Episode 9 | Investing In Real Estate With No Money

Here's Johnny!

Okay.

Did somebody say that on a show one time?

In a sad note, Donald Trump was indicted today. I don't know what they're gonna do.

Thoughts and prayers.

You ready?

Yep.

Do you want to clap or something?

I feel like I should.

I think you should. Okay.

Welcome back to the podcast, The New and Experienced Investor. I'm the new guy, Alex Barnett.

And my name is Joe Homs, and I've been investing in real estate for over 40 years.

I've been investing since 2021.

Right after COVID.

Right after COVID. Strange.

Copy.

Today we're talking about a topic that I think a lot of people wonder about. And you see it all over YouTube. You see the headlines, the clickbait, how to invest in real estate with little to no money. Is it possible?

It is possible. Actually, it is possible.

Because you got to— I got to say, there's a lot of misconception that you need to save up your 20% to 25% down. Out here in California, that's, you know, a couple hundred thousand dollars easily. But you're telling me that it's possible with little to no money?

I'm telling you it's possible. Now it's up to the individual to make it possible. Oh, I knew that. Because nobody's going to give you anything and you You have to work very hard to get these type of deals. So it's, it's not like, you know, call me tomorrow, and I'll show you how to get, you know, no money down deals, and then you don't want to do anything to get no money down deals. So we're going to talk about that. We're going to talk about, you know, some seller financing, subject to, okay, using other people's money, partnerships. We're gonna talk about all that. Hopefully in the next 30 minutes or so on how you can accomplish buying something with little or no money down.

Oh my gosh. Before we do that, please share the show with your friends. Um, our podcast is available now everywhere where podcasts are available, but we need some reviews. So what I'm thinking, we need to entice these people to leave reviews. If they leave a review And they screenshot it and they email it to one of us, I want to give them something. What can we give them?

I don't know. What do you want to give them?

We're going to give you guys a cold calling script that we have both used to make some money. I don't know the exact price.

That sounds good.

Yeah.

Yeah. I mean, but the only caution I give you with this cold calling script is Alex loves to talk. So he's on a phone call with a seller for like 45 minutes. And I'm trying to teach him to cut that down to 5 to 10 minutes and move on to the next one. But today's conversation was 45 minutes about.

Yeah, I— they end up unloading their whole life story.

No, that's, that's the problem. You know, that's, that's You know, it's kind of like walking into a senior community and door knocking, which you can't do anyways. But let's say you do. Um, oh, let me give you another analogy about a senior community. So my son-in-law and I were in a senior community. We're looking at a property that we were going to flip. And there is these senior ladies. They were putting something up on the tree that was really high. My son-in-law is 6'7. And so I said, can you go over there and help these You know, poor old ladies, and he went over there, and then here it comes. There comes the conversation. Thank you, young man. You're such a nice young man. And by the way, we've been trying to get the association to do this and that, and we were there for like 15 to 20 minutes until I finally said, "Hey, we've got a call. We got to go. We're going to go look at this property." So yeah, so just be careful with that.

Yeah. Keep it brief, get the information you need, and get out.

Yeah.

Otherwise, you get sucked into their whole life saga.

Yeah. Because they'll tell you everything.

That reminds me, I have to call Frank after this.

Okay. Okay.

So, let's go ahead and maybe start diving into some possible strategies, some techniques as far as investing in real estate with little to no money down. Um, maybe we can give just a brief overview of, um, you know, the different types of real estate investments where this could apply. Does it work for rentals?

Rentals.

Flips?

Flips.

Wholesaling?

Wholesaling.

Okay.

Yeah, pretty much everything.

Okay, great. And, um, hmm, okay, why don't you just go ahead and start us off?

