Purchasing
Property With No Money Down:
My Personal Experience
By Mark Barnes
Have you ever seen those infomercials about buying houses with
“No Money Down?” They are really well done. They
have all kinds of people offering great testimonials about how
they have gotten rich, buying rental properties, with absolutely
no money out of their pocket. You see this guy, standing on
a street corner, talking to someone, and he says, “I own
that one,” pointing to a beautiful colonial. “I
also own that one next to it, and the one two doors down, and
I’ll be closing on the one directly across the street
from it, next week.” He then assures us that he has purchased
17 homes in the last eight or ten months, with zero money down
on the properties. Plus, in many cases he’s also paid
no closing costs.
And,
let’s not forget, this same guy is grossing tens of thousands
of dollars monthly, and his net worth is nearly one million
dollars. So, he says.
Now,
all of this looks wonderful, so when the person selling the
course that will teach you how to do this, at a nifty price
of just $297.00, speaks, you are glued to his every word. “Real
estate is the safest and fastest way to make money, today,”
the expert will tell you.
So,
can this really be done? Can you purchase houses with no money
down? Can you become a landlord in as little as one month’s
time and start raking in the cash from those rent payments?
The answer is an absolute “Yes.” It can be done,
and I am proof positive, because I’ve done it. The question
you should be asking yourself is not can I buy real estate with
no money down, but should I?
You
see, this is a question that the guy selling the No Money Down
course, with all of his people and their great testimonials
hopes you never ask. His advertising and marketing strategy
would collapse, if he gave anyone a chance to ask this question,
because he would be forced to lie if he answered it.
Rarely
is the whole truth anywhere to be found in infomercials, especially
when the advertising is about No Money Down real estate programs.
The infomercial makes the idea and the program look so easy
that any child could handle it. It makes it seem like every
American should be doing it, and we’d all be millionaires.
But every American is not doing it, and many of the ones who
are doing it not only are not getting rich, they are actually
going broke. The infomercial won’t tell you this. That’s
why I’m here.
The
Truth
Now,
let’s get started with the truth about buying real estate
with no money down and the truth about being a landlord. The
first thing you need to know is that they are both very bad
ideas. Let me illustrate by using my own experience in these
areas. I started buying rental property nearly 10 years ago.
The first property I bought was a deal orchestrated by some
real estate con artist, who told me I needed just $2,000 to
take ownership of this home and, in the process, help out a
woman who was about to be foreclosed upon.
In
two years, she would clean up her credit, refinance the loan
on the house, and I would make $10,000. Sounded good to someone
who was quick to buy into anything that returned big dollars
in a short time.
This
worked for the first year, as the woman paid on time, and I
pocketed an extra $100 monthly. Later, though, things began
to collapse, as the house began to need repairs, all of which
the woman couldn’t afford, so I had to pay for them. I
put nearly $5,000 into the house in a four-year period. When
I was finally able to sell it, I didn’t quite make back
what I had put into it.
Meanwhile,
I was eager to overcome this problem by adding many more. A
slick mortgage broker got hooked up with an even slicker real
estate prospector, and the two of them convinced me that they
had a way I could buy houses rapidly, with absolutely no money
out of my pocket. Although my experience will probably be enough
to enlighten you to the pitfalls of this model and of being
a landlord, let me say that I can’t emphasize enough how
dangerous buying property with no money down is.
In
six months time, I had purchased eight houses – many with
loans from the same wholesale lender. These lenders should have
been concerned with all of the debt I was building, but they
kept approving loans, based on my good credit and rents covering
the mortgage payments. One of the biggest problems, which I
was not experienced enough to detect, was that most of the rents
were just $50 to $100 above the mortgage payment.
“Don’t
worry,” the investor/ hustler would say. “You’ll
make all your money on volume. We’ll get you into 30 or
40 houses, and you’ll be pocketing $4,000 to $5,000 every
month.”
As
you might imagine, my mind raced. I was making the huge deposits
at that very moment. My bank account was fattening up at breakneck
speed.
The
Illusion
This
is what people who buy houses, using the No Money Down plan
envision happening. After all, if you can buy one house with
no money down, why not five or ten or fifty? For some reason
– the vision of the dollar sign, most likely – I
failed to seriously consider the maintenance of these houses,
the possibility of missed rent payments, and the chance that
renters might actually stop paying, altogether, forcing me to
evict them – a time-consuming and extremely costly undertaking.
As
you may have already guessed, all of these things happened to
me, after I had amassed 26 rental properties. In fact, oftentimes,
all of these problems happened in the same month. Now, for awhile
(when I had about 10 houses), if one person failed to pay rent,
I could cover it with the nine other payments. But when two,
three and sometimes even five tenants didn’t pay in the
same month, it was devastating to my business. I had to go to
my business account and pay up to $3,000 at a time in mortgage
payments, with no income to cover it. Plus, I had to pay a property
management company to get my tenants to pay or to evict them.
Soon,
this became the norm, not the exception. There were constant
problems at my houses. Unhappy tenants led to poor upkeep of
the property and even more maintenance problems. About one year,
after I had amassed 26 houses, I was having problems with roughly
10-15 houses and/or tenants each week. I was evicting at least
two tenants each month, and approximately four to seven tenants
were either behind on rent or not paying at all. Promises were
made, payment plans arranged and few, if any, ever followed
through.
It
didn’t take long for me to realize that this was no way
to make money in real estate. Consequently, I got rid of these
houses as fast as I possibly could. There were plenty of buyers,
willing to take over my headaches, because they had the ability
to make it work, they believed.
In
10 years of being a landlord, I lost thousands of dollars and
likely took some years away from my life with all the stress
I had endured. So, whatever you do, avoid the No Money Down
Trap. There are much better, still inexpensive ways to make
money in real estate.
Learn
the best ways at www.winningthemortgagegame.com
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