creative." That's the Carleton Sheets, Russ Whitney, John Reed stuff. That 's the tact for the 'already rich' and for the credit endowed...not for the likes of us poor schmucks with no money, who could easily blow a copraphagic monkey off a garbage truck with our stinking credit. Do understand that bad credit is not a 'good' thing by any means: but once you've got it, you don't have to stop living and accumlating. Many of the wealthiest people I know owe their wealth to the new lives created by what they had to do to compensate for their bad credit and low savings.
Here's CREATIVE real estate financing (one example out of thousands). Find someone who has a property (any value) who doesn't want it.a "Don't Wanter" (a motivated seller): in other words a "Needer."
Then find someone with marginal to gum-ball credit, a few bucks for closing and a sincere desire to own a home, a "Wanter", a 'Nuther Needer' (Needers tend to attract each other like magnets)
Next, you arrange with the seller to take over his loan as it is (safely via, say, the use of a land trust);
Then, for a fee, you allow your buyers to come in with just Closing Costs, agreeing that, for your troubles and your generosity, you'll let them keep half of any future appreciation there may be when they sell or refinance.
Example:
1. You find a Don't Wanter Needer with a $200K property and, say, $1500/Mo. payments
2. You have the property put into a land trust in the seller's name (or the name of his property)
3. You then have him make you a 90% beneficiary in the land trust, at a $210K value with full Power-of-Direction (note the $10K equity you just created for yourself)
4. You advertise for a buyer ("No Down, Clos. Costs only...")
5. Upon locating the buyers, you put them in the property to make payments of $1,700/Mo to you (note the $200/mo. pos. CF you just created)
6. You explain to your buyer that you will-without a down or even credit qualifying--GIVE them the property and all the benefits of homeownership (including all tax write-off, etc.) if they will contract to stay in it for
3 years, manage it, maintain it and cover all of its associated costs.
7. You further explain that all you want out of it (ever) is just to have them sell it or refi it in their own name in 3 years: and at that time, if there's been any appreciation, you'd just split it with them.
8. To get in they just pay all the closing costs and, say $3,000 to you, for either: 1) a couple more contingency Fund payments than you really need; 2) an investor's facilitation fee; or 3) a $3,000 equity contribution (down payment to you...reducing your $10K equity to $7,000).
Now, in this scenario, you've made yourself $3000 up front; $200 per month for 3 years ($7,200); $7,000 (or $10K) in your equity return at termination; half of the equity build-up over the term (e.g., $75/mo., or $2,700 over 36 mos) and half of whatever the Appreciation may have been over the trust's term.
How much did that property cost you? Nothing.
How much down payment did you make? None.
How much were you monthly payments? Nothing.
How much credit did you need? None
How much management and maintenance did you do? None.
How much profit did you make? About $23,000 plus half of whatever the Appreciation may have been over the term. Plus...with just an average of 5% per year in Appreciation, you made a total profit of nearly $40,000.
Think about it...If you did six of those a year (1 ea. 2 months), could you make a decent living when they start to pop 3 years from now?
In the beginning of the process if you took your $3K from you first deal, and used to do a flip for another $8 or $10K profit, and then did 6 of those year as well, would that help your pocket book any?
Final question: Do you have serious concern re. your personal finances, and the burning desire to succeed, that it takes to make it in this business?
If your answer is "Yes," then you are already extremely wealthy: you merely need to steward your resources and start looking for those Needers.
The best way to change your life, just change your mind.
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