Okay, let's talk about Seller financing, which is probably the most popular and the easiest to do. So you're talking to a seller that has a property for sale. Usually it's going to be what we call a tired landlord. And what you also need to know is baby boomers like me are getting to that age where we really don't want to deal with a lot of headaches anymore. And so that may be the case. You call this person, he's a tired landlord. He doesn't want to deal with this property anymore. Uh, yeah, how much you want to give me? You give him a price. Um, he says no. You go into, okay, well, I can probably do better on the price if you consider seller financing. And, uh, and then you go into another 5 to 10 minute conversation explaining what seller financing is. And it's, it's really simple. It's basically, um, They're taking the position of the bank, so they're becoming the bank. So a $500,000 purchase—you offered them $300,000. You wanted to do seller financing, so you said, "Okay, I'll give—I can give you $400,000 for this property, but you need to do seller financing," which means you're going to carry back the mortgage on that property at whatever interest rates. I actually came across an email today—a property up in. Big Bear. They were talking subject-to, and we'll talk about that when, when we're in the subject-to phase. But seller financing, the seller really converts himself from being a landlord and having to take care of all those issues to just receiving a check from you every month in the mailbox and not having to deal with headaches or anything like that. So that's Hopefully you got the concept. It's just pretty simple. It's easy to do. You open up escrow. Escrow pretty much does everything for you. They create the note that goes with the trust deed. You have to negotiate the interest rate. You have to negotiate the time period. So for example, if it's going to be like a 3 to 5 year deal, you may be okay paying him $400. If he wants to do like a 30-year note on this property, just like a bank would do, you might want to even pay more than that. The next thing you want to negotiate is the interest rate. So again, you want to try to keep the interest rate as low as possible, but that also depends on the price. Everything in real estate is negotiable. So you have to take all these things into account. So Again, we'll talk about it in subject to, the deal that I saw that was put together because it was both subject to financing, which I'll talk about, and it was also seller financing. But negotiate, negotiate, negotiate's my philosophy. And I guess that's good because you're talking to somebody for 45 minutes, you build that rapport, they get to like you. This guy said, I never answer my home phone. But I answered it and, well, by the way, call me back on my cell phone. Okay. So yeah, there was some rapport building there, which was good. You know, I don't know if we can even do a deal with this. I mean, he's pretty far gone.

He just needs a shoulder to cry on at this point.

Yeah. And you did.

You lent it to him. I was that shoulder. Yeah. Yeah. And that's honestly the pitch that I use when I'm broaching the concept of seller financing. They're used to getting the monthly payments. And I say, hey, why don't we upgrade you from being a landlord to a lender? Because that's who's making all the money on these real estate transactions are the lenders, the banks. So you become the Bank of John, you know, and, you know, what sort of terms can you give me? And I just explain to them, in order for me to make this a deal, I need to get a renter in there. You know, be able to cover everything with the rents. So oftentimes I'll show them my underwriting of like where this is pretty much the payment I can get to you. And oftentimes they're— the rents that they were receiving before are undervalued, you know, so you can come in, bring it up to market rents, then you build your cash flow in there. Boom. It's a win-win.

Absolutely. Yeah. Yeah. It's all about the conversation. It's all about the knowledge that you have to put these type of deals together. I can tell you a vast majority of people have no clue what, what we're talking about. Even real estate agents probably have no clue. They took that on their exam and never really dove back into that idea or concept.

Yeah. And I guess someone pointed out that seller financing and subject-to, that's all in the The typical car. Isn't there an addendum for all that? Yeah, all that's in there. Oh yeah. So some people will say, oh, this is illegal.

You can't do this. No, no, no. It's it's all there. All the documents. It's the problem is that that a particular agent may not know that it's there or how to use it.

Yeah, but that's that's amazing. You could point out to them that you know this is in the California Association of Realtors. Paperwork. Yeah, it's all in there. So they can, they can make it happen. So you can do all— you can do this with on-market deals as well. You'll just have to cover the agent's commission typically, or, you know, maybe you can come out of there. Yeah. If there's a down payment involved. Yeah. But we're talking about little to no money down.

Yeah. And these deals can be had seller financing, little or no money down. Again, you know, $500,000 purchase, you offer him $400,000, he accepts. Then you say, you know, you do seller financing for the whole thing, $400,000. Yeah, why not? You know, that's more money that's coming into my mailbox every month. Why not? You know, the other reason that sellers do this is you only get taxed on the money that you receive that year. So instead of paying, you know, the 20% capital gains tax on everything, you only get taxed on that gain that you receive that year. And then obviously every year thereafter. Uncle Sam is always going to get their money, but this way they don't get it all at once and upfront. So you're not paying Uncle Sam all that money upfront. You're using it, you know, to prolong paying that. So that's attractive to sellers. You know, nobody wants to pay taxes.

Nobody.

