How do you invest in real estate without using money?

Question

I saw some infomercial with Than Merrill, a businessman, which claimed that anyone can, and I quote, "Invest in real estate and reap big money -- even without using a penny of your own cash."

I know this is broad, but this isn't a scam -- it's a workshop/educational thing about teaching people of investing in the real estate market, and how to profit. Some people's testimonials show investments with little (< 1K) to no money (absolute $0), and they have managed to "flip" real property and make tons of profit without much investment quantity. I'd like to know more about this with real estate.

How do you invest small or, as quoted, "no money" in to real estate and make profits/flip?

What are the basics on this? I've looked into "investing in real estate" on Google, but they only list crappy investment channels with 4-9% annual returns. The infomercial I saw was about "flipping" and putting money in to buy and quickly re-sell and turn profits in the short-term. Anyone know of this?

Answer 1

I know this is broad, but this isn't a scam -- it's a workshop/educational thing about teaching people of investing in the real estate market, and how to profit

The scam is that the free or cheap class doesn't give you enough info to make money; so they sell you a more advanced and expensive class that gets you almost enough info; but the goal of the 2nd class is to get you to pay for the specialized seminar and coaching sessions that either fail to materialize or are so basic they aren't worth the money.

Answer 2

Sounds like the seminar is about using OPM (other people's money), which means you're going to have to find not just real estate, but investors. Those investors are going to need a business plan, contracts, and a lot of work from you to provide as much equity as possible before the property is sold. If you're serious about Real Estate, I suggest finding the most successful broker/agent you can, buying them a beer, glass of wine, or cup of coffee, and picking their brain about it. It'll be cheaper then a scam seminar.

Answer 3

This is one way in which the scheme could work:

1. You put your own property (home, car, piece of land) as a collateral and get a loan from a bank. You can also try to use the purchased property as security, but it may be difficult to get 100% loan-to-value.

2. You use the money to buy a property that you expect will rise in value and/or provide rent income that is larger than the mortgage payment. Doing some renovations can help the value rise.

3. You sell the property, pay back the loan and get the profits. If you are fast, you might be able to do this even before the first mortgage payment is due.

So yeah, $0 of your own cash invested. But if the property doesn't rise in value, you may end up losing the collateral.

Answer 4

They're probably talking about flipping houses. The conventional wisdom when flipping is to purchase the property with a mortgage or other loan on day-0. Do the work to rehabilitate it. Get it listed for re-sale promptly (this step has varying strategies) with a profitable price but one that will make it move. Have the house sold on or before the first payment would be due. This is anywhere from 30 to 60 days.

The flipper then never has to make a payment on the mortgage or loan, the costs of rehabilitating the home are recovered promptly (potentially before any loan, credit card payments, or invoices are due), and there is a profit. This also assumes that either a 100% loan or some other mechanism is used to address closing costs and fees.

This model fits the premise of the infomercial in that you make money investing in real estate but never have to tie up any of your own money in the process.

Answer 5

I've been to one of these seminars:

a) you can get a loan of up to $700,000 from the company and only have to pay a fixed amount for the use of money, but you have to pay the loan off in nine months.

Or b) you can just invest say $50,000 and you'll get a return of say 4%.

But what the company does is take all of the investor's money and use that to fund the loans (putting none of the company’s money at risk), and that fixed amout sounds reasonable until you realize that it's only for a part of the year so the real APY is actually much higher than the conventional lending rate; or the rate they are paying the investors.

Answer 6

There is (almost) always money involved somewhere, but it doesn't have to come from you. It can be investors, credit cards, or even seller-financing (I've done all 3).

Examples:

1. If you can find partners with the money to make the deals happen, then your job is to put the deal together. Find the properties, negotiate the price, even get the property under contract (all without any obligation or cost on your part... yes it absolutely can be done). Then your partners will fund the deal if it's good enough and their terms are met, etc.

2. In some areas you can put a property on a credit card. If you find a house say for $25,000 that will rent for $300/month, and you can put it on a credit card (especially at zero percent for a year or something similar), then you can generate cashflow as a landlord without putting up any cash of your own on the purchase. Of course there are many risks associated with landlording and i could tell you horror stories... but we're not addressing that here.

3. You can negotiate a sale with an owner who agrees to finance the entire purchase for you. I once purchased 3 properties at once this way from a seller who financed the entire sale, all closing costs, everything, this way. Of course they needed a lot of repair and such so I had to fund that another way, but at least the purchase itself cost me no money out of pocket.

So these infomercials/courses are not inherently scams in the sense that what they are teaching is (usually... I'm sure there are exceptions) true. However they generally give you enough information to get into trouble, and not out. But that's what true learning is... it's getting into trouble and finding a way out that doesn't kill you. =) That's called experience, and you can't buy that for any price.

Answer 7

I have a friend who had went on a seminar with FortuneBuilders (the company that has Than Merrill as CEO). He told me that one of the things taught in that seminar was how to find funding for the property that you want to flip.

One of the things he mentioned was that there are so-called "hard money" lenders who are willing to lend you the money for the property in exchange for getting their name on the property title.

Last time I checked it looked like here in Florida we had at least Bridgewell Capital and Fairview Commercial Lending that were in that business.

These hard money lenders get their investment back when the house is sold. So there is some underlying expectation that the house can be sold with some profit (to reimburse both the lender and you for your work).

That friend of mine did tell me that he had flipped a house once but that he did not receive the funding to that from a lender but from an in-law, however it was through a similar arrangement.

Answer 8

Well, the seminars are not exactly a scam but they can be misleading. They hold x number of seminars a year with 100+ people in them. 1 or 2 people manage to put a deal together and they hold those few people up to show that the seminar works.

Here is how the no money out of your pocket real estate deals work (in broad strokes).

1. You find a property for pennies on the dollar.
2. You get other people to give you the money to buy and fix up the property (it will surely need fixing if it is pennies on the dollar).
3. After fixing it you flip it (sell fast) or rent it out.

Here are the issues with that:

1. If the property is for sale for pennies on the dollar, there will be issues with the property. Do you know enough to know if it will cost less to fix those issues than you are saving on the purchase price or cost more? Many sellers and most realtors know what they are doing so actual deals will be few.
2. Who will invest their money with someone green? Many seminars teach you to present yourself as someone who has a lot of experience; turning you into the con man.
3. Do you know how to fix the property properly and inexpensively? Many contractors can smell a sucker. Do you know enough to make sure the contractor does what they say they will? Do you know how to sell or manage the renters for the property?

Also, here is the general pattern for free seminars:

FREE: Why? Why invest your time and money this way? Why trust this person or group to teach you properly? If this system works so well, why are they wasting their time giving a seminar? (that last one is just my commentary)

$100-$300: What? What are the steps that you need to do to a accomplish the task? They give you enough info here to let you know just how much you need to learn to get the job done.

$300-$10,000: How? This is where they actually give you the information on how to actually perform the steps they outlined above.

$????: Tools, coaches/mentors, offers to do most of the work for you, etc. They trot these out once they show you how much work you will actually be doing and your brain goes into overload from all the stuff they taught you that you may or may not be able to remember. This is where most of their success stories come from.