A great way to purchase properties with no money down is to enter into a joint venture agreement with another investor. When I first started investing , I did not know where to find hard many lenders or private investors. So what I did was look for investors who wanted to partner with me on a property, then when the property sold, the profit was split 50-50. In this scenario, my job was to locate the property, supervise the renovation, and find a buyer for it. My partner’s job was to put up the money for the purchase and for all repairs.
This really works!! You literally take zero pennies out of your pocket yet still get 50% of the profits! Do you realize how many properties you could purchase at a time? As many as you wish!
You’re probably thinking, “How do I find these investors?” That’s EASY! All you do is place classified ads (online and offline ) under sections such as “Business Opportunities,” “Capital Wanted,” or “Investment Property.” I even placed ads in the Wall Street Journal, under the section, “Capital Wanted,” running it throughout their East Coast edition. I always received a great response from this advertisement:
Seeking Equity Investors
For High Profit
Real Estate Flips
Another successful ad is the following:
Equity Investors Wanted
Make at Least 15%
Return on Your Money
WITHIN 3 Months!
Joint Venture Process
Once the investors start calling, and believe me, they will, explain the whole process to them. Inform them that you will locate the properties, supervise the renovation, then find the buyers. Their job will be to put up all the money, including property acquisition and renovation. As for when the property sells, tell them they will get 40% of the profits and you will keep 60%. I know I said before that the split is 50-50, but why not try to get more out of the investor? Some may bite at the split you first quote, others will try to haggle you down. Worst case — you settle for the 50-50 split!
Once you agree on the split, it’s time to begin looking for properties. When presenting a property to an investor, I always bring along a picture of the home and a representative number of sales comps, in order to prove what the post-repair value of the home will be. It is also important to bring along a repairs bid from a contractor. If the investor likes the deal, he’ll likely want to see the property for himself. Schedule a time to view it with him, and be sure to bring a joint venture contract along.
If he considers it a prosperous venture, it is a good time to get the joint venture contractual business squared away.
As for how to organize the actual contractual agreement, you can do one of two things:
1) You can form a Limited Liability Company (LLC) with the investor, specifying what each partner’s job is and the profit split. Most investors, however, will not agree to this, because they don’t know you well enough. But it doesn’t hurt to push it. After buying and selling a few properties together, the investor will probably be more open to forming a LLC with you.
2) If the investor refuses to form a LLC, you must put together a “joint venture agreement” (see forms section : www.duncanwierman.com/forms. Once the agreement is filled-out, you should both go to a Notary Public or to either of your attorneys, so that your signatures can be witnessed.
As for whose name the contract for the property will be under, this is up to negotiation. I typically allowed the contract to be in the investor’s name or, in the case of a LLC, in the name of the company. When the property sells, you get your 50% or 60% of the profits! Simple, isn’t it?
To simplify tax related issues, if you receive a check for your percentage of the profits, be sure to have your fee listed as “Consultation or Referral Fee” on the HUD-1 or real estate closing statement.
CAUTIONS AND CONTINGENCIES
For a word of caution, when you show the investor the property, be careful that he doesn’t steal your deal. Believe me, it can happen. As a matter of fact, I got burned in this way several times until I changed my game plan. The basic risk is this: unless you have a contract with the seller, there is nothing (other than ethics) stopping the investor from going ahead with the purchase of the property and leaving you out of the deal all together.
What did I do to prevent this? I began establishing contracts with sellers before investors ever saw the properties. Now you’re probably wondering, “How can I get under contract with a seller when I don’t have an investor to purchase it?” Good question. Here’s the good answer: three magic words — “And/Or Assigns.” Just as I described the magic of those words in the first part of this chapter, they do a wondrous job in this case as well. In establishing a contract with the seller, simply add “And/Or Assigns” after the name you purchase the property under (your personal or business name). By doing this, you can easily assign the contract to the investor after the joint venture agreement is signed by you and the investor.
Now let’s explore the worst-case scenario with the above situation. What happens if you cannot find an investor to joint venture with you? This will NOT occur because of a lack of investors, but rather, if a review of the repair costs and sales comps reveals a huge mistake on your part — that you signed a contract on a property which does not have sufficient potential for profit. Certainly, this could be a rather serious situation for you, BUT you should not panic! With someone like me advising you, you will avoid these traps. So how would you get out of this mess? Easy! When you establish a contract between yourself and the seller, always include an escape clause in the contract.