You know, nobody wants to pay taxes, but it is what it is. And then, you know, the laws are there and in place and You know, all you can do is ask and explain and keep asking, keep explaining. And if they end up agreeing at the end of the day— and like I said, um, we're headed towards the probably the biggest exchange. I don't know if that's the word I'm looking for, but, um, the exchange of money from baby boomers till their children. And so, you know, maybe the baby boomers don't want to leave their children a property that they have to manage or anything like that. Maybe they're just willing to sell it and do owner financing. And that way, you know, when they're gone, they're still getting that check in the mail, you know, so their kids can enjoy the check and all the benefits that they were able to put together. during their lifetime and now passing it along to the next generation.

So they can squander it?

So they can squander it. Yes. Yeah. Hawaii, you know, everything fun, nothing practical, nothing like, hey, let's reinvest this in real estate or, you know. They didn't have to work for it.

What do they care?

No, no. Yeah. Yeah. Good. You know. Yeah. Motorcycles, boats, mobile homes.

Well, they didn't—

motorhomes.

They didn't teach their children the value of money.

No. Well, hopefully they did. But, you know, most of them didn't.

Yeah, most of them didn't. Or they just don't care. Now, I heard you mention subject-to versus seller financing. So there's a difference.

There is a difference. And we did a podcast on subject-to. So if you want to, you know, go back and look at our podcast on subject-to, you'll get a lot more information. But Subject to is basically, okay, $500,000. We have a $300,000 loan and you're taking that loan over subject to. So if you've offered this person $500,000, you're going to need to come up with $200,000 for this property instead of the whole $500,000. And you take over the loan, existing loan that's on there subject to. Great way to do, you know, to purchase properties. Those mortgages may be as low as 2.5%. We went through a really low mortgage rates 2 to 3 years ago. Those people, you know, like in last year, in 2022, start of the year, they got some good rates as well. 3, 3.5%, you know, compared to what it is now, 3, 3.5%. Those are great mortgages to take over subject to. They may not have a lot of equity, but what's worth the money in the property is the low interest rate and the ability to take that subject-to. Now you combine both seller financing and subject-to. Again, the same property, $500,000. The loan on it is $300,000. Then you ask the seller to take back seller financing. So here we go. No money down on a subject-to property. Okay. You're paying— you're taking over the $300,000 loan.

Mm-hmm.

And then the seller's Taking back some seller financing for the other $200,000. So that's zero money down. Okay, so can you do it? Yeah, you can. Absolutely.

It's possible. And then I know you have a story. I don't know if this exists anymore, where you found somebody in the Penny Saver, which is just a free newspaper that we have, that we used to have out here. And you could put, you know, it was before Craigslist, basically. It was Craigslist before Craigslist. Put all your stuff on there. Do you mind sharing that one?

No, no, this was, this was 40 years ago. Okay. And, uh, this lady had advertised in the Penny Saver, uh, for sale condo, 2-bedroom, 1-bath, um, in our local area here, San Juan Capistrano. And she put takeover payments and What was interesting about 40 years ago is there was really no subject to. You were— you could literally take over any loan without a problem. The banks did not have an issue with that whatsoever. And so I took over the loan. There was a first and then there was a second on the property. And the second, believe it or not, was at 14% interest. Okay.

Wow.

And the first was reasonable. I think it was like 6 or 7. The property was $55,000. So we're not talking about $1 million here. $55,000. I went into the local bank and it was, you know, just a local bank. It wasn't one of the big boys out there. And I sat down and I talked with the bank president and I said, your loan is due in like a year. It's 14%. I'm looking to renegotiate that to a lower rate. I'd like to keep it at 7%, which is where my other one is. And we just talk back and forth, okay, like human beings. And I think that's why a lot of people like local banks, because they can go in and talk to, you know, an actual person that, you know, can make decisions and is responsive to them. Sometimes the bigger banks, You know, you can't, you can't go talk to Jamie Dimon and say, hey, can you modify this loan for me? It just doesn't occur like that anymore. But anyways, I was able to get them down. I started at 7, we were at 14. I was able to get them down to 10. He said no. My wife was there with me. I said, I looked at her and I said, okay, I guess we're done. And we got up. Before we hit the door, he said, stop. I said, okay. He goes, I'll do it. So he modified the loan down to 10%, and then he increased the timeout 5 years. Okay. Which is awesome. I still own that property today.

