Wealth Without Risk

Wealth Without Risk
by Peter Conti

Would you like to learn the insider secret about how you can create wealth without risk in real estate? Actually there are three secrets, and you are going to learn all three powerful wealth-creating strategies right now.

The benefits to you once you have mastered these concepts are clear: less risk (or even zero risk!) in the deals you do and the confidence to go out and buy more property. How? Because once you learn how to invest risk free, you’ll be making a lot more offers and a lot more money. It is that simple.

Remember, the good deals go to those who take immediate action. The best way to motivate yourself to take decisive and intelligent action is to invest with the absolute minimum risk. Here are the three secrets that will allow you to do exactly that.

Secret #1: Make all your offers without risk.

You are going to find motivated sellers who will allow you to control their property with 3 percent or less as a down payment. You can do this by either using a lease purchase or by getting the owner to carry back financing on the home. In a moment you’ll see why this is such a powerful way to limit your risk, but first I want to share with you one of the most under-used yet powerful tools you have as an investor: the “subject to…” clause.

From now on in all the offers you make you are going to insert a subject to clause. This means that your offer is contingent upon some other factor such as a final inspection, or a partner’s approval. It isn’t so important what the condition is as long as it allows you to write your offer and tie up a property while at the same time you have an escape hatch from the deal.

Of course you will treat the seller with respect and make your final decision about the property in a timely fashion, but because you have locked in your deal with the seller while maintaining the right to walk-away, you can sign up a deal with total confidence. After all, if after you do your due
diligence the deal doesn’t look promising, you can pass on it. Can you see what a powerful position this puts you in.

Secret #2: Make sure the deal is profitable BEFORE you go through with it.

Once you’ve signed up and locked in your deal, it’s time for you to do your due diligence and to discover whether the deal is going to be profitable or not and also how you are going to get out of the property.

Planning your exit strategy before you get into a property is the simplest and easiest way to make sure that you won’t get stuck with a property you don’t know what to do with. This is the second step of investing without risk.

The best way I’ve found to map out an exit strategy is to find an end buyer before I commit to the property. It’s easy to do if you offer the property as a “Rent to Own” home (i.e. finding a tenant-buyer to lease purchase the home.) Because you won’t do a deal until you already have a signed agreement with the end buyer you have guaranteed profits without risk when you do the deal.

Secret #3: Keep your up-front investment on any deal to zero.

Of course you realize that the less money you have in a deal up-front the less risk you have with the deal. Therefore you will always negotiate to have zero up-front money in a deal. However, you may need to offer some sort of earnest money to help the seller feel like you are a serious buyer. What you’ll do is be careful to only give things as earnest money that you fully control such as:

Promissory note, due at closing

Promissory note, due after all contingencies are removed

Check to be cashed at closing

Check to be cashed after all contingencies are removed

Cash in small amount ($10.00 to $100.00)

All of these ideas keep your up-front money down. Remember, you can bring money to closing (although you should still negotiate to keep that to an absolute minimum too) because by then you already have the deal profitably passed on to an end buyer.

I do this by finding a tenant-buyer before I go through with a deal. I collect 3%-5% of the property as up-front option money from them. Once I have this in hand I feel good about going ahead with a deal.

Investing this way is almost like being on that old game show Let’s Make a Deal and sneaking backstage to look at what really is behind the three doors. Obviously when you see the old goat behind door number one and the $25,000 cash behind door number three your decision is pretty easy. That’s what applying these concepts to your investing will do for you. They will allow you to know exactly which deals are money-makers and which to walk away from. This is the essence of creating wealth without risk.

How to Buy Apartment Buildings With Nothing Down

How to Buy Apartment Buildings With Nothing Down
by Peter Conti

In order to buy apartment buildings with nothing down you’ll need to take three steps. Step one is the same as buying a nice home with nothing down. You’ll need to find a motivated seller who will be open to your creative offer.

We heard about Carrie from a real estate agent named Tim that we had established a relationship with. Tim was out fishing for listings when he found a 24 unit apartment building owned by a gal named Carrie who needed some help.

Carrie had worked hard all of her adult life looking after and managing this 24 unit apartment building that she owned. As she cleaned, fixed, and rented the units over the years I’m sure she had a good feeling of comfort knowing that all of her hard work would allow the apartment building to support her in her old age.

What an unpleasant surprise was in store for Carrie. At the time that Tim, the real estate agent heard about her, she was 88 years old and living in California with her children. She had come down with Alzheimer’s disease and needed to go into a nursing home where she could receive special care. The problem was that this apartment building wasn’t producing enough money to pay for the nursing home. Despite hiring three different management companies in three years, the building was only making about $2,000 a month after paying the management company and all of the expenses.

Tim offered to list the property and sell it for Carrie’s Trust which was how the property was set up due to Carrie’s declining health. Her kids didn’t want to sell the property outright because a large part of the money from the sale would have to go toward paying capital gain taxes. Tim called us because he knew that we are always looking for situations where property owners are motivated and he knew that he was unable to help Carrie himself. (We in turn send Tim properties that don’t work for a creative nothing down offer but work great for a listing and a sale for him)

Step two when buying an apartment building for nothing down is to “run the numbers” to see if you’ll be able to make a profit. You’ll want to know with certainty that any property you get into is going to make you money, not cost you money. The best time find this out is before you commit to a deal. We looked closely at the income and expenses from the building to see if there was any way to improve the cash flow. We knew right away that because the management fees were close to $1,000 a month that we could pay Carrie the $3,000 a month she needed. The question was, could we make a profit?