The escape clause should read as follows: “Contract is contingent upon the approval of my partner.” See how easy it is? Always add this escape clause in every contract you enter. However, when buying REOs (bank owned property) you’ll not be able to add this clause in the contract. The real estate broker will refuse to allow it. So what is the worst thing that can happen to you if you try to break the contract and back out of the deal?
Two possibilities exist:
1) you can lose your deposit (usually no more than $100), and
2) the seller can file a motion in court to force you to purchase the property. To be honest, possibility #2 never happens.
What I guarantee will happen is that you will lose your deposit. But remember, if you try to back out of a contract with a bank, you lose not only your money, but your reputation. Trust me, I have seen many investors back out of deals, and the REO brokers respond by black listing them. The REO broker will never deal with you again. The lesson? Do your homework before entering into a contract with a bank. But when buying houses through divorce, probate, or directly with a seller, always put that escape clause in the contract, and if you have to, back out. Chances are, you will never see these sellers again.
There is another approach you can take when you want or need to back out of a deal — just be upfront and tell the person you signed the contract with that you have changed your mind. You have considered the situation more fully and come to the conclusion that it would be in your best interest not to go through with it. Though they may be disappointed or even angry at first, many individuals realize that we are all just human, and as humans we make mistakes. If necessary, give them a while to acclimate to the news, then tell them you have an easy and legal way to end the deal: You both simply need to sign a contract rescision, such as in the form section.
Another significant advantage to this method is that you will not lose your deposit. When the rescission contract is signed by both parties, your deposit is to be returned to you. But perhaps best of all, the issue will be settled.
For more detail continue..
First I am going to explain the technique in more detail and at the end I will show you how to do it using included “ Online Lead Finder” Software. You are already probably thinking: “How can you ‘sell’ something if you don’t buy it first??”
The method we use is called – The “Option” Method
An Option gives you ‘control’ of a property WITHOUT BUYING IT! When you have an option on a piece of property, you have the right to either buy that property, or NOT to buy it. The choice (option) is yours.
Options can be either an ‘exclusive’ right or a non “exclusive” .
An Exclusive Option means that that NO ONE ELSE can buy or sell that during the term of your option. You control everything! Exclusive’ means ‘exclusive’ under the law! The best part about the option is that the seller keeps paying all the costs of the property: taxes, assessments, upkeep & maintenance. You can either ‘sell’ the property, or you can even ‘sell’ the option itself, for a profit before the option expires. If the seller sells the property to someone else, while you hold this exclusive option, you are entitled to ALL monies the seller receives over the price you have agreed to pay for the property — or — if the seller sells the property for less than what he agreed to sell it to you on your option, you can collect the difference from the seller..
A “Non-Exclusive” (FLEX) Option is less powerful, and give the owner the right to back out of the deal if he can sell the property before you do. I use this ONLY if I have to , to be able to get into a good potential deal where the seller is not sure he wants to tie up his property.
For this technique you want to use a PURE (STRAIGHT) OPTION. Why? Because, “WHEN YOU HOLD AN OPTION ON A PROPERTY, YOU ‘CONTROL’ THE SALE OF THAT PROPERTY UNTIL YOUR OPTION EXPIRES. With a pure option, no one is able to ‘buy’ or ‘sell’ that property, legally, without first satisfying your option. You own the exclusive right to buy that property, or not buy that property, or sell that property to someone else, or sell the option itself to someone else. When you use an option, you are NOT BUYING REAL ESTATE; you are buying the exclusive right to buy (or not buy) that Real Estate. That means you also have the exclusive right to sell the property as well.
Another advantage to this method is that you will usually be dealing with ‘better deals’ Whereas, if you are doing other types of real estate deals, you are usually working with ‘distressed’ properties. Most of these properties are, usually, properties that the bankers, lawyers, and other insiders don’t want. They usually get the pick of foreclosures, estate properties, and the other ‘prime’ properties before you could ever find out about them.
