20Wayst
oBuyan
I
nvest
ment
Propert
ywi
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$2,
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ByBenLeybovi
ch
© Copyright 2013 Ben Leybovich and Just Ask Ben Why. All Rights Reserved.
Introduction
The general consensus among real estate investors is that the biggest
hurdle to overcome in this business is MONEY – there is never enough
of it! Whether you are a newbie with nothing on you balance sheet, or
an experienced operator with an extensive portfolio of assets, we can all
do more and go faster with more capital.
The practical implication of this reality is reflected in the following
question:
Question: How many deals could YOU do if you had to write a check
for $25k each and every time you bought a property for $100k?
I bet many of you answered “0” – did you? But, even if you are
someone with a stable and high-paying job, a 401k, a big home, 2
beamers in the garage, a brokerage account, and savings in the bank,
writing $25,000 checks gets old after a while.
Well – the reality of conventional lending is that financing of rental
property would necessarily require you to make 25% down-payments,
which, on an $100,000 acquisition means writing a check for $25,000.
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It’s certainly better than paying the entire $100,000 cash outright, but it
might as well be that for most of you...
This is it – no more excuses!
I am going to teach you 20 ways to buy your first investment property
with $2,000 or less. Regardless of how much money you make or don’t
make, whether you own a home or rent, whether you have money in the
bank or not, whether you have a 401k or not – I promise you’ll find
something in this eBook that will work for you!
Ground Rules
Not every idea and technique in this eBook is going to work equally well
or even be equally accessible to everyone reading. Naturally, those
who are farther along in their financial lives will discover that they have
more options and find that more techniques discussed in this eBook are
accessible for them. However, while those of you without any assets to
back you up are certainly going to need to work harder, you will find that
you still have a lot of options if you are willing to educate yourself.
There is risk in everything – period. Investing is not about avoiding risk
– it is about managing it, and I am all game for taking calculated risks.
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However, there are two kind of risks that I am not comfortable
discussing here because even though both techniques can and do
work, they require a higher level of sophistication which I am afraid a lot
of you don’t yet possess.
One of these is broadly defined as The Credit Card. Indeed, there are
lots of gurus running around telling people to use credit cards to finance
down-payments – Don’t Do It, at least not until you know a lot more than
you do now! I will not be discussing any techniques in this eBook
involving credit cards.
The other is Hard Money Lenders. I have never used this type of
lending source in the 8 years of playing this game, and even though in
saying this to you I may make some of my friends mad, I have to tell you
to be very, very careful around this aspect of borrowing. Frankly, there
are better ways to come up with capital in my opinion…
The title of this eBook may lead you to believe that I advocate buying
the type of property which can be bought for $2,000 Purchase Price. It
can be done, but I do not recommend it for many reasons! Therefore, I
will not be discussing houses that you can buy for $2,000 using your
credit card – only houses that are worthwhile to own; only houses that
you would want to live in yourself, if need be. The basic premise to not
is this:
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Just because it’s cheap – doesn’t make it good!
Also, I will not be discussing such techniques as bird dogging,
wholesaling, or fix and flipping. In this eBook I am presuming a longterm investment with at least a 5-year horizon which serves the purpose
of generating Cash Flow.
Lastly, I will not be discussing techniques such as Taking the Deed
Subject to Underlying Financing (Sub2) or Wrap Mortgages. Most
conventional mortgages include the Due on Sale and Acceleration
clauses which come with a possibility, be it a slight one, that the
underlying lender will accelerate the pay-off. I do not feel comfortable
advocating these techniques for this reason.
Book Layout
All of the techniques that are covered here can be done with $2,000 or
less – this is a given. However, some techniques do require good credit
and finance ability with an institutional lender, while others do not. With
this in mind, I’ve organized this eBook in 2 Parts:
Part 1:
If you CANNOT get a traditional loan
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Part 2:
If you CAN get a traditional loan
Those of you who know that you can’t get financed by an institutional
lender right now may be tempted to stop reading after you get through
Part 1 – I wouldn’t. Indeed, go ahead and read about the kind of
options that are going to be available to you once you get your financial
house in order.
About the Author
I have been buying property since 2006. Even though I purchased a
number of Single Family Residences (SFR) early in my career, I have
since developed a preference for small to mid-size multi-unit properties.
As of this writing I own a portfolio of 28 residential units. My area of
expertise is Creative Finance. On the average I only complete 1 to 2
deals per year, since I focus only on those rare opportunities which lend
themselves to creative financing packages. For example, my
acquisition of a 10-plex which closed in February 2013 at a purchase
price of $373,500 required me to bring $5,300 of my own money to the
closing – this is Creative Finance my friends!
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In 2012 I created the Cash Flow Freedom University – an educational
program for serious real estate entrepreneurs with a focus on all facets
of Creative Finance as they relate to acquisition of income-producing
investment real estate.
Thank you for joining the JustAskBenWhy.com email list. Please enjoy
this eBook. I hope you find it educational. For more on the subject
please consider joining the Cash Flow Freedom University.
And with this, let’s begin…
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Part I.
If You CANNOT Get a Conventional Loan
1.
Owner-financing
The best game in town has always been and will always be ownerfinancing, and this is for several good reasons. First of all, it would not
be wrong to say that when dealing with an owner - in lieu of an
institutional or even a private lender - everything is negotiable, including
the price, down-payment, interest rate, amortization, monthly payment
amount, and everything else. This opens powerful doors of opportunity
for a skilled negotiator.
