If you’re serious about your money and serious about investing, you’ll
consider all the advantages of real estate investing that don’t exist in
other forms of investing.
Contract Real Estate for Less Than Its Value
Houses worth $100,000 can actually be found for $75,000 or $80,000.
Some real estate worth $1 million can be found for $700,000; other properties
worth $450,000 can be found for $350,000. You can contract to
buy a property and control it immediately, even though you haven’t given
the seller money for it yet. Then, between 30 and 100 days later, you go
to the closing and give the seller the agreed-upon price. You borrow
money to pay for the property, then close on it, and, voilà, you own it.
Make an Infinite Return on Investment
If you find a house worth $1 million for $500,000 and your credit isn’t
great, there are some lenders who would lend you $500,000 for a property
worth $1 million. In fact, they’d hope you’d miss a payment so they
could take over the $1 million property for $500,000.
These lenders are called hard moneylenders (see Chapter 5, “Avenues
Leading to Motivated Sellers,” for more details). They don’t pay attention
to your credit; they care about the asset, the property itself, when
they make their lending decisions. If it’s 60 to 75 percent loan to value
(see accompanying explanation), they might lend the funds regardless
of your credit. Some of the big banks and mortgage companies make loans to people who have been in bankruptcy, who have made late payments,
who have bad credit, and so on. They may still lend you 60 to 80
percent of the sale price on these properties. That’s why you can find a
property worth $100,000 and get it for $75,000, then borrow that
$75,000 without putting your own money into the property. You rent
the property for $1,000 a month, and your payment on the $75,000 you
borrowed is $700 a month. After all of the expenses—taxes, insurance,
vacancies, repairs, and overhead—you make some cash each month.
Let’s say you make $100 profit a month from the rent after paying all of
the expenses. You’ve still invested zero in the property. Your return is
infinite: $X for $0 invested.