That leaves the ‘garbage’ properties for the rest of the real estate investors to fight over. When an owner decides to sell, who do they go to? They go to a real estate agent, their lawyer or banker. If the deal is good, these “insiders” usually pass it along to their friend or associates, or they do the deal themselves. But… Just one simple classified ad can make YOU the insider. You will have the the owners/sellers calling you BEFORE they call their associates. That simple classified ad will be given toward the end of this post. Please before you can start using it, you need to become familiar how to structure of an option. —
Download the OPTION Agreement HERE
Read through this form thoroughly before you read further,
The agreement form is very simple for a reason. However there are some important parts of the form you should be made aware of:
Paragraph #1 : Entitled ‘PROPERTY’ — does two very important things for you. It gives you, your heirs and assigns the exclusive right to purchase the seller’s property at a specified price for a specified period of time. By making the option to yourself — AND — your heirs and assigns, you have given yourself the right to assign (sell) the option to a third party (someone else).
The ‘exclusive right’ prevents anyone from buying the property from the seller until your option expires or you exercise your option. If the seller sells the property to someone else, while you hold this exclusive option, you are entitled to any monies the seller receives over the price you have agreed to pay for the property – or – if the seller sells the property of less than what he agreed to sell it to you on your option, you can collect the difference from the seller – or – if the seller sells the property for the same price in your option, you may be able to collect the full amount from the seller by suing for breach of contract (usually, just the threat of such a lawsuit will get a settlement from the seller). — “Exclusive” means “exclusive” under the law. Once you exercise your option, you are bound by the purchase price and terms contained in Paragraph
Paragraph #2. So…don’t even think of exercising your option unless and until you are ready, willing and able to meet that price under those terms. Remember: Breach of contract goes both ways. If you exercise the option and then cannot fulfill the price and terms in Paragraph #2, you may be subject to a lawsuit. In Paragraph #3, you get the right to extend the option for two (2) additional periods of time by paying the seller another option fee. In some cases, you will be able to get those extensions; in other cases you won’t. That will be subject to your negotiations with the seller. You, of course, would only want to extend your option if you had a deal working when the option was about to expire – or – you have a plan for the property that extends past the expiration of the option period. Otherwise, you can simply let the option expire at the end of any option period…as provided for in Paragraph #3.
Paragraph #5(c); last sentence, gives both you and the seller legal recourse if either of you don’t live up to your respective parts of the bargain. And, in case you hadn’t noticed it, Paragraph #6 gives all of the 5 inherent COSTS of the property back to the seller, until you exercise your option and close the deal. Add a ‘sweetener’ for the seller; to get him to give you the option, you could agree to pick-up some of those costs at the closing by entering those exceptions at the end of the paragraph. You would only have to pay those costs if and when you exercised your option and closed the deal.
USING AN OPTION
Dealing with acceptable, presentable properties, using an option, you have a far greater chance for profit than you do trying to clean-up, fix-up, or otherwise enhance someone else’s garbage property. There are only four (4) steps to using a Real Estate Option profitably:
(1) DETERMINE the type of Real Estate you want to deal with and create your marketing plan
(2) GET THE OPTION!
(3) SELL the property using your plan – or – SELL the option itself (in which case, you won’t need step #4).
(4) EXERCISE YOUR OPTION — buy the property. (Steps #3 and #4 usually happen simultaneously.)
In order to determine the type of Real Estate you want to deal with and create your plan, you will need to be a little creative. You will, usually, have a unique use for the property, or you will be offering the seller a unique reason for giving you an option on his property.
As you read the rest of this technique, you will quickly understand to how this creative process works. You will soon find yourself creating up deals even I haven’t thought of! The plan you decide upon, will determine how you go about accomplishing steps #3 and #4 – but – step #2, GETTING THE OPTION, will work almost the same way in the majority of times. For that reason, I am going to detail a step-by-step approach for you to use.
GETTING THE OPTION
If you have not got your buyers in place and know what they want, that would be my task number one. Use the software to help you find buyers , ask what they want, then go out and get it! I want you to make cash fast, so I want you to know’ what you are going to do with the property and have a reasonable idea about how, where, why and to whom you are going to ‘sell’ the property, or the option itself, for a profit!
Getting an option without having a reason, plan or purpose will get you absolutely nowhere fast. HEED This Advice: if you don’t know what you’re going to do with the property, don’t waste your time and energy getting an option.
