Book: The Book on Investing in Real Estate with No (and Low) Money Down

812n7wMQNdL“The Book on Investing in Real Estate with No (and Low) Money Down” By Brandon Turner & Joshua Dorkin

  • “When investing creatively, you need to find even better deals than those who invest normally.”
  • “When investing creatively, you must be extremely conservative.”
  • See:
  • “Creative finance requires sacrifice.”
  • “Creative finance does not mean investing without a cushion.”
  • “You don’t need $50,000 in the bank to buy a small rental house, but you do need to be able to weather the storms that will come, relative to the size of the property you are buying and that property’s risk for loss.”
  • “Obviously, investing in an owner-occupied single-family home is more about appreciation than cash flow, and because I’m a cash flow investor, I am pretty strongly in favor of the multifamily idea.”
  • “the FHA passes some additional costs on to the borrowers through the use of two special fees (when the loan-to-value8 is greater than 78%). These fees are known as the Mortgage Insurance Premium (MIP) and must be used in your calculations when considering using an FHA loan for a property. The MIP is charged both upfront, in the form of a one-time fee that is usually wrapped into the loan, and monthly, in the form of a monthly fee that is added to your loan. Both fees are based on a percentage of the purchase price and typically result in an extra 1%–2% fee up front and an additional monthly fee of roughly $100 per month for each $100,000 financed.”
  • “FHA loans stand out in the lending world because of their extremely low down payment requirements- just 3.5% of the purchase price at the time of this writing.”
  • “As mentioned earlier, the Mortgage Insurance Premium can be a real cash flow killer, so be sure to only buy amazing deals when using the FHA loan to purchase property.”
  • “the FHA allows you to have only one FHA loan in your name at a time.”
  • “However, if you have sufficient equity in your property and the credit/income to justify it, you can refinance your loan into a conventional (normal) mortgage and pursue another FHA loan.”
  • “The FHA loan is ideal for first-time real estate investors and those who have minimal cash but decent credit and job stability.”
  • “One of the subsets of the FHA loan is called a 203k loan, so named because it’s based on section 203(k) of the National Housing Act from the Department of Housing and Urban Development”
  • “At its core, the 203k loan is a two-part loan that includes funds to both purchase and rehab a home to the specifics you desire. In other words, you can buy a property that is in desperate need of new paint, carpet, smell removal, or other cosmetic (or structural) attention, and the 203k loan allows you to roll all those costs into the loan, so you don’t need to pay for them out of pocket.”
  • “The 203k streamline loan can be used for smaller cosmetic problems, like painting, carpet, and smells, while the regular 203k loan can be used for structural changes, like moving walls or building additions. Contractors that work on the property rehab must be FHA approved. However, most licensed/bonded contractors can become FHA approved by simply submitting the correct paperwork to the bank, and your mortgage professional can help them do this.”
  • “Speaking from experience, I can tell you that the 203k loan involves even more red tape than the regular FHA loan, so be prepared for a paperwork mess, mainly because there are many more moving parts in the machine (contractors, lenders, reimbursements, etc.).”
  • “Also, I recommend finding a great mortgage professional who specializes in the 203k loan program to help you navigate these cumbersome waters.”
    “If you’ve ever been involved in a rehab, you already know that it can be a significant undertaking with numerous risks and dangers. Besides trying to manage contractors and deal with the drama that accompanies any rehab, you’ll have to deal with the potential that something could go wrong on the project that would require more money than you had anticipated spending, and HUD won’t cover those items.”
  • See:
  • “The first strategy is an equity partnership in which Bob funds the deal using his cash. In this scenario, Bob funds the purchase and the repairs needed, in exchange for a certain split. This works especially well for house flippers. Bob can fund the entire purchase and repair amount while you manage the rehab, and in the end, you split everything 50/50.”
  • “In a Down Payment Equity Partnership, Bob funds the down payment needed, typically 20%–30%. Bob gets the entire mortgage in his name alone (or you can get it in both names, if you prefer), but the legal title is in both names (although most lenders do allow this, yours may not, so always check with your banker). You divide the cash flow and/or equity in whatever split you agree upon. I like 50/50, but as in any partnership, it all comes down to what you negotiate.”