Wow.

You know? Yeah. If you're young and you're buying stuff that cash flows, I recommend you keep it for the rest of your life. There's no, there's no reason to sell property when it's cash flowing. You know, the reason that I flip now is because there's not much here in California that cash flows, if anything. And so for me to make, you know, quick money, it is flipping. So that's why I flip instead of buy and hold.

Makes sense.

Yeah.

Okay. Yeah. And that brings us on to another way No money down, talking about flipping, um, because I was able to flip with no money down. It's all about relationships. So the next, the next little section we're going to talk about is other people's money.

Yeah. So he's talking about me.

I'm talking about Joe's money. So basically, I started off wholesaling under Joe and was just trying to build out my lead generation Um, doing the texting, you know, honing in on those skills, talking to sellers, negotiating. And I came across a deal out in Hemet, California, and it seemed like, it seemed like a good flip. Seemed like something Joe might get behind, except for the one fact that it was a mobile home. Joe didn't flip mobile homes. But I said, wait a second, it— you own the land. This isn't leased land where you're dealing with a park necessarily. This is You own the land. And that piqued his interest. And so, he came out, walked it with me. He said, you're going to need to get it at least $20,000 less. And so, I was able to negotiate with the seller. He didn't want this property anymore. It was one of those perfect situations. He just wanted the money. He inherited the property. It was getting vandalized. It was getting broken into. So, we offered him $60,000 at the end.

Mm-hmm.

And basically, the agreement was, we'll do the work, we'll drive out to Hemet, you put up the money. My wife and I, you put up the money, and then we split it at the end. So, since I didn't have the money to put down, I put in the legwork. And so, that seemed like a fair trade for both of us, a win-win, and we each made 50 grand. So there you go. OPM, other people's money.

Yes, yes. And although you did not have the expertise at the time, and that's what we've been gearing you up to do, to, you know, learn how to flip and stuff. Each flip, you learn more and more as you go along. And, you know, that's, that's, you know, a perfect way to segue into, you know, the last thing is partnerships. Okay, because that's kind of what we developed there was a partnership. And in the partnership, again, other people's money, my money, and I had you do most of the legwork and everything. Obviously, I'm watching you, but sometimes not close enough. But I'm watching you. And, you know, at the end of the day, we were successful. We've done 2 others.

2, 3 others.

3 others, 3 others since then. So, you know, partnering with people can be a way that you can buy property with no money down. The thing is that, you know, you need to have the experience. Alex didn't have the experience, but he was learning. And at this point, if Alex wanted to, you know, find somebody else that has money He would have a good resume behind him. He could say, you know, I partnered with Joe on these deals, and this is what we did at the end of the day. I know what I'm doing. I can flip, you know, using your money instead of Joe's money. Is that a good idea? Your money instead of Joe's money.

That's right. Yeah, yeah, yeah. And I mean, the more you put yourself out there on social media, maybe you can. And that's sort of like the modern-day resume. Show people that you've done some deals. Show people that you have experience, that you can get a return. There's actually— you start learning that the money may not be the hardest thing to get. A lot of people in the beginning are saying the hardest thing to get is the money. But if you can get a good deal—

Correct.

You'll actually have a ton of people reaching out to you that want to partner with you, depending on— How you can structure it.

So absolutely. Yeah, absolutely. Yes. And that's, that's the hard part, I guess, about finding deals with no money down is actually finding the deals. Again, they're not going to walk over to you and tap you on the shoulder and say, hey, I'm a no money down deal. You know, these are deals that he was wholesaling. He's cold calling, he's texting, he's door knocking. You got to put yourself out there, you know, create some time that you're available and, you know, don't let anything discourage you. Just keep continue to move forward and you'll find that deal where if you can't do it because you don't have enough money, you have the option of just wholesaling it to me. I'm happy to buy it from you and flip it. But if, if you have a deal that, you know, it's going to make us both some money, at the end of the day, then yes, I'm interested in that as well.

That's great. What about long-term holds?