Later, I will be giving you some additional basic reasons, plans and purposes for getting an option. You can use those reasons, plans and purposes but, most likely, you will expand upon them and generate and create the reasons and purposes that fit with your nature and personality. After you have determined the reasons and purposes for getting an option, you will, of course, have to locate properties) that fit with your chosen methods. This is nothing about trying to find ‘distressed’ properties; before another investor gets it. As a matter of fact, one simple classified ad can bring you more deals than you will ever be able to work.
Once you have determined your method of operation; reasons and purposes, and have located the property that fits your requirements, you will have to contact the owner/seller and negotiate directly with that person. No matter what your reason or purpose for acquiring an option may be, you should ALWAYS begin your negotiations with the seller AS IF YOU ARE A BUYER . In other words, you NEVER approach the seller with, “I want an option on your property.” Instead, you always approach the seller as if you had cash in your hand and you want to ‘buy’ the property. Your first meeting with the owner/seller is to determine whether or not YOU are interested in the property.
VARIATION ON A THEME
Yes, I call up sellers and tell them I have some buyers looking for this type of property if you don’t want to put yourself on the spot
Unlike dealing in distressed properties, you actually get to be selective. You don’t have to make a deal just because it is available. You can inspect the property and determine whether or not the property is worthy of your consideration. If it is, get the owner/seller to document the property for you (i.e., legal description, deed, etc.). The seller may have to take a day or two to get copies for you; which will help, not hinder, your further negotiations.
NOTE: You MUST have the legal description of the Real Estate property; exactly as it appears on the property deed, to include on your “Option To Purchase” form…paragraph #1.
At the first meeting, you, like any other buyer, are simply determining whether or not the property has the qualities you require. If it DOESN’T, don’t waste your (or the seller’s) time; simply say you aren’t interested and move on to the next property – but – make notes about the property and keep it in your files in case you happen to come up with a reason or purpose for the property later. You ONLY get the owner/seller to give you further details IF the 8 property satisfies your reasons and purposes. Then, you tell the owner/ seller that you are INTERESTED in buying the property if the deal is right.
Make no commitment. BE AN INTERESTED BUYER. Ask questions about the property. Note the ‘asking’ price. — Get the owner to talk about the property, his family, and himself. LISTEN VERY CAREFULLY. A good listener can learn more about a deal and the person than any fast-talker ever can. Since you aren’t dealing in distressed property, you don’t have to move fast in order to close the deal. As a matter of fact, DO NOT even take a copy of your option form with you if you choose to visit with the owner or seller. Getting your option signed is useless, unless you know having that option can earn a profit for you.
After your first discussion with the owner/seller, it is time for you to do the necessary homework. You have to determine how much that property will be worth if you market it. That means you have to be knowledgeable about the prices of similar properties in the neighborhood or community. If you don’t do your homework, you could buy an option on a piece of property that would require you to pay more than the property could ever be worth. You won’t be obligated to pay that higher price; you can just let your option expire, but, you will lose the option fee you paid to the seller.
TIP: Look online for comparable properties. If you need to, find a local appraiser. They usually charge about $300 for a ‘formal’ appraisal on a piece of property, but – usually, they will be happy to ‘drive-by’ a property and give you a verbal indication of the value for $50.
Once you have done your due diligence, contact the owner/seller and tell you would like to discuss terms. Set an appointment to meet with them ( or do a online meeting) . At this, your second meeting with the owner/seller, your objective is to negotiate for the best possible price and terms on the property. Remember, YOU ARE A BUYER. Act like one. Try to get the absolutely best price and terms possible. Since you have done your homework, you know what the market price range should be for the property. Every dollar you can cut off the cost-price is a dollar you can put in your pocket when you sell the property. And, after you have their absolutely best price offer, you can usually cut that by 6%-10% by reminding them that they are ‘saving’ the Real Estate agent’s commission.
As I told you, the purpose of this meeting is to negotiate for the very best possible price and terms. It IS NOT for the purpose of getting your option. You are still a BUYER at this meeting; act like you have the money and you are ready to buy, today. After you have the absolutely best possible price and terms the owner/seller will give, write that price and those terms down so there is no confusion. Let the owner/seller see what you have written and see if there is anything that needs to be changed. Then, tell the owner/seller that you have to “talk it over with your partner;” “take it up with the Board;” “check it out with your district office;” or, any of a thousand and one common delaying tactics. Tell them you will get back to them with a decision just as soon as possible. Get the times and telephone numbers where they can be reached.
