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:
- Getting the owner to finance the house, so you pay them a mortgage each month instead of the bank.
- Using interest-only mortgages to minimize the monthly payment while you try to flip the house.
- 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)
- Use a loan backed by Property #1 to buy Property #2.
- Use credit cards or signature loans from the bank as a down payment.
- 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.
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!
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