Long-term holds here in California, you have to wait for the downturn to hit. I don't think we're going to get all the way back to where cash flows— maybe, maybe. But everything I'm looking at now doesn't seem to be the case. Low inventory right now, super low inventory. And, and there's not, you know, a lot of deals out there to be had that would actually cash flow. So the market would have to probably go down another— I'm thinking the market's down 15%. I think it would have to go down another 25%.

Wow.

Yeah, we would have to get Pretty low.

Yeah.

You know, for example, the condo I was talking about earlier that I bought for $55,000, it's probably selling for about $450,000 right now. If that condo got down to $300,000 price range, which is a pretty hefty downturn, it would cash flow at the $300,000 price. But it needs to get down to that price range. Yeah. And I don't know that in this market, in this downturn, you know, unless something terrible happens in the world, you know, we go into a war or something, I don't think— I don't see that happening at this point in time.

Yeah. I think most people are in California pivoting towards short-term and midterm rentals to supplement and get cash flow. But then that comes with its own Host of problems.

Yes, absolutely.

All that kind of stuff. So, um, but yeah, I got a property in Yucca Valley. I think we're going to end up trying to do a short-term rental, but I'm partnering with somebody that knows how to do it out there. Oh, um, but that one, it's like a $500,000 house, and the guy— we're gonna take over his VA loan at 2.9% interest, and he just wants $10,000 $10,000 down. So—

Wow. Yeah.

Nice. Yeah. So, you know, that's little money down, I guess you could say, for that.

I call it no money down. $10,000?

Yeah. Has a pool, has, you know, solar panels paid off.

Wow.

So could be pretty cool.

Wow. And it's good cash flow coming in?

Yeah, it'll work as a long-term. And then we were gonna maybe do midterm because there's a lot of military out there, but then we met a short-term rental guy who has a bunch of properties out there, and he's saying if it has a pool, it could go, you know, pretty nuts.

Wow.

So we're just gonna partner with him and—

Sounds good.

Yeah, see if we can, you know, make some cash flow that way.

Yeah.

But, um, yeah, the deals, the deals, the deals. That's the biggest thing, I guess. That's where you start. If you're just getting into it and you want to invest little to no money down, you can just start drumming up deals, and there's a ton of ways to do it. Joe has a bunch of courses online. Where do they find those?

My free courses are on getrealestatetrained.com, and you'll find a wholesale course there for free and a flipping course on there for free as well. Anybody run across any deals that, you know, you want myself or Alex to look at, we're happy to give you our 2 cents. And if it's something that you want to partner with, as long as— for me, as long as it's in the Orange County area. For Alex, Riverside and San Bernardino is also good for you.

Mm-hmm.

I don't like LA. LA has too many restrictive laws with tenants and stuff like that. And I honestly, I don't go down to San Diego either. Mm-hmm. You know, again, that's really because of distance. So for me, anything in Orange County that you think, you know, might work as a deal or Riverside or San Bernardino, any of those areas would be fine.

Excellent. Yeah, Joe's got a YouTube channel as well, a bunch of free content on there, pretty much covering every single subject. So go over there and give a subscribe. And then if you want to see Lauren and I, my wife and I's journey from total beginner to financial freedom. Check out our YouTube channel, Lauren and or Alex and Lauren Real Estate. Give us a subscribe as well as subscribe and share this podcast with anybody new or anybody experienced because you know you can learn a subject, but it's always good to get reminded you know that these deals are out there and. You know, just cover real estate in general.

So why Alex and Loren and not Loren and Alex?

Well, I would put her first because that's how we get the clicks, but she doesn't want to do that.

Really?

Yeah, I know. She's the singer of a band. Yeah, just shy and—

Wow.

I know. So I said, all right, I'll put myself first.

But okay, it's just whatever.

That's just kind of how it ended up. But she has her own Instagram, Lauren Barnett Real Estate. She's got some videos over there.

Now everybody's going to be rushing over to—

I know. That's how it is. I try so hard to get people to watch my stuff, but they just want to see Lauren. So—

I don't blame them.

Yeah, me neither.

I don't blame them.

Me neither. So yeah, check us out on all the socials. Reach out if you guys have any questions.

Thank you. Thank you for showing up. I appreciate it. And remember, please subscribe and like this video. And we'll keep producing them once a week, hopefully.

Bye.

Thank you.

Bye. 30 on the dot.

If you want some more advice on real estate investing, reach out to us one-on-one.