Whatever you do, DO NOT mention an ‘option’ yet! And, DO NOT ask the owner/seller to sign, or even initial, the price and terms you wrote down at this point. In a couple of days telephone the owner/seller to tell them that you are still very interested in buying their property, but there are still a few wrinkles you need to iron out. — Again, tell them you will be back in touch soon.
The next time you contact the owner/seller (after a few days), get an appointment with them to ‘set a deal.’ — At that meeting, your purpose will be to get the option to purchase their property. If you are dealing with a piece of residential property, you simply tell the owner/seller that you are experiencing some difficulties in arranging the financing you will need to meet their terms. But, you don’t want to lose the chance to buy their property and, to help you get the financing, you need an option on their property. On commercial properties and raw land you can add problems with zoning, surveying, or any other legitimate reason for a delay. But, again, you don’t want to lose the chance to buy their property and, to help you get everything done you need to do, you need an option on their property.
In either case, have the option already prepared showing the price and terms they offered; and the legal description of their property. Leave 10 the amount of the option fee, and the term of the option open, so you can ‘negotiate’ it with them. The amount you will have to pay for an option, and the term (length) of the option, and whether or not it will have extensions is dependent upon the type of Real Estate you are dealing with and how many legitimate reasons for possible delays you can give the seller.
On residential Real Estate, you may only be able to get a 30 to 90 day option, but it shouldn’t cost you more than $1 ($10 tops) to buy the option. Most of them are written for 90 days with, possibly, two extensions of 30 days each; for a ‘token’ cost of $1 per option period. This is usually accomplished by telling the seller that the $1 “just makes the option binding.” Be sure to write the seller a check for $1 – not cash – so you will have proof of payment. Although it is a rare occurrence, occasionally a seller will have someone offer them a ‘huge’ profit on their property and they will attempt to void your option by claiming, “I didn’t receive any money ,” voiding the contract for ‘lack of consideration.’ To prevent anything like that happening, your canceled check is proof-positive that you did pay the option fee. When you are dealing with commercial property, or raw land, the cost of the option can be the same $1 ‘token’ payment or as high as 10% (or more) of the purchase price; depending upon the savvy of the seller, the length of the term of the option; and your negotiating skills.
GET THE LONGEST TERM POSSIBLE AT THE LOWEST POSSIBLE COST. And, remember, if the option expires before you close your deal, the seller gets to keep your option fee. (That, right there, should give you all the incentive you need to negotiate the best possible deal.) If you can’t seem to get the seller to agree to a reasonable option fee for a reasonable option period, you might want to ‘sweeten’ the deal a little by picking up some of the costs in paragraph #6 of the option form. Or, since you have done your homework and know about what your profit range should be, you might offer to increase the price you will pay for the property at closing; if the seller will give you a longer option period and/or reduce the option fee to the lowest possible price. (A few hundred dollars added to the purchase price, at closing, can sometimes work wonders.)
Once you and the seller have settled on the option fee and period, write them in on the form (at least 3 copies) and have the seller initial next to each entry and next to each change in the purchase price or terms. Then have the seller date and sign all 3 copies of the form. You can be one witness to the signature but it is best to have the seller’s spouse as one witness and always get at least one person not associated with you or the seller to witness as well. After the option is signed, give one copy to the seller (with your check); keep two for your files.
Then, especially if you are dealing with a residential property, arrange with the seller for times you can have access to the property. You can get access to the property by simply explaining to the seller that you ‘buy’ properties so you can re-sell them. And, since there is going to be a delay while you do whatever you need to do to buy the property, you would hate to lose the chance to re-sell the property during that period. Besides that, you will need to have access for appraisers, surveyors, etc. — The seller will usually be more than happy to assist, because it means they will get paid sooner.
As you can see, getting an option to purchase a Real Estate property is not very difficult and, by using the option fee as only a ‘token’ payment “just to make the option binding,” it won’t cost you very much at all to control a Real Estate empire.
A WORD TO THE WISE!
After you have the option in your possession , make sure you RECORD YOUR OPTION ASAP. Go to to your County Registrar’s office or wherever the office is where people record their property deeds and mortgages. Have the clerk file a copy of your option in the country record books. The cost for filing will probably be more than what the option cost you but it will make your option far more valuable. Anyone who does a records search on the optioned property will find the option and know it has to be cleared before they can take any action on that property.