  • “Private Lending Partnership – In this strategy, you offer Bob a solid interest rate on his money for a fixed interest rate and fixed term.”
  • “Credit Partnership – In a credit partnership, Bob lends his ability to get a loan but doesn’t supply any down payment. To accomplish this, you would use a hard money lender (see Chapter Five) or another private lender (see Chapter Six) to purchase a property, including repair costs. If the deal is good enough, this should be feasible; however, it is the most expensive option by far. After the home is rehabbed, rented, and producing good month-after-month cash flow, Bob refinances the home into a fixed-rate, long-term mortgage using his great credit, but both you and Bob remain on the legal title for the property.”
  • “Before you invest in real estate through a partnership, you absolutely must speak with an attorney who specializes in this kind of thing, as well as a CPA who does the same.”
  • “When you are relying on another person to get things done, and you don’t mesh perfectly, conflict can easily arise.”
  • “This is why keeping impeccable records is so important to any partnership. You may also want to plan on using a third-party bookkeeper to limit any suspicion of wrongdoing.”
  • “This is why I generally prefer Bob to be a “silent partner” and to understand from the beginning that I am the primary decision maker.”
    For the strategy to use primary residence for equity loan multiple times: “If this is a strategy you plan to use, I would recommend using a home equity line of credit rather than a home equity loan, so you will be able to keep using the same line of credit over and over without having to get a new home equity loan each time.”
  • See:
  • “Often, house flippers will use hard money (as I have) to buy a property, fix it up, and resell it.”
  • “On the plus side, a borrower can obtain hard money in just a few days with minimal paperwork, no credit checks, and a lack of other formalities usually found in conventional lending. In other words, hard money can be very easy money, if your deal is strong.”
  • “Keep in mind that most banks will require at least six months (sometimes up to a year) of “seasoning” before they will allow a refinance to take place. In other words, even if you complete the repairs in two weeks, you will be stuck paying the high rates to the hard money lender for at least six months, but probably an entire year. Be sure to plan accordingly for this.”
  • “In other words, if the home, in good condition, would appraise for $100,000, the hard money lender would typically not lend more than $60,000 on the deal.”
  • “Although obtaining hard money is fairly simple if you find a great deal, the monthly payment can be prohibitively expensive.”
  • “If you are using a hard money lender to flip a property, the most dangerous outcome is the inability to sell”
  • “Hard money lenders, as discussed in Chapter Five, generally charge 3–10 points (1 point equals a 1% fee) and 12%–15% interest, whereas most private lending is substantially cheaper and is often completely devoid of the points and fees.”
  • “Another great way to network is to provide valuable information for free. If you have a local real estate club, ask to speak and share what you know (but please, don’t pitch! Simply provide value). If you don’t have a local club, consider starting one. As I mentioned earlier, there is a lot of power in being a “connector” of people, so by starting a networking group where real estate professionals can meet one another and grow, you will gain a reputation as someone to be trusted.”
  • “Specifically, you are looking for the “grantee” (mortgage provider) line on the mortgage documents. You want to find grantee lines that have either a person’s name or a corporate entity name (not the name of a bank). These are potential lenders. Doing a reverse address-phone search or sending a letter can put you in touch with these lenders and open the conversation, but use the contact information you find only to build a relationship. Soliciting others at random for money can be both illegal (for you) and annoying (for them).”
  • “If you are just starting out, you would be best off steering clear of the “general solicitation” game and just saying no to publicly advertising that you are raising money. Once you get more experienced, you can jump into that game. Instead, raise money by allowing people to come to you, as we’ve discussed. If you network and let people know what you do, they will come to you if they want to invest. We’ve already covered this extensively: it’s all about building relationships.”
  • “The legality of raising money is not easy to understand, and it differs largely depending on your location. Because of this, we advise using a lawyer, and as we all know, lawyers are not cheap. However, hiring a lawyer to set up your business correctly at the start is much better than not doing a deal at all or sitting in a federal jail cell for doing it incorrectly.”
