How, and Where, to Get Loans to Build Your Real Estate Wealth by Tyler G. Hicks: Part II Get Income Property with An Option No credit history? A bankruptcy last month? Behind in support payments to a former spouse? Out of work, with no prospect of a new job? Yet you want to get into income real estate?
No problem!
An option gives you the right to buy, or sell, a property for a given period of time. Your time allowance can be 30, 60, 90, 120 days, etc. When you take an option on a property there usually is:
No credit investigation No income check No employment review No request for the last three years’ tax returns You just pay a small amount for the option—from $1 to $100—for single-family homes. Then you take fast action to:
Sell the property for a profit before the option expires.
Get financing for the property based on the income it will deliver to you.
Option the property to someone else for a much higher fee than you paid.
You can take ALL these steps without ever having a single question about your credit, your job, your business, or any other personal matter. Your whole key to success with no-questions-asked options is:
You must have a plan for the optioned property BEFORE you take the option.
You must know, in advance, approximately how much money you can earn from flipping the property after you take your option.
You must act quickly so you get results long before your option runs out.
So consider using an option to control real estate long enough to earn money from it. You can use an option at any age—18 or 80—with any credit rating—A through D—with any financial history! Just follow the easy steps above.
A typical real estate option is shown below:
Option to Purchase Real Estate Date:__________________
In consideration of the amount of $100.00 (one-hundred dollars and no cents), John and Jane Doe (the optioners) hereby grant Mary and Edward Smith (the optionees) the exclusive right to purchase the property at 123 Main Street, Anytown US 12345 for the next 90 (ninety) days from the date above, at a price of $100,000.00 (one-hundred thousand dollars and no cents). During this time the optionees are free to sell, the above-named property to anyone of their choice, provided they satisfy the terms of this option in full. This option covers the entire agreement between the above-named parties and no other understandings, written or oral, are in force. In the event of disagreements, this option will be subject to the laws of the State of _________________.
Agreed:
Optioners: ____________________
Optionees: ____________________
Fig. 1. Example of a real estate option. Note: Any option you use MUST be prepared by a competent qualified real estate attorney.
Don’t think that options limit you to small properties. Just read this letter from a reader:
Options Can Give You Great Results “We received the March issue of your newsletter and thoroughly enjoyed perusing it and examining in detail the vast number of wealth opportunities. We are very active in the Canadian real estate market and just gained control of another piece of property via an option with no expiration date. The property is valued at $5,800,000. Again, we got it with no money down.” (Canada).
Buy Properties Having Assumable Mortgages An assumable mortgage is a loan on a property you take responsibility for when you buy the property and gain title to its income stream. There normally is no credit check when you assume a mortgage. Why? Because the sale is between you and the seller with no financial checking of you by a bank, a credit union, a mortgage lender, etc.
And most sellers will accept you as you are. They won’t “pull a credit report” on you if they feel you’re a “good guy, or gal.” So you’re into an income property without a credit check of any kind. Steps to take are:
Get the seller to take a Purchase Money (PM) mortgage for the down payment if you don’t have cash needed for it.
The Purchase Money Mortgage becomes your assumable mortgage because there are no credit checks associated with the takeover loan.
Your seller—in effect—becomes your assumable-loan lender.
Thus, a reader writes:
Purchase Money Mortgage for Zero Cash Takeover “In three days we are closing a deal on an 11-unit apartment building. We easily got a first mortgage. For the balance we got a Purchase Money Mortgage (from the seller.) So we did not have to put any money into the deal to get the property.” (MI).
Properties financed by the Veterans Administration (VA) can have assumable first mortgages. So check foreclosures offered by the VA because you can often get into a single-family home with no credit check and no qualifying requirements. You’ll find VA foreclosures at www.va.gov
When you combine an assumable first mortgage with a PM mortgage you have a true zero-down deal. Further, there usually are NO credit checks of any kind with either type of assumable mortgage!
For example, another reader writes:
Sellers Respect Your Experience “Enclosed is information on the two apartment buildings I mentioned to you on the telephone the other night. The sellers said they would finance the entire sale for someone who has experience in running rental property. Fortunately, I have eight units, thanks to the information I got from reading one of your real estate books. The owners aren’t concerned with the terms. They’ll work all of that out with a competent buyer.” (OK).