LOCATING REAL ESTATE PROPERTIES TO OPTION
There are two ways you can do this, you can use the online lead finder or use the can post adverts on free online classified ad sites, along with every marketing method we provide in the 30 day marketing plan.
Thy type of message you want to market is:
WE BUY REAL ESTATE
Commercial. Residential. Raw Land.
Call us before you call a Real Estate Agent.
Duncan Wierman / We Buy Property Fast LLC
Tel 888 811 2991 www.EasySellAHouse.com
Sellers would much rather deal with a ‘buyer’ than an agent. And, since your ad says to call “before you call a Real Estate Agent,” it might mean that you won’t buy if the property is listed with an agent. So, they’ll call you BEFORE they call a traditional insider. YOU become the ‘insider’ !
Keep MARKETING EVERY DAY!! Run in different area, try variations of the advert. Different publications, even in the same community, will produce different results; with different qualifies of Real Estate.
Another type of ad might say :
SELLING YOUR HOME?
Get the price you want.
No negotiating with buyers.
No agent commissions.
Your name, TELEPHONE AND WEB
Lets Take A look at one of my students success:
Bill T. had a full time job and limited time but he had big dreams that motivated him. He was however determined to make more money and make real estate investing work for him. Bill ran the ads, and used the software. He would then meet the seller and would would explain to them that if they dealt with a Real Estate agent, the agent would probably get them to list their property at a price higher than what it was really worth; so they could ‘negotiate’ with the buyers. He would also tell them that the agent would charge them a fee when the property sold (if it ever sold). Then, he would tell them that, if they would give him the absolute lowest price they would accept for their property (no bargaining), he would take an option of the property and they would be sure to get that price when the house sold (no matter what) – and – he would pay the Real Estate agent’s commission and handle all negotiations with the buyers. Without much difficulty at all, he got 6-months options on the properties for the ‘token’ $1 option fee (sometimes with 2 extra 3-months periods).
After he got his first option signed, all he did was list the property with a local Real Estate agent at its fair market value (which was enough more than his option price to cover all costs and Real Estate Agent commissions and leave him with a profit). He only cleared $1,000 on his first deal, and it took 6 weeks – but – the next week, 4 more of his optioned properties sold for a total profit over $20,000. (By then, he had over a dozen properties optioned and listed for sale.)
NOTE: I want you to be aware that there are Real Estate Agents that do not know that an option holder can list an optioned property for sale; just as if the option holder were the actual owner. You may have to search through a number of Agents, until you find one who will accept your listings; ( it may not be worth your trouble to educate them ) 80% of Agents are LAZY. They will only shows properties to people who contacted them about listings they have seen online or in a Real Estate magazines.
TIP: I suggest that you work with the “‘owner’ or broker in charge of the Real Estate Agency. They are, usually, far more informed than their agents.
THIS IS HOW YOU BUY REAL ESTATE BEFORE IT’S SOLD. The only thing you must remember is that you MUST exercise your option and ‘buy’ the property from the owner BEFORE you close the sale to your buyer.
THE CLOSING PROCESS
How do you do close these deal? Well its very simple. You ‘buy the property’ and ‘sell the property’ at the same time. It’s called a DOUBLE-CLOSING (SIMULTANEOUS CLOSING). Usually, the Double-Closing takes place in an Attorney’s office on the same day, at the same time. The attorney has the ‘seller’ sign all of the necessary papers to ‘sell’ the property to you. As soon as those papers are signed, you sign all the necessary papers to ‘sell’ the property to your buyer. When you have signed the papers selling the property to your buyer, the buyer pays the purchase price into the attorney’s (trust or escrow) account. Then, the attorney pays the seller from that account and pays you the difference; less any fees, costs, taxes, or whatever.
I highly recommend that you find an attorney before you begin taking options on properties in your area. Tell the attorney you will be needing someone to prepare Real Estate documents and do double-closings for you. Ask the attorney to give you a fee structure for the various services he can provide in that regard.
Now… IT’S YOUR TURN GO OUT AND DO IT! I have condensed this technique into a “ boiled-down essence” of using Real Estate Options. All of the key elements are there for you to use. I am here to support you along the way as long as you are a member.
Watch below how I use the Online Lead Finder to work faster.