  • “Networking is neither easy nor quick. As I have noted, networking is a lifestyle, and if you don’t like that lifestyle, you may find the process of raising private money cumbersome and difficult.”
  • “Typical private money interest rates I see are between 6% and 12%, depending on term length and other circumstances. If these rates fit your business model, great!”
  • “When borrowing from a bank, you are typically dealing with a system that has no emotion involved. However, borrowing from real people always involves the potential for drama, emotion, and problems.”
  • “A lease option involves leasing a home to someone with a legal agreement that stipulates that that person has the exclusive right to buy the home within a certain time period. The homeowner cannot legally sell the property to anyone else during the period defined by the lease option.”
  • “Therefore, a lease option gives the lessee the choice of buying the property if they so choose, but they don’t have to, whereas a lease purchase legally binds both the buyer (the lessee) and the seller to fulfill the terms of the contract.”
  • “When a lessee signs the lease and option agreements, typically, they will also be required to pay the rent, the security deposit, and the option fee. This fee is an up-front charge, similar to a down payment, found in most lease option arrangements.”
  • “The option fee amount can be whatever the two parties agreed on, but typically, the fee ranges from $2,000 to $5,000, depending on the value of the home.”
  • “Normally when you sell a house, the real estate agent fees can cost 6% or more. However, when a seller finds the buyer themselves without using an agent—as is the case with most lease option deals—the seller can avoid paying this fee, thereby saving thousands of dollars”
  • “When you sell to a lease option buyer, they are typically less concerned with achieving the rock bottom prices that many traditional buyers seek.”
  • “The longer your contract is with the homeowner, the better. Three years is better than one, five is better than three, and ten is better than five. The more time you have, the more options you have.”
  • “Always let the owner know what you are doing. This is not a strategy you should ever think of using without having everyone on the same page.”
  • “Screening your tenant is one of the most important steps you can take to ensure a positive landlording experience, especially with a lease option sandwich.”
  • “Always run a background check on your tenant. Look for evictions, criminal activities, etc.”
  • “Make sure the tenant/buyer has good enough credit.”
  • “Look for stability. A tenant who moves every six months without reason is probably not a great candidate.”
  • “Don’t discriminate. Doing so could land you in jail, so know your local and federal discrimination laws and adhere to them.”
  • “Connect and qualify your tenant/buyer with a mortgage professional, also known as an RMLO—short for residential mortgage lenders and originator. This individual can sit down with your potential tenant and explain what they need to do to qualify for a loan, to make sure they can reasonably hope to actually qualify.”
  • “Arrange to pay the owner’s mortgage for him. After all, you don’t want to send the owner a payment each month and suddenly find out the bank is foreclosing on the property because the owner decided to pocket the money rather than passing it on to the bank.”
  • “Legally record your option contract with the owner at your county administrative department. By legally recording the option contract, you will put a “cloud” on the title, and the owner will not be able to sell the property until it’s cleared. If you do not record the contract, the owner might decide to sell to another investor or a retail buyer, and your only recourse would be a very expensive and stressful lawsuit.”
  • “Don’t apply any portion of the rent toward the tenant/buyer’s future down payment.”
  • “The fourth strategy I want to share with you is known as a master lease option, or MLO.”
  • “However, with an MLO, the lessee (the tenant/buyer) generally pays all the expenses associated with the property, including taxes, insurance, and any maintenance concerns—and then sublets the property out to tenants who then live in the property.”
  • “Although an MLO can be used with any size property, it is most common with larger investments, such as apartment buildings and commercial real estate. It is very similar to seller financing, which we’ll cover in the next chapter, but no title is actually transferred. Instead, the property is simply leased for a long period of time for a set monthly rental amount.”
  • “At least in the past, banks have generally ignored the issue, and I’ve never even heard of a case where a note was called due because of a lease option. However, the possibility does exist, so I must mention it and make sure you are aware of any potential problems.”
