The traditional strategy to purchase real estate is to put 20 percent down and get a mortgage for the balance owed. The only problem with this strategy is that you will eventually run out of money for the down payment. Savvy real estate investors have adopted a new strategy that allows them to purchase a property with no money down. This strategy is called purchasing a property subject-to the existing mortgage. There are some potential legal liability you can face if you purchase a property subject-to.

When a seller has a financial hardship that prevents them from making their mortgage payment, they might be interested in quickly selling their house. As a real estate investor you can purchase this house by agreeing to make their mortgage payments. This allows you to purchase the house without seeking traditional financing that requires you to have a 20 percent down payment. There is already financing in place on the house and you just agree to continue making the mortgage payment. The mortgage remains in the seller’s name which is why it is referred to as purchase a house subject-to. You are purchasing the house subject-to the existing mortgage on the property.

With the recent downturn in the housing economy, home prices and values have dropped throughout the United States. In some states, home values have declined by up to 50 percent. With this decline both homeowners and real estate investors are struggling to remain current on their mortgage payments. Most people are not interested in making mortgage payments when their mortgage is worth tens or hundreds of thousands more than the value of their house. So many homeowners and real estate investors are walking away from properties.

Most real estate investors feel that they have no legal liability on a property that they purchased subject-to because their name is not on the loan. They feel they can stop making payments and allow the bank to foreclose on the property. The problem is that they can still be sued by the state attorney general or the seller. The fact that the real estate investor’s name is not on the mortgage does not resolve them from having legal liability.

With the increase in foreclosures, banks are becoming more aggressive on going after real estate investors that do not make the mortgage payments on properties they purchase subject-to. They are convincing the state attorney general to sue the real estate investor. There have been several recent court decisions against real estate investors that failed to make payments on subject-to properties. If you thought that you had no legal liability when purchasing a property subject-to, think again.

The rule of thumb in real estate investing is that for every 100 offers you present to sellers, 10 will be interested in the offer but only 2 will sell to you. The other 8 sold to somebody else. How do you get the other 8 to sell to you? You have to manage their expectations when you make them an offer.

Have you ever spent an hour talking to a seller and getting their verbal ok to sell their property to you, only to find out they sold to someone else that talked to them after you? Why was that investor able to close your deal? The primary reason is that the other investor was able to better manage the seller’s expectations and for that reason they were able to close the deal.

What is the best way to manage expectations? The first step is to talk to the seller and get them to agree to the deal. Don’t ever give the seller the opportunity to think about selling because they will convince themselves not to sell. Once you have their agreement, you need to have the necessary paperwork with you to get them to sign and close the deal. If you have to come back tomorrow with the paperwork, that leaves the door open for someone else to steal your deal.

You need to know that this is a good deal before you every go to visit the property. This is called pre-qualification. If the house is not a good deal then you do not need to drive around town to see the house. You have set the expectation with the seller that you will buy the house when you agree to visit and if you don’ purchase the house it can create animosity.

When you identify a potential property to purchase, you need to pre-qualify it by talking to the seller on the phone. You should have a list of questions that you ask the seller and the best way to do this is to have a form that you fill out while talking to the seller. This allows you to collect information that allows you to quickly determine whether or not the property meets your criteria for purchase. If the house does not meet your expectation then you should not waste your time or the seller’s time by visiting the house.

When talking to the seller on the phone and you realize the house meets your criteria, you can tell the seller what you might be able to do. This sets the expectation with the seller before you actually arrive at the house. When inspecting the house on arrival you can adjust your offer up or down based on the condition of the house. The seller should understand why you are making the adjustment because they are familiar with the condition of their house. If you set the expectations up front, you are more likely to convince the seller to sell to you and you can close more deals.

The first rule you learn when deciding to buy investment real estate is to protect your assets. No real estate investor will recommend that you operate your business as a sole proprietor. If you are a sole proprietor then your personal assets like your home, car and retirement accounts could be lost in a lawsuit. The best advice is to incorporate to limit your personal liability. The most common form of incorporation used by real estate investors is a Limited Liability Company or LLC. Some investors that flip properties will form a corporation. Now that you have your corporation, you decide to get financing to purchase properties and you find that banks will not let you get financing in the name of your corporation.

When banks lend you money, they want to make sure that you will be able to pay them back or that they can sue you to get their money back. When banks provide financing to individuals, the home is collateral for the loan. If you fail to make payments on the loan, the bank can foreclose on the property. In addition you provide a personal guarantee that the loan will be repaid. If the bank forecloses and sells the property at a loss, they can come after you for the difference because of the personal guarantee.

A corporation or LLC provides limited liability to you. If banks provided financing to the LLC, they would not be able to get you to sign a personal guarantee because of the limited liability afforded by the company. This puts the banks in a weaker position that could potentially limit their ability to get their money back. For this reason most major banks will not lend to someone who has the property titled in an LLC.

The good news is that this is not the policy for the every bank. Some smaller banks and credit unions will allow you to get financing in the name of a corporation. You will need to do extensive research to find lenders in your area that will do loans in the name of a corporation. Banks that specialize in commercial financing are more likely to do loans in the name of a corporation. The tradeoff for getting financing in the name of your corporation is that the bank will typically require a much larger down payment. The lower loan to value ratio provided by the larger down payment is the extra protection the bank needs in order to provide the financing.

Have you ever wanted to know how to invest in real estate? It can be a challenge to learn real estate investing. There are hundreds of books that talk about different investing strategies. Sometimes it is too much information and you are not sure how to get started. This article will give you 3 steps that you can follow to get started investing in real estate.

Step 1: Specialize in a single investing strategy

Birddog, flip house, long term rental, tax liens, subject-to, lease purchase. These are all different strategies that you can use to invest in real estate. The worst mistake would be to try your hand at more than one strategy. It is better to become an expert at one method and have a depth of knowledge on this one strategy than it would be to have a limited knowledge on multiple methods. Consider each strategy and pick the one that best fits with your talents, skills and motivation. You should spend some considerable time in picking the right strategy.

YES, it is possible to buy real estate with no money and no credit!! My book will show you 8 Ways You Can Purchase Real Estate with No Money and No Credit. You can purchase my book here.

Read the rest of this entry

Back in the olden days landlords use to send out invoices to tenants each and every month to let them know that their rent was due on the first. These invoices were very similar to the bills you and I would receive for our phone, mortgage, electricity or cable bills. The top part of the invoice would include the amount that was due and the date that it was due. If payment was made after the due date, the invoice would show the amount that you would have to pay including the late fee. The bottom part of the invoice would have a portion that could be ripped off as the payment coupon. The payment coupon could be included in an envelope with your payment. Read the rest of this entry