Today’s REI Classroom Lesson

In the classroom today, Bob Diamond details various ways to start out in real estate investing without necessarily having the funds to put down.

REI Classroom Summary

We take a look at reverse wholesaling, lease options, and other ways to get the deals done and grow your success.

Listen to this REI Classroom Lesson

Real Estate Investing Classroom Show Transcripts:

Mike: Welcome back to the FlipNerd.com REI Classroom, where experts from across the real estate investing industry teach you quick lessons to take your business to the next level. And now, let’s meet today’s expert host.

Bob: Hello. This is attorney and investor Bob Diamond, host of the REI Classroom. The question of the day is how on earth do you get started without any money?

Mike: This REI Classroom real estate lesson is sponsored by AceBusinessFunding.com.

Bob: It may seem like an insurmountable obstacle, but here’s the great news. You can absolutely get started in real estate investing without any of your own money. Well, how do you do that? Well, there are actually two ways. You can use one of the methods where you don’t need your own money. What are those methods? Primarily, number one is bird-dogging. Number two is wholesaling. Number three is lease options, and number four is good old OPM, other people’s money. So let’s talk a little bit about each of those.

Bird-dogging. Number one, bird-dogging is really about finding a deal that another investor is going to put under contract and do the deal for a small fee. Personally, I’m not a huge fan of bird-dogging. It leaves you much too vulnerable to people going around you because you’re really just telling someone, “Oh, here’s a deal. You can go put it under contract and then throw me some money.” Well, first of all, if they have to do the work of putting it under contract you’re not going to get paid that much. If I were to guess, probably $500, $700, or something like that. Not really worthwhile, especially when there’s another option that is much better. That option is wholesaling.

Now, wholesaling is when you do the work of putting the deal under contract and then you bring it to another investor and you will sign the contract for a fee. Really great strategy when you’re starting out because you don’t need any money to go to settlement and you don’t need money to put down a down payment. You can make a legally valid contract, and remember, I’m an attorney so I’m giving you the right scoop here, that just recites the consideration for the contract as, “$1.00 and other good and valuable consideration.” So write that down. “$1.00 and other good and valuable consideration.” That becomes your good faith deposit. It does not actually have to be cash.

Here’s another tip for wholesaling. The best wholesalers go find their buyers first. What that means is you identify buyers that are buying in certain neighborhoods or buying certain kinds of properties in your area. You talk to them and say, “Well, what kind of properties are you looking for? Tell me. Are you looking for three-bedroom, two-bath houses? Are you looking for apartment buildings? What are you looking for?” You find out what they’re looking for, and then almost like a concierge, you go out and find them the deals that they really want and they’ll pay you handsomely for it.

The other good thing is if you’re working with these people repeatedly they won’t shaft you. I mean, they won’t go around you because you’re bringing them deals all the time. You build up a relationship and that’s how you’re going to do the best business because the best business is about relationships. I love wholesaling. You’re going to hear the strategy that I just talked about where you’re finding the buyer first as called “reverse-wholesaling”. It’s really, really good methodology. So I love wholesaling.

Another one I talked about briefly was doing lease options. Now, a lease option means you lease the property from another person. You put a special clause in the lease, though. The clause says that you have the right and the ability to lease the property to another person or to sublet the property to another person. It’s the same thing.

What that does, that means that you could go . . . say we’re talking to Sam the Seller. Sam the Seller has had trouble selling his property. He’s had them on the MLS, didn’t sell. It’s just sitting there. So you go for expired listings on the MLS. You talk to Sam and say, “Well, Sam, here’s what I’d like to do. I’ll lease the property from you,” and let’s call it a master lease. All that means is you’re leasing it with the ability to re-let it to someone else. “I’m going to go lease it to another tenant, hopefully for a little bit more money. I’m going to make the spread.”

Say that you lease it from someone for $1000 and you can re-lease to a second person for $1200. Well, that gives you $200 a month profit. You’re going to take responsibility for coordinating the repairs, for paying for the repairs, for finding the tenant and all that, and then ideally you’ll have a purchase price.