  • “Therefore, if the mortgage paperwork specifically forbids lease options, you probably shouldn’t do one with that property unless you are 100% comfortable with the risk—and you are not putting the seller at any undue risk.”
  • “Additionally, a great suggestion from John Jackson33, a lease option expert on, is to pay for a home warranty on the property (or have the tenants pay for one) at the start of the lease option, one that covers all major maintenance problems on the home.”
  • “One major problem with seller financing puts a wrench in the whole strategy for the millions of American homes that currently carry a mortgage: the due-on-sale clause.”
  • “Only use seller financing when the seller owns the home free and clear (i.e., when the seller has no loans on the property).”
  • “You see, the IRS has special tax rules for installment sales, such as ones using seller financing, so the seller may need to pay only a small portion of that tax bill each year while the loan is being paid off. Be sure to talk to a CPA for more details on this.”
  • “What if a seller doesn’t own their home free and clear but does have some good equity in it? What if the owner has 50% equity in his home, or 90%?
    This kind of situation allows you to let the seller finance just part of the deal, while a traditional lender finances the other part.”
  • “When talking with sellers, whether directly or through your real estate agent, simply ask the question, ‘Do you need to be 100% cashed out, or are you able to provide any seller financing?'”
  • “When scanning the MLS, Craigslist, and other sources for finding properties, keep an eye out for phrases such as ‘owner will carry,’ ‘owc,’ ‘flexible terms,’ ‘seller financing,’ and ‘motivated’ as well as any other indication that the seller is open to a conversation about seller financing.”
  • “Although seller financing allows for incredible creativity, generally speaking, you will pay a higher than normal rate with seller financing.”
  • “Wholesaling, at its core, is about solving problems. In the example, the owner, Clarence, had a problem, and Beth made a fee by solving his problem, just as a real estate agent would by solving a retail seller’s problems.”
  • “it is possible to wholesale a deal or two without any money, but truly building a marketing system that consistently provides leads will probably require some cash.”
  • “You will need to pick the right neighborhoods in which to wholesale, find properties that look prime for wholesaling (long grass, boarded-up windows, etc.), locate the property owner using public records, and get in touch with that owner.”
  • See:
  • “a wholesaler needs to sell at wholesale prices! Because the primary buyer for a wholesale deal is another real estate investor, a wholesaler must come to the table with a better deal than what the other investor can get on their own.”
    MLS: “most real estate agents can print you a list of comps in just seconds, for free. Even better, when starting out, you can work with an agent to help you figure out the ARV on a potential deal”
  • “Additionally, you could use any free online real estate portal—such as,,, and—to look at all the homes currently for sale. While you shouldn’t use ‘for sale’ prices in an appraisal, this can at least give you a ballpark of what homes are going for.”
  • “Still, you can use the public records in conjunction with online real estate portals such as,, and, which usually keep a record of old listings for a long time. Just Google the address of a property that has recently sold, and you’ll likely find the original listing, complete with photos and other relevant information.”
  • “The 70% Rule states that you should pay no more than 70% of a property’s ARV, minus any repairs.”
  • “For example, the 70% Rule doesn’t work as well for a property whose ARV is low, such as $50,000.”
  • “A similar problem with the 70% Rule exists for more expensive properties. The 70% Rule would dictate that a home with an ARV of $700,000 that needs $50,000 worth of work should produce a Maximum Allowable Offer of $440,000. However, in most markets, finding a $700,000 property for $440,000 is simply not feasible.”
  • “ARV – Fixed Costs – Investor’s Profit – Wholesale Fee – Rehab Costs = Maximum Allowable Offer”
  • “Inspection Costs – $400
    • Lender Fees – $1,000
    • Closing Costs – $2,000
    • Mortgage Payments – $2,500
    • Property Taxes – $600
    • Utilities – $1,000
    • Insurance – $200
    • Commissions – $4,000
    • Selling Closing Costs – $4,000
    • Home Warranty – $500
    • Termite Letter – $100
    • MLS Fees – $100
    These costs, all added together, give an investor the fixed costs for a property.”
