How to Flip Houses with No Money and No Credit

It is not a myth that you can buy properties with no cash or credit. As we will see, in a few cases minimal funds may be needed, but the buyer’s credit is never an issue. You can “buy” a property by putting it under contract for no cost, not even a good faith deposit. You may have heard that you must give at Bank Routing Number Arrowhead Community Bank at least $1.00 to “seal” the deal. This is inaccurate because contractually a deal is sealed for “the sum of X dollars, or other good and valuable consideration”.  Good and valuable consideration is, in fact, the act of buying the property, so what you may have heard is inaccurate. Because this “dollar for deals” psychology is so ingrained in the public’s minds I use it to enhance the belief that the homeowner has sold his home once he signs the Purchase and Sale Agreement.

Here is a list of the more popular methods of getting a contract to purchase a property without using any significant funds:

• Seller signs a Purchase and Sale Agreement with no “Good Faith” or Escrow until the inspection period has passed. We ask for a 60 day inspection which is almost always rebuffed by the seller. We next explain that we need this much time to have perspective buyers see the property. Usually sellers want to give 10 days or less and investors often settle for 15 days. Fifteen days is barely adequate to find a seller.  Push for longer time or at the end of the “short period” go back for an extension of the inspection period as well as the closing date. If the property is a great deal, find a partner with cash to make the deposit and cut them in on the profit. Have these potential partners lined up before you start finding properties.

Sign the contract with owner financing of which there are two types –

1.) The homeowner allows the mortgage(s) in place to stay there “Subject-to Financing” and the buyer takes over the mortgage payments at closing.

2.) Homeowner takes back a second mortgage for the full amount of the purchase price less any “Subject To” financing that will remain in place. This is often called “Owner Financing” and can be as much as the entire amount of the purchase price and closing costs if the homeowner is motivated to sell. If the title is transferred into a land trust, you can re-sell the house without a formal closing and without any title change in the public records.

• Lease-optioning the property from the homeowner is where you lease the property but retain the ability to purchase it using the option agreement for a pre-determined price for a negotiated period in the future. You would stipulate that any deposit (option consideration) would be given after you had another buyer give you their deposit.  So again no money is into the deal until it is essentially sold and then it isn’t your money. Get a larger “option consideration” than you gave the homeowner for an instant profit. The insider secret to this transaction is to get a contract from the homeowner that has both the lease and the option in one contract.  Give your tenant-buyer two contracts, one for the lease and another separate option agreement. The reason is that courts have held that with a single agreement every lease payment actually accrues equity to the buyer.  It is difficult to evict a tenant if you have a single agreement – sometimes impossible in certain states.

An Option Contract is simply a contract where the perspective buyer has a specific period to purchase the property at a pre-agreed upon price (“Strike Price”). I use these extensively because I don’t have to make any monthly payments or have any overhead except my selling expenses. These are particularly powerful when the property is in excellent condition and the seller wants too much money for it but there is a 10% – 15% spread if you sell it properly or to your buyers’ list.

• An Equity Agreement is a contract between the investor and homeowner that stipulates various ways the property can be sold with the homeowner and investor taking a piece of the net profit. This method of contracting is very useful for properties that need extensive repairs to be sold and realize the highest possible sales price. Usually the two parties agree on a minimal price the homeowner is willing to take for the property. Next, the terms for the expenses are determined, such as the homeowner pays for the materials, the investor pays for any labor. At the closing table the attorney is instructed to disburse the proceeds of the sale in the following manner: Sale price – closing costs – lien (mortgage) payoff – expenses reimbursed to seller = $______. This “Net Proceeds” is then divided between the seller and the investor in the manner agreed to in the Equity Contract i.e. 50%/50%, 60%/40%, 70%/30%. The investor should always be the higher of the percentages because of his labor costs.

Generally the most popular of the above methods of contracting is putting the property under contract and then assigning the contract to another wholesaler or buyer. I once sold a property where it was re-sold by four more wholesalers before I closed. So when I went to the closing there was a lobby of investors all waiting for their assignment fees.

Once any of the above methods have been signed by the homeowner/seller, the investor can assign this contract by using an Assignment Agreement. This “signing away” of the deal requires no money and no credit whatsoever, and the investor walks away with his profit without ever having to become involved with the property or tenants, etc.

To your limitless success,

Dave Dinkel
Real Estate Mentor Program Founder