Nothing Down For the 2000s: Real Estate Book Review

I’m naturally skeptical of most real estate gurus, with all that feel-good “You too can be rich!” talk and very little substance. Still, I was curious to see what was inside Robert Allen’s best-selling book Nothing Down for the 2000s: Dynamic New Wealth Strategies in Real Estate. As you’ve probably guessed, it’s supposed to be about getting rich by investing in real estate with none of your own money.

If you cut out the copious amounts of go-change-your-life fluff in this book, it boils down to two main ideas:

Buy below market price by finding a “don’t-wanter” seller. A “don’t wanter” is someone who is going through some sort of trouble so that they don’t have the time or ability (or intelligence) to get market value for their property. Maybe they can no longer support the payments and are almost in foreclosure. Or they are tired of property management headaches.

Use creative mortgages to buy the property with little or no down payment. Then sell for a profit. Lending ideas included:

  1. Getting the owner to finance the house, so you pay them a mortgage each month instead of the bank.
  2. Using interest-only mortgages to minimize the monthly payment while you try to flip the house.
  3. Do 110% financing where you borrow more than the value of the house, and take the rest out in cash to cover the down payment (or buy another property)
  4. Use a loan backed by Property #1 to buy Property #2.
  5. Use credit cards or signature loans from the bank as a down payment.
  6. Buy an apartment complex right before rent is due, and use the rent and security deposits as a down payment.


The main problem with all of these ideas is that they rely on the notion that real estate prices will only go up. As long as you believe that, then you just need to either flip the house immediately or hold on long enough until you can sell for a profit. The reality is that all of these techniques are extremely risky as being so highly leveraged cuts both ways. In fact, you should probably ask the next “don’t-wanter” you find if he read Allen’s book too…

Oh, and don’t forget that you first have to find somebody stupid desperate enough to sell their apartment complex to you at 10-20% below market price and/or accept an unconventional payment method. That’s probably the hardest thing to do in the whole book as well as the least explained. “Ask a lot of people, one of them will be desperate enough” is the solution given.

Another idea was to use options – or the right to buy a house for X amount of money. For example, you find a “don’t wanter” and buy an option to purchase their building for $100,000 within the 3 months for $2,000. You then try to find a buyer that’s willing to pay $110,000 for the building, and pocket the $8,000 difference. If you can’t, you’re only out the $2,000.

Conclusion
If I put on my most optimistic hat, this book did get my mind going a bit. If you have the free time, you won’t lose anything by looking into some pre-foreclosure or foreclosure properties. Maybe you will somehow negotiate your way into a good deal, perhaps even a cash-flow positive rental property. In addition, I did enjoy reading through the various mortgage scenarios, maybe because it reminded me of puzzle-solving.

If I put on my skeptical hat, it is quite probable that more money was lost than gained by people reading this book and then trying to go out and become real estate investors.

Since I found this book at the library, the only cost to me was the time spent reading it. In the end, I think the price was just about right!

Overall Rating: 2 Stars [ratings explained]

Comments

  1. Once you get down to actually finding these preforclosure/foreclosure homes, you’ll realize this once “simple” task of finding them to be more challenging than anticipated. I’ve been in the real estate business for 5 years now and I have been through it all. During the housing bust, I was one of the few to actually survive and still make a living with the homes I own. All the other “wannabe” flippers, investors, whatever you want to call them seemingly dropped off the face of the earth. This is not an easy game and it does not come down to just 2 main ideas as listed. Real estate “gurus” have a very easy sell. Sure, homes appreciate and you can make big money on them if you do it right. But they are only selling an idea. As we should all know, ideas only work if you work hard at them and real estate is no exception. I’ve seen many people read a real estate-riches book, take a RE course, go to a seminar, etc. and they all come out of them saying “Yes I can do this! Let’s make some easy money!” I just smile and shrug them off as I have the other hundreds of people wanting to delve into this business.

  2. (Yes I changed my blog site, but I kept you as my only link.)

    I was going to say, if you bought it, you could give it away as a nice prize to a lucky reader. I need to start going to the library and reading financial type books, but I think my library is a little too small to have some of the newer, better books.

  3. HAHA, I love these “Real Estate Gurus”. In this day and age, you will be hard pressed to find an area where the market isn’t flooded by other people trying to use the same technique. This creates a situation where prices won’t go much below market value and the ability to, as the author calls it, “find a don’t wanter” becomes incredibly hard. Then, as you mentioned, you still have to sell the house quick,before all the high interest on your hybrid loan eats away your profits.

    I still believe that if you want to make a quick buck in real estate, is to buy a crappy house, but some home depot type repairs in it (spa-tubs, cool floors, new appliances) and then resell based on these improvements.

    Nice review on the book by the way.

  4. Reminds me of Tom Vu’s “motivated seller”. Ah, Tom Vu.

  5. Do 110% financing where you borrow more than the value of the house, and take the rest out in cash to cover the down payment (or buy another property)

    You will be in waaaay over your head!

    Real Estate is so tricky to me, therefore I just choose not to deal with it. I rather invest in the stock market.

    They are always books about winning in the RE market, but you never here about people that lost thousands of dollars and become in debt because RE.

    RE is one market that you cannot just get out when you want or when you are losing money, unlike stocks you can always sell them when the market is bad.