  • “I think asking the seller, “What do you believe this home should sell for in its current condition?” is a wise way to start.”
  • “this point, a great thing to say is something along the lines of ‘Gee, Bob, that’s quite a bit higher than I can go. Is that the best you can do?'”
  • “Of course, you may want to present an initial offer that is lower than your Maximum Allowable Offer, which will give you room to move up. However, if you offer too low to start, you risk insulting the seller and losing the deal altogether.”
  • “Ask, ‘Is that unreasonable?’ – This is one of my favorite negotiation strategies. No one likes to appear ‘unreasonable,’ so when you ask, ‘Is that unreasonable?’ the person typically feels compelled to say, ‘No, I don’t think so.'”
  • “No matter what the amount is, I recommend never giving the earnest money directly to the seller (though if it’s an extremely small amount, such as $1, feel free). Instead, a third party—usually the title company—should hold the earnest money. This way, the seller can’t just steal your money and sell the property to someone else, thereby forcing you to take legal action—which likely wouldn’t be worth it. Having a third party hold the earnest money protects you.”
  • “go find one cash buyer who is willing to train you on what they want from a deal.”
  • “I do recommend having a small handful of cash buyers because every investor has their own niche and strategy, as well as location.”
    Finding cash buyers:
  • “Landlords on Craigslist – Head to your local Craigslist “houses/apt for rent” section, and you’ll instantly find a huge list of property owners, along with their phone numbers and property addresses!”
  • “Real Estate Clubs – At your local real estate investing club or landlord organization, you’ll likely encounter a variety of cash buyers.”
  • “If you can build a solid relationship with an agent, they can easily supply you with a list of all recent cash sales in any nearby location. Although they may not be able to get you the property owners’ names (though perhaps they can), they can easily give you the property address, and you can simply search the online public records for names and personal addresses.”
  • “Online Lead Capture – If you have a website, you can easily set up a ‘lead capture form’ that allows potential cash buyers to submit their name and contact information if they’d like to be added to your buyers list.”
  • “Public Record – Perhaps the most comprehensive source of cash buyers, your local public record’s office has information about every sale in your area.”
  • “creating ads on Craigslist for future wholesale deals is more than appropriate and should get people calling. A simple subject line that states ‘Wholesale real estate deals at 70% ARV'”
  • “Therefore, anyone bidding on a property at the courthouse is a cash buyer. Get to these auctions early and strike up some conversations, hand out business cards, and create some long-lasting business relationships.”
  • “While is the most common place for wholesalers to create a list of potential motivated sellers, it can also be a great place to find cash buyers. Use the site to search for properties purchased within a specific period of time and focus on absentee owners who didn’t record a deed of trust.”
  • “The amount you ask for depends on the size of the deal, your relationship with the buyer, and your negotiation skills. I recommend asking for at least $1,000 and potentially up to $5,000, if not more.”
  • “Depending on the size of the fee, the wholesaler may prefer to keep that fee amount private as to not ‘rock the boat’ with the seller.”
  • “A simultaneous closing—also known as a double closing—uses the end buyer’s cash to fund both purchases.”
  • “Simultaneous closings are fairly uncommon today because they involve someone selling a property before they even own it, and Beth does in our example. Yes, the title company can figure out the paperwork side of things (hopefully), but most are uncomfortable with this kind of arrangement. Furthermore, some states do not legally allow this kind of funding. Therefore, most wholesalers skip the simultaneous closing and instead rely on either an assignment or a back-to-back closing, which we’ll explore next.”
  • “A back-to-back closing is very similar to a simultaneous closing, but rather than using the buyer’s funds for the purchase, the wholesaler uses other funds to make the deal happen.”
  • “A transactional lender is a special kind of lender who funds back-to-back closings. They wire money to the title company for a short time (a few days max) and the title company uses that money to buy the property and then resell it a few minutes later.”
  • “The fees for these transactions typically range from 1% to 3% of the total transaction, so be sure to figure those extra costs into your wholesaling math.”

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