Let’s say it’s $100,000 house. You may have a purchase price that you negotiate for $90,000. Then you find your buyer who you also sell it to on the lease option. You put the price at $100,000 for them and you lease it to them for $1200 a month. So you make $200 a month. Plus, when they go to settlement you make $10,000 because obviously you’re going to buy it for $90,000 and flip it to them for $100,000. So that’s the lease option strategy, a very, very good strategy for doing deals without money.

The last strategy is using good old OPM, other people’s money. Now, when you start out with OPM you’re going to inevitably be using friends and family money, meaning your family, people that know you well, that trust you, and they’re doing the deal really because they just trust you and know you. Now, that may be a little bit harder to start out with but you’ll find as you put really good deals under contract, you show that person a specific deal and that’s when they’re going to be able to say yes.

So you show them a house in a neighborhood where everything goes for $100,000, but you have it under contract for $70,000. They’re going to say, “Wow. This is kind of a no lose situation. I’ve got this house that’s worth $30,000 more than we’re buying it for, and even if my cousin Joe isn’t that good, we’ve still got a pretty big spread here,” and that’s what’s actually going to sell them. So when you’re using other people’s money, realize you’re going to need to find the deal first. Find the deal first, put it under contract, then show it to your friends and family.

As you build a track record of success they’re going to continue giving you money. You talk about your success with other people who are not friends and family and eventually they’re going to want to come on board. You say, “You know, I just finished three deals this year and I’ve made $10,000 per deal. Here’s all the numbers.” Then they’ll say, “Well, hey. Next time you get a deal let me see it,” and then remember, it’s always the same thing. You put the property under contract first. That’s when you get people interested.

So the good news for you is that the lack of money or even credit today does not stop you from starting to be a real estate entrepreneur and moving on to have fantastic and fabulous success. It’s a process you’re going to have to learn, either bird-dogging or wholesaling, or lease options, or using other people’s money. But when you learn those techniques, really the whole world is open to you, and just with some good diligence and hard work, you can be as successful as you want to be and you can go to the moon.

This is attorney and investor Bob Diamond, your instructor for the day. I wish you the best of luck applying these techniques and I really want you to get everywhere you want to go. So go out there, act on these techniques and go make things happen for yourself.

Mike: AceBusinessFunding.com can help you get access to up to $150,000 in revolving credit lines to fund your business, with rates as low as 0% for the first 12 to18 months. Use the funds for startup costs, marketing, inventory . . . heck, you can even use it to buy houses and pay for rehabs or almost anything else that your business needs. If they can’t get you funding, you don’t pay a dime. Get funds for your business today at AceBusinessFunding.com.

Please note the views and opinions expressed by the individuals in this program do not necessarily reflect those of FlipNerd.com or any of its partners, advertisers or affiliates. Please consult professionals before making any investment or tax decisions, as real estate investing can be risky.

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Bob Diamond is a practicing real estate attorney and investor with years of experience in real estate law, investment, development and is the author of three books on real estate investing. You may be familiar with Bob from his appearances on FOX, NBC, CNBC, NPR, or the Flip That House television show on TLC. Bob graduated from Villanova University with a degree in Finance in 1987 and from Temple University School of Law in 1993. He became a Pennsylvania licensed attorney in 1993. During his career outside of real estate and law Bob worked for Meridian Mortgage in their default and REO department, for Arthur Anderson and Coopers and Lybrand as a business consultant, and for the international law firm Cozen O’Connor as a real estate attorney. For his own account Bob has been investing in real estate for over twenty years and has participated as the buyer, seller, or attorney in over one hundred million dollars in real estate transactions over the past twenty years. Bob has been teaching real estate investing since 1999 so you have probably heard of Bob in the investor world where he is known as the ‘guru’s guru.’ Because of his legal expertise and experience as a real estate attorney, Bob is sought after for his advice and counsel.