The summer of 2009 will mark two years of the housing crisis being in full force. Nothing in recent times has wreaked as much havoc on the lives of homeowners. On the other hand, nothing else has created as much opportunity for you to make a fortune in real estate. Even if you have bad credit or no credit, even if you don’t have any money to invest.
Sound too good to be true? Give me a few minutes and I’ll make you a believer.
Today, I am going to give you two ways to bring in extra income (or build yourself a small fortune), starting this week, in spite of the economy.
Strategy 1. It’s a Numbers Game
One of my students, Matt, impressed me so much that I began partnering with him on investments. And we evolved a system that works like a Swiss watch.
You start by looking at lower-priced houses, $150K and under. You are going to buy them for about half of what the fair market value is, and you are NOT going to do anything nasty to achieve this. The catch is, you need to make about 25 offers in order to get one deal. You want to focus on houses that are already listed below fair market value – and the longer they have been on the market, the better.
Your formula for this: Fair Market Value x 60% = Your Offer
In other words, for a house that has a fair market value of $100K, you would plug in $100,000 x 60% = $60,000. That would be your maximum offer, give or take. If you have good credit, banks will very likely lend you the money because you’ll be getting the property for so much less than market value.
Matt does this and, in most cases, he rents the property out for cash flow. You could also flip it to another investor. Buy it for 40 percent off; sell it for a 20 percent profit. If you find a property that is already discounted 20 percent, you offer less – say, 30 percent less than the asking price. Matt offered 10 percent less on a bank-owned house that was already at 50 percent and it was accepted. He had a buyer lined up before he closed on it, and presold the house for a $20K profit.
By the way, only 10-20 percent of the properties we buy are foreclosures. The rest are owned by people who just want to get out immediately.
If you don’t have the money or credit to use this strategy, find private money. There are plenty of people out there who would love to earn more than their 401(k) or IRA is delivering now, and would be delighted to invest in properties where you’ve done all the legwork.
Remember, it’s a numbers game. You’ll need to make 25 offers (on average) to get one deal.
Strategy 2. Control With Contracts
This strategy allows you to put cash in your pocket in 5-20 days. Ideally, you’ll have a few people lined up to help you when you need them: a realtor to help you find deals, a broker to help you get your buyers approved for loans, and a lawyer to draft/okay your notes/contracts.
You also have to create a list of people who buy investment properties. To find them, simply run ads in your local Pennysaver, put out flyers advertising “Houses 50% off,” get phone numbers from “I Buy Houses” signs, check out REI (Real Estate Investing) Clubs, etc.
Then you build a list of potential tenant-buyers – 10-15 people who would be interested in a lease-option deal (renting with the option to buy). Again, use Pennysaver ads and flyers. In addition, advertise on CraigsList, tell your realtor that you will do some rent-to-owns, and post signs at apartment complexes, bookstores, convenience stores, etc.
And then it’s time to find the properties.
You’re looking for motivated sellers. People who are behind on their payments are perfect. Find them with the same advertising techniques mentioned above, using phrases like “stop foreclosure” and “debt takeover.” Get expired listings from your realtor, and look for “For Sale by Owner” signs.
You’re also looking for houses that don’t need much in the way of repairs. You’ll wrap the cost of necessary repairs into the down payment you ask for from your investor or tenant-buyer, so get an idea of what you might have to pay for painting, carpeting, roofing, door and window replacement, etc.
Now you put it all together.
You get the houses under contract as cheaply as you can. (Check comparable prices on homes in the neighborhood on sites like zillow.com and realtor.com and in local real estate listings.) You tell the sellers that it will take you anywhere from 5 days to 60 days to pay off their notes because you are going to wholesale or lease-option the property. And you write the contracts as “and or assigns” so you can turn them over to someone else.
As soon as you get a property under contract, call the people on your investor list. Tell them all about the house. Mark up the price a little (or as much as you can). But make sure they can still make plenty of money on resale or they will move on to another deal.
If you cannot flip the property to an investor, go to your tenant-buyer list. Pick the one with the most money for a down payment or the best credit. (Your mortgage broker will help you.) Offer to put that person in the house with a 12-month lease-option. Let as much money as you can stand go toward the down payment for three months or so. The mortgage company likes that – and you should have their mortgage done in 3-6 months.
Basically, none of it is your money. You use the tenant-buyer’s money to get the house.
Go and Invest!
I always look for positive solutions to problems. That is why, instead of giving in to the gloom and doom of this down economy, I look at the current real estate market as an opportunity to make money while helping others.
Let’s say property values in your area are down 20 percent. Put out 25 offers at around 60 percent of market value. (If a property is listed at $200,000, maybe you offer $120,000.) In my experience, you can expect one of those offers to be accepted. Now you have a house with a fair market value of $200,000 that you can purchase for $120,000 – and you can easily find someone who will want to purchase it for $145,000, because that is still $55,000 under value.
You have just made $25,000 without risking any of your own money… and you have helped someone else find a great deal.[Ed. Note: Dean Graziosi has been an active real estate investor for over 20 years. His first two books, Totally Fulfilled and Be a Real Estate Millionaire, were New York Times bestsellers. And his newest book, Profit From Real Estate Right Now, is already out-selling his previous book – which was the fastest-selling real estate book in America.
Dean offers proven programs that teach people to succeed as investors, starting with little or no money, credit, or experience. His free online investors’ website and free training calls reach thousands of people every week. For more information, please visit www.deangraziosi.com.]