"No MoneyDown"-Easy Way to Buy a House? (or scam)?

Recently, I was wasting some timee watching cable TV (Sunday Worning). There are at least 5 people eager to sell you the secret of easy wealth-you just locate some idiot who is willing to sell his house to you with NO DOWN payment. You then do a few simple, cheap repairs/upgrades, and sell the house for a big profit!
My question (for those of you in real estate): how many people actually are able to pull this off?
Suppose you locate a run-down house (in a decnt neighborhood), owned by an elderly widow (who wants to move to Florida). Can you actually convince somebody to sell at below-market pricing, and take nothing down?
(Step II): you now have a vacnt fixer-upper on your hands-you paint the place, fix the obvious plumbing leaks, and patch the holein the roof-can you then turn around and ask 10-20% MORE than YOU paid?
How come this scam is so popular? And, are the “secret methods” being adverised worth the $39.65?:smack:

Yes, it’s possible to talk an elderly widow into selling you her house at a below-market price. It isn’t exactly a “scam” as such, but it isn’t very ethical. And many elderly widows have sons who are lawyers, so you’d be running the risk that the whole deal would come back and bite you, later.

The “no down payment” thing isn’t as big a deal as the infomercial folks would have you believe. In any sale, the terms are up to the people involved, and if the seller doesn’t want to require a down payment from the buyer, he doesn’t have to. (The point of a down payment is to show good faith on the part of the buyer, so not requiring a down payment shows that the seller is either very trusting, or not very bright.)

And yes, it’s possible to fix up the house so it becomes worth more–this is known as “sweat equity”. You’re investing your labor in the value of the house, making it worth more.

However, there’s a cutoff point, after which you can’t invest any more of your labor and get the house worth any more than it already is. If you’re working with a house in a neighborhood where all the other houses are worth $30,000, and you bought the house for $15,000, then you can invest $15,000 worth of materials and labor in the house, and bring it up to the value of $30,000, and then when you sell it, you’ll have made $15,000 profit. But if you invest an additional $10,000 in the house, making it worth $40,000, there’s a possibility you won’t be able to sell it for that–you might have to let it go for the same $30,000 that all the other houses in the neighborhood are going for, so you wouldn’t be making $25,000 profit–you’d just be out that extra $10,000.

So making a profit in this sort of thing (and there are lots of people who do it successfully) involves a lot more know-how than simply buying an old house and fixing it up and expecting to sell it for more than you paid. You have to know your markets and your neighborhoods. Some neighborhoods are going down, and by the time you get that $15,000 house to the point where it’s worth $30,000, all the other houses in the neighborhood may be going for $20,000, so you’d have to sell your house for $20,000 and you’d only be making $5,000 on the deal instead of $15,000.

But some neighborhoods are going up (it’s called “gentrification”), and if you can spot a trend and buy an old house in a neighborhood that’s on the brink of gentrification, and fix it up, you can really cash in.

There’s where the trick lies–knowing which house to buy. I imagine that what they’re selling on the infomercial is a booklet of tips telling you how to spot trends, how to tell what neighborhoods are on the brink of gentrification. You can get the same information on the Internet or at the public library for free–look for books on fixing up old houses, they’ll have advice on selecting a neighborhood, and on picking a house. No, I wouldn’t say it’s worth $39.95.

Also, some old houses need more work than others, and some old houses need work that you can’t do yourself, that you have to pay a licensed expert to do, like serious foundation or electrical or plumbing work. It depends on how much expertise you have, and how much time and labor you’re willing to invest. If you have a lot of basic home repair skills, and have lots of free time and energy to put into it, and pick the right house, yes, you can make money.

Of course, a critical part of the no-money down bit is negotiating with your bank for get the mortage. The elderly widow doesn’t care, or even necessarily KNOW, if you’re making a down payment or not - she’s going to want to get 100% of the sale price up front. That’s why you get a mortgage. It’s your bank that cares about you making a down payment, because you make it to THEM.

Any bank will be willing to negotiate a no-money-down mortgage with you, if you have the credit. But you will poay a higher interest rate, which reduces the likelihood of the investment paying off. The risk here is

  1. There is a period of time in which you fix up the house and sell it. If your no-money-down mortgage is at an unfriendly rate, like prime plus four and a half or something, the mortgage payments you make between the time you buy the house and the time you sell it are going to be pretty nasty. Also remember that during the period of time you own the house, you must pay property tax AND insurance AND utilities - big bucks. If you can fix the house and sell it in six months, it may still be worth the investment. But if it drags on for 14 months, your profit just went out the window. Also, make sure there are no penalties for early payment of the mortgage.

  2. You have to friggin know how to fix up a house. That $150,000 fixer-upper might sell for $200,000 fixed up, but what’s it going to cost to fix up? Home repairs can get very expensive very fast. You have to hire a home inspector just to make sure you know everything that’s wrong with it. You have to buy materials. You have to buy supplies and equipment. For specialized stuff, like plumbing and power, you may need to bring in professionals. Your dreams of a $50,000 profit can vanish mighty quick.

  3. The profits to be had here are not as great as you think. A $50,000 return, frankly, isn’t all that much. When you get done paying mortage interest, property tax and utlities, materials, fees, AND investing all your time, you might walk away with $12,500 and a $12,500 return for 12 months of backbreaking work with a risk this large may not be worth it to you. You really need to be lucky in picking the right houses for this to work. It’s hard, high-risk stuff.

There’s also an element of risk with property values; suppose a sudden economic downturn lowers the value of the property by 25%…

It works, I can attest to it. I have bought homes for little or nothing down and with owner contracts.

The books and videos are in my opinion good for teaching you the basics and firing you up with the potential. I would consider the 40.00 an investment into your future if you are sincerely interested. (it’s also tax deductable, assuming you are successful)

It does take a lot of homework and shmoozing, but in my experience there are a LOT of “don’t wanters” out there who just want out of their property, for whatever reason. Personally, I have seen the old widow folks who want nothing more than a steady monthly income so that they can pay for assisted living. Folks wanting to move elsewhere, who can’t afford two mortgages, divorcing couples who don’t want to work it out. Really there are as many stories as there are “don’t wanters”.

One of the other really important aspects you will learn from those courses is to “trade paper”. In other words to leverage your other investments against the property you want to buy. I have seldom had to borrow bank money to finance a purchase, saving that route for improvement money.

There is a lot to learn, but if you are careful and it is something you really enjoy, you’ll seldom take a bath and you could potentially make a killing eventually.

What about MULTI-FAMILY housing? Is it hard to get a mortgage for a $5,000,000 property? Right now, the RE market is hot…I just have the feeling that we might well be at a market peak in RE, and the “down” cycle in RE is not pleasant.
I’ve been checking out foreclosed properties…some of them look attractive. However, the very presences of foreclosures in such a strong market makes me bvery uneasy…