  6. Tyler – Great comments, thanks. Do you know of any real estate books that ARE worth reading? As you can see, I’ll read anything :)

    Heather – How corny is that video! What are the three words?? Now I must ignore all my other errands for today and research this Tom Vu character.

  7. I like to check on John T. Reed’s guru rating before wasting my time with real estate gurus. If you have the time, I believe his free articles are excellent. I ordered his book Succeeding, which was a great read as well.

    http://www.johntreed.com/Reedgururating.html

  8. If Robert G. Allen could make more money doing real estate investing, he’d be doing that rather than writing books.

    That said, I’ve done everything Allen recommends with the exception of numbers 3, 5, and 6.

    You state that, “The main problem with all of these ideas is that they rely on the notion that real estate prices will only go up.” If you don’t believe this, then why are you saving for a home of your own?

    Don’t knock “don’t wanters”. They exist, and I like them. There are ~ 7,000 foreclosures in Georgia each month, and 80% of those are in metro Atlanta. Many of these are “don’t wanters”.

    I haven’t found anyone selling their apartment complex for a discount, but there are many willing to sell their single family homes for 10-20% below market price and/or accept unconventional payment methods. No, it’s not always easy to find “don’t wanters,” but if it were, there wouldn’t be as much opportunity.

    The most popular “unconventional payment method” I’ve found people willing to accept is “subject to” financing. My first real estate investment (a pre-foreclosure) was done this way, and it was a win-win for both the seller and myself.

  9. mike – That site is always a good resource. I forgot to mention that Robert Allen filed for bankruptcy at least once himself. He says it was from an avalanche, but that sounds pretty shady for a RE millionaire not to have the money to cover a deductible.

    DD – I think you misread the tone of my review. I’m not anti-RE investing. Quite the opposite, I’m just trying to learn with a skeptical eye.

    Regarding home prices, The key word is *only* go up. I think it can go up and down, with an overall trend upwards. But buying a house with 100% leverage and waiting for your equity to magically appear before your fat balloon payment comes due seems risky to me, especially now. Buying a home for my family for the next 10-60 years, not so much.

    You’re right, I shouldn’t knock don’t-wanters – I definitely want to find some of my own later on :) So are there any books that you DO recommend?

  10. And that commercial I linked to was not even Tom Vu’s best work… he had a late night informercial in the 80′s that was priceless. (The 3 words, with some web searching, seem to have been “never give up”.) Tom Vu had this infomercial in SoCal with a bunch of bikini clad women… “look at all these beautiful cars! look at all these beautiful women! Do you think these girls like me? No, they like my money!”… all delivered with a heavy Vietnamese accent! He pitched a home-buying workshop where the key was finding “motivated sellers.” I miss the 80′s!

    More Tom Vu quotes here:
    http://en.wikipedia.org/wiki/Tom_Vu

  11. I think the appreciation (or depreciation) becomes much less of an issue when you’re trying to just find a deeply-discounted property and sell it quickly at market (or close) value.

    The deep discount is the key.

  12. If you are seriously looking for good real estate books, then I highly recomend John T. Reed. I have been reading his stuff for years, I even have one of his books with me that I just put down before checking out your website. He’s definately opinionated, but I love his raw look at things and I love his material. Very meaty. Not motivational, like most today.

    -Corey

  13. Jonathan,

    I’d even suggest looking for a don’t wanter to buy for your family (to fix up before moving in), but that’s your call.

    I’m of the mindset that for most, those who can do while those who can’t write. I’m not much of a book reader, but those I’ve read about about real estate investing were strong on concept and light on details.

    If you’re considering real estate investing, my advice is to get plugged in with those who are doing it successfully. I’d suggest joining a local real estate investor’s club, or at least attend one of their meetings. Fortunately there are several near you. If you’re looking to take a tax deductable vacation, you could always attend a Real Estate Investor Bootcamp like this one from the Georgia Real Estate Investors Association.

    You’re a smart guy, and I don’t want to see you end up like several of my friends who have spent thousands buying the books, traveling to the seminars, and joining the clubs… but years later still have not purchased their first investment property. The first one is scary. Will the renovation ever be finished? Will the house rent? I closed on my first rental property on September 7, 2001, and after that following Tuesday I wondered if I’d made the biggest financial mistake of my life. With 5 years of hindsight, though, I can say that house was the best investment I’ve ever made.

  14. First off I really enjoy your site, keep up the good work. Don’t you think you are chasing a return with the real estate thing? This sector has reached it’s peak. Wouldn’t your money be safer and more profitable somewhere else. I think if there was money to be made in real estate it was already made. It is going to be years before we see a market of the late 90′s to early 2000′s.

  15. Jon, I agree 100% with all your comments.

    As for Dorky Dad, I’d have to say #2 and #3 are going out the window with the whole subprime implosion and that you’d be hard pressed to get 1,4,5, & 6 these days. Networking is probably the key to finding these opportunities and “don’t wanters,” but like for example: why would any seller let you do 6?

    It all comes down to price; the creative stuff is just to confuse people with low IQs. I don’t care if you throw in a flat screen tv or a car – I’d be paying for those then. Leave that junk out and drop the price by however many $$$! And forget the bootcamp, HUGE waste of money. Spend your time house-hunting and making low bids. It’s not rocket science this stuff!

    Corey: “not motivational,” now that might be worth checking out if it’s true.

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