You had me at ZERO

Recently I was talking with a very good client of mine about a purchase, and I was reminded of one cardinal rule.

Keep it simple.

I was talking to him about a property that could be bought for ZERO down, rented, had positive cash flow, and was in a nice location of a popular city in the US.

His reaction was, "This sounds too good to be true, does it work?"

I was so excited that a buyer wanted to talk to me about investing in real estate, rather than punching me in the face or throwing their soda at me, (both have never happened to me, by the way) that I simply reacted without thinking.

My response:

It does work. These are real fannie mae approved loans. They use the equity as the down payment. It only works when 1.) a seller that owns the property 100% free and clear, and is willing to sell and get paid off later. 2.) local bank willing to finance under these terms. None of the big banks will do it. They only see investing in black or white today. But a local bank knows and understands its market better and as long as they have a Fannie Mae stamp, they know it's easier to sell on Wall Street.

The buyer essentially takes the 100% price, uses 25% of the equity as his down (zero cash) and borrows 75% at 6.125% 30 year fix interest rate. Terms that cash flow all the time. The cash required is usually just closing costs. Anywhere from $2000 to $7000 depending on the property.

Everyone says its too good to be true. So, what is the catch?

The catch is… you could have paid cash for the house and got it cheaper 3 weeks earlier, if you were willing to spend ALL cash, buy it from the bank, make your own repairs, settle all outstanding liens (whatever were discovered) and then find a renter. Essentially, the catch is, yes there is a better deal if you are willing to take all of those risks.

This is a way, to still get a great deal, and hardly put any cash out of pocket, and having most of those risks being taken by the wholesaler REO company.

My company makes its money by being the lender, and a commission as the broker.

He said, "Stop, you had me at Zero"