How to Get Started With Little or No Money - by William Bronchick, JD
Most of us are smart enough to realize that no real estate "system" is foolproof, and if anything seems too be good to be true, it probably is.
However, that doesn't mean that you need excellent credit and a surplus of cash to get started in real estate. Here are some strategies for financially-constrained aspiring investors to begin generating real estate cash flow.
Be a scout--no cash or credit required
Scouts are a third type of real estate "flipper." Instead of flipping actual properties or contracts, scouts flip information. Scouts face even less risk than dealers and have almost no cash or credit concerns. They simply gather information about distressed properties and sell it to interested dealers and retailers.
In effect, scouts do the dirty work for real estate investors, and investors are willing to pay them handsomely for doing it. Typically a scout will gather the following data on a potential deal:
- The owner's name and contact information
- The asking price
- Information about the mortgage and whether payments are current
- Outstanding liens on the property
- A photograph of the house
- Pertinent information about the owner's motivation to sell (i.e. is he in the middle of a divorce, foreclosure, job transfer, etc.)
Investors typically pay scouts $500 or $1,000 for good information. But what happens if an investor doesn't pay? Simple. Don't take any more deals to them. Successful investors realize the value of good information, and they are more than willing to pay for it.
Take over the seller's mortgage payments
Prior to 1989, almost all home loans were freely assumable. This meant that anyone could take over the payment of the loans without objection from the lender.
However, due to rising interest rates that began in the late eighties, virtually all home loans issued since then contain a "due on sale" clause. This means that when ownership of a property is transferred, the lender can demand payment--in full--of the outstanding loan.
However, "due on sale" is merely a clause--not a law. It is the lender's prerogative whether or not to exercise this clause. If you buy a property and take over the loan payments, there is a distinct possibility that the lender won't even notice. There's an even greater chance that the lender will choose not to exercise the due on sale clause, as long as you make timely payments.
After all, the cost of enforcing the clause is significant, and as long as the lender is being paid, it is unlikely to care who signs the monthly checks. You can potentially buy properties without a credit check.