Assumable Mortgage Possibilities for You When you think of an assumable mortgage, think in terms of two possibilities, namely:
An assumable First Mortgage for anywhere from 75 to 90 percent of the purchase price of the property. With a motivated seller you might even get a 100 percent mortgage--giving you a zero-cash deal.
An assumable Purchase Money Mortgage for anywhere from 25 to 10 percent of the purchase price of the property.
There’s further good news for you on assumable mortgage, namely:
The lender cannot raise the interest rate on any mortgage you assume. Thus, the rate the seller is paying on the mortgage will be the rate you will pay.
The lender cannot refuse to allow you to assume the mortgage, if the seller wants you to assume it, unless there’s a Due-on-Sale Clause in the mortgage. Such a clause requires that the mortgage be paid in full if the property is sold by the current mortgage holder—i.e. the seller.
The lender may omit a Due-on-Sale Clause from an Adjustable Rate Mortgage (called ARM for short). So look for sellers having an ARM on the property you want to buy. (As an aside, let me say that life insurance companies seldom have a Due-on-Sale Clause in their mortgages for smaller properties. So when you learn that the mortgage on a property you’re interested in, is held by a life insurance company, rejoice! It probably does not have a Due-on-Sale Clause.)
One final note. FHA and VA loans made prior to December 1, 1986 did not have a Due-on-Sale Clause in the mortgage. So if you’re looking at a property having such a mortgage, you know there’s no Due-on-Sale Clause to deal with. After December 15, 1989, all FHA mortgages have the Due-on-Sale Clause in them. Keep this in mind when you look at a property to buy.
Find Zero Percent Down and 100 Percent Lenders Look in your local telephone-book Yellow Pages under “Mortgages” for 0 percent down financing. Also look for 100 percent loans in the same place. You’ll also find lenders offering “Bankruptcy OK” loans, “No Credit Check” Loans, “No Income Check” loans, etc. Such loans can give you the creative financing you seek.
Also, the IWS publications listed at the back of this book can give you these types of lenders. Many such loans can be yours, even with earlier credit problems. Thus, one reader writes:
105% Financing with a Good Net on Closing “I bought a single-family home with 105% financing which will net me 100% after closing costs and points. I have signed a lease with a tenant that will give me a positive cash flow from the house. And the lease makes the tenant responsible for all maintenance and repairs of the house.” (NJ).
Use a Lease-Option Contract to Control Property A lease-option contract, also called a lease-purchase contract or a land contract, allows you to take possession of a property without a credit check or—in many cases--a down payment. With a lease option contract:
You have full use of the property for income purposes for as long as the lease option lasts.
You have full control of the property and can rent it out, repair it, expand it, or otherwise make it more livable for your tenants.
You have part of your monthly lease payment applied towards making you the eventual owner of the property when you’ve fulfilled the terms of the lease option.
You have the obligation to pay the real estate taxes, insurance, water charges, etc., on the property, which are included as part of your monthly rent-like payments you make for the duration of the lease contract.
You can use the lease option to get lots of income property to build a monthly positive cash flow without ever having your credit checked out. Why? Because the seller offering a lease option:
1.Wants to get rid of property quickly.
2.Can be appealed to and “sold” on your sincerity and dependability.
3.Will rarely run a credit check on you if he/she believes in you.
And—of course—you can use a lease option contract when you have good credit. In fact, any of the methods you get in this chapter are equally useful to people with good—or bad—credit, or no credit at all!
Good Financing with a Land Contract “I just finished ‘How to Borrow Your Way to Real Estate Riches.’ I am truly excited about the wealth of information in the book. In fact, I just purchased a duplex worth $30,000 paying $13,500 for it with $3,600 down with the remaining $9,900 on a land contract at 10% interest with payments of $180 per month. The cash flow from the property is $450 per month. It will be paid off in 5 years. I financed all but $400 of the down payment. It is rented to reliable tenants.” (MI).
How and Where to Get Loans to Build Your Real Estate Wealth by Tyler G Hicks: Part II - To learn more about this author, visit Tyler Hicks's Website.
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