We felt certain that we could at least break even, and were fairly confident that the upside was pretty big. (We used a nifty little shareware computer program called the “Cash Flow Estimator” which you can get off the internet for free at www.resultsnow.com) The rents seemed to be on the low side which meant that there was room to increase the cash flow in a positive direction after taking control of the property.

Step three to buying an apartment building for nothing down is creating an offer that uses the cash flow from the property to pay for the deal. We offered Carrie a “master lease”, one of the seven purchase option techniques, that would meet her needs. (and ours too!!) In return for our monthly payment of $3,000 (which would be paid from the rents from the property) We received the opportunity to purchase the building for $450,000 which was it’s current value based on the rental income it was bringing in. We would be able to exercise our option when Carrie passed away which was structured to save Carrie’s family some taxes.

We immediately began increasing rents. Rather than increasing everyone’s rent at once we sent notices to 1/3 of the building each month for three consecutive months. Some of the tenants moved, others griped a bit about the rent increase and decided to stay. Within 4 months of taking over the building, after raising rents to market levels, we were able to increase the rents an average of $85 per unit. This meant the total income from the property increased from $7,100.00 a month to $9,182 a month.

This is a monthly increase in cash flow of $2,082. We were thrilled to realize that we had just created an annual income of $24,987. This is as much money from one property as many people work 40 to 50 hours a week all year to make.

The really exciting part is that because income property in the area sells at a 10% capitalization rate, any increase in cash flow from the property increases the value of the property by ten times. This means that the annual increase in cash flow of $24,987 makes the building worth $249,870 more than it was worth just four months before.

The nice thing about great cash flow like this is that you can afford to hire a property management company to run the property while you sit back
and wait for it to go up even more in value. This is exactly what we did with this property and you can too if you take the three steps toward buying apartment buildings with nothing down.

First, find a motivated seller. Next, run the numbers to make certain you’ll make money each month. Finally, create an offer that uses the cash flow from the property to cover your payments and expenses each month.

You will probably have to sort through quite a few properties before you find one like this. Once you do you’ll know two things for sure. You’ll know that it’s definitely worth the effort and you’ll also know that you want to do more deals like this again!

How to Get a Seller to Say YES to Your Creative Offer

How to Get a Seller to Say YES to Your Creative Offer

- How can you determine the real needs of the seller?

- How can you meet the seller’s needs and maximize your profits at the same time?

- Here’s how to get a quick decision from the seller—a decision that works for you and works for the seller.

Most beginning investors walk in to meet with the seller and hand them the completed, written offer and sit back and wait for the seller’s response. The trouble is that most sellers will tell you they need to think it over, or that they need to speak with a friend/spouse/relative/etc. before they can agree with it. This puts the average investor in a very weak negotiating position. They are in what I call “chase” mode—chasing after the deal.

You are going to do things different. Instead of laying your offer at the seller’s feet and hoping they do you the favor of giving you the deal you are going to qualify the owner before you do them the favor of presenting them with an offer to solve their real and pressing real estate problems. I’m sure that sounds pretty good to you, but you might be wondering just how you are supposed to do that. Here’s how:

What you are going to do is leave your offer in your folder, or better yet in the car. You are not going to present the actual offer until the seller “qualifies.”

To qualify for your offer you and the seller both need to agree on four key areas. The powerful thing is that when you finish with all four areas the offer is basically all negotiated. And it is at that point that you can present your pre-written offer, or get out a blank form and just fill it out on the spot.

Of course if you and the seller cannot come to agreement in each area then you simply stand up, thank the seller for his time, and start to walk out.
Nine times out of ten the seller will plead with you to stay and present your offer—their curiosity alone will get them to ask you to stay to finish working through the four areas and to present your offer. This is the ultimate tool for putting you in the role of the reluctant buyer. We have found it to be the easiest, most effective way to help the seller feel good about talking us into giving them an offer on the property. And this will help you to smoothly transition the seller to say yes to your offer.

The first area is called the “Up-Front Agreement.” You simply explain to the seller that you are a straight forward type of person and would appreciate either a yes or a no answer from them. In return you will give them your own yes or no decision. The key in this quadrant is to let the seller understand that you will take any “think it over” answer as a NO.

The way that you do this is to tell the seller that you will respect his and your time by giving a yes or no answer and you are asking for the same courtesy in return.

Area two is where you are going to talk about the seller’s needs. Ask the seller what they were hoping you could do for them and then be quiet and listen. As they bring up areas of concern the very best thing you can do is to draw out those problems in an innocent and gentle way. For example, if a seller’s problem is that he hates being a landlord you can say something like, “The good thing is that you probably enjoy working with renters and putting the time in to care for your rental property.” Because you say this in a caring tone of voice the seller will most likely pour out his guts about how he hates dealing with renters. This approach is radically different from most investors where they will argue with the seller over all the problems the seller faces. All that does is put the seller on the defensive.

Area three is about money. You are going to go over some specific dollar amounts with the seller before you ever get your written offer out. This could be the monthly payments (on a lease, or owner carry-back), and the sale price. This way you know what the seller’s real financial needs are and whether you can meet them and still make a profit for yourself.

Area four is the “What If?” step. Rather than give a seller your offer and hope they will say yes, you are going to make sure they will accept your offer before you ever officially give it to them. How can you do this? By using the two magic words in all negotiations: WHAT IF

“Mr. Seller, what if I were to cover your payments for two years and then cash you out of the property? Would that work for you?”

“Mr. Seller, what if I were willing to give you $212,000 for the house, would you be willing to carry back a second?”

These magic two words lets you make your offer in a completely hypothetical manner. Then when you finally come up with the winning “what if” scenario you simply write it up and get them to sign right there and then.

Now you know how to get a seller to say yes to your creative offer.