“Nothing Down” Can Cost a lot
Years ago Robert Allen introduced the concept of “nothing down”, meaning being able to acquire property without any cash out of your pocket for the purchase. For real estate investors today, these deals take the form of taking over a homeowner’s property “subject to” meaning that you the buyer gets a deed to the house, and only has to pay the former owner’s mortgage to avoid foreclosure. There are also seller financing deals where the seller creates a note which obligates to the buyer to certain payment terms.
Both these strategies can work well…If it’s a good deal. I mean that there is often a fine line between taking over someone’s property, and taking over someone’s problem. Some of the problem’s the unwary investor can encounter are:
1. additional liens that the seller didn’t reveal
2. mortgage arrearages the buyer will have to satisfy
3. repairs and operating expenses. And these repairs can be a lot more than the buyer counted on.
4. back taxes and unpaid utility bills
5. Not being able to rent the unit for enough to create a positive cashflow.
6. no financial “safety net” if things don’t work out as planned (holding the property without a tenant, eviction costs, etc.)
Bottomline - don’t be suckered into getting a “free” house, because it can seriously drain your finances unless you’ve done your homework and have done the math. How do I know this?? This is why I developed my Expert Deal Evaluation Tool. It’s an expert system that will tell you to the penny your projected costs, profit, cashflow, and quantify the risks so that you can always choose the best deal and terms. Click here to get it now.
Richard Odessey has been investing in Real Estate since 1999 and have bought, managed and sold over $5MM in assets over that time period. He has created a national network of RE investors that are a source of continual on-the-ground intelligence. Richard has also developed unique and proprietary tools to zero in on only high profit-low risk transactions.
I was intrigued to read the ‘other side’ of Nothing down. I don’t know, but as much as I have read about this approach to being an investor; I could NEVER pick up the courage to actually do it! Now, that you have put it into words, these are serious concerns that knowing my luck, I would have encountered. Thank you Richard for putting into words, what I didn’t know was holding me back.
Incidentally, what exactly is your Expert Deal Evaluation Tool?
Jann
Great article on the Go-Zone. Definitely do your homework on all acquisitions. Don’t just accept what the next person has to say. Do not be afraid but be careful.
Utility bills do not get carried over to a new owner. Repairs are visible: it’s up to the purchaser to ’see’ what he is buying. Mortgage arrears, additional liens and back taxes are all discovered in the title search. And not being able to rent to cover costs: well, I guess a you are talking about a fool buying the property. Because anyone with half a brain will know what he is doing. And if someone is buying a house they better have at least half a brain, otherwise, they deserve what they get.