Also, all of the qualifying standards put forth by Fannie Mae, Freddie
Mac, and the primary mortgage loan originators are not in play with
owner-financing. This means that while the owner will want to know
your credit score and may want to see your financials, he will likely be a
lot more understanding of the blemishes and insufficiencies that may be
there. And as to down-payment, you need to understand the following:
Owners sell on contract by and large because they’ve tried but could
not sell for cash. Specifically with single family residences, it is not
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© Copyright 2013 Ben Leybovich and Just Ask Ben Why LLC. All Rights Reserved
wrong to say that the owner will usually choose to participate in
financing only as a last resort, having tried everything else. This
means that you, the buyer, have more negotiating power than
you’d think…
Thus, owner-financing the house with $2,000 is possible and even
probable if you find the right deal, and by that I mean the right owner.
Don’t believe me?
Here is something I found in my email Inbox not too long ago:
Hey Ben,
I wanted to thank you so much for the information you've
provided. I used your techniques and secured my first deal
within 3 weeks! I found a private seller desperate to relocate
and she agreed to seller finance the ENTIRE purchase
price.
And get this: at 0% INTEREST! I will pay $300 per month
for 5 years for a total purchase price of $18,000. NO
BANKS INVOLVED. I have the property rented out for $600
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© Copyright 2013 Ben Leybovich and Just Ask Ben Why LLC. All Rights Reserved
per month and I am looking for my next deal. Your stuff
works Ben!
Thank you, thank you, thank you…
Tom
WOW!!! OWNER-FINANCING
2.
Private Money
If owner-financing 100% of the purchase, as she did for Tom, is out of
the question for one reason or another, and in the absence of a line of
credit which I will discuss in Part 2, the next best thing is to finance the
acquisition fully with private money.
The question is this – if someone has significant capital sitting in the
bank drawing 0.2%, why wouldn’t they chose to lend it to you at 6, 7, 8
or even 10 percent?
Well, there are many reasons why they would NOT, and you’ll begin
finding out what all of them are as soon as you start asking. But, you
should know that the main reason why they are not going to give you
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© Copyright 2013 Ben Leybovich and Just Ask Ben Why LLC. All Rights Reserved
the money is because you don’t deserve it…you don’t know what you’re
doing… you think real estate game is sexy and fast like your last
girlfriend. Private lenders flat out don’t trust you...would you?
Education attracts money in this and any other game, so get educated!
3.
Private Money & Owner
OK – let’s say you are in fact able to find someone who’ll give you the
money, but because you are such wildcard, they do not want to give you
any more than 60% of the purchase price. In this case, you could
structure the deal whereby the private lender gets a note and mortgage
(deed of trust) in first position, while the owner takes back a note in
second position.
This technique will allow you to close many more opportunities than
vanilla 100% owner-financing. You must know that the owner can only
finance that which she owns, which means she can only owner-finance
whatever her equity. Therefore, 100% owner-financing requires you to
only look for completely free and clear properties, which can be difficult
to locate.
However, bringing the private money into the deal allows you to cash
out an existing mortgage, while the owner financing whatever equity she
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© Copyright 2013 Ben Leybovich and Just Ask Ben Why LLC. All Rights Reserved
owns. This is not necessarily easy to put together, but it certainly can
work with under $2,000 out of pocket.
4.
50/50 Partner
I have many philosophies around real estate and life in general, but one
of my favorites is this:
A Small Piece of Pie is BETTER than No Dessert!
With this in mind, to make the deal attractive to an equity partner, why
not consider giving the money guy 50% of the deal? This may not be
the most advantageous proposition for you because even if the money
only comes in for 20%-25% of the purchase while the owner finances
the rest, you may still need to give up 50% of the deal.
But, beggars can’t be choosers, and if this is the only way to entice the
money guy to take a chance on a newbie like you, then this is your
choice to make…
Remember as well that as a partner as opposed to a lien holder, the
money will have a voice in the deal, thus remember to choose your
partner carefully and remember the following:
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© Copyright 2013 Ben Leybovich and Just Ask Ben Why LLC. All Rights Reserved
Money is an amplifier. It brings out and exaggerates what is already
there. When dealing with a good and honorable person, money
entering the equation will make them even more so. The opposite,
however, is also true! Be wise as to who you choose for a partner;
often enough the profit is just not worth it!
5.
Private Money Conglomerate
If you don’t know anyone with substantive enough capital to fund a deal
on their own, then it may be necessary to “pool” funds together. This is
more complicated since the more partners, the more moving parts, the
more reporting requirements – the more risk.
Now – if you don’t have the ability to refinance the acquisition within a
reasonably short period of time, then all of the money has to stay in the
deal for a while. Make sure that you make this clear to everyone
involved.
However, you should know that ability to finance property is predicated
on different factors in the Single Family and Small Multiplex markets
versus the commercial space. Without going into great detail, let me
just say that on the commercial side it is the asset that qualifies for the
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© Copyright 2013 Ben Leybovich and Just Ask Ben Why LLC. All Rights Reserved
loan more so than you or your personal income. In very broad terms,
you may actually benefit from playing on the commercial side. 
I know that this goes against conventional wisdom, but it is good food
for thought. Incidentally, I cover this topic in great specificity in Cash
Flow Freedom University.
6.
Buying More than You Need
This is a bit creative and requires you to step out of your comfort zone a
bit, but this strategy can really work well at times. I received a call from
a beginner investor last week, and this strategy is what I proposed to
him.
Let’s say you, like the kid who called me, come across an investor who
is selling an entire portfolio of investment real estate – let’s say 10
houses, and he wants $40,000 per house on the average. What if you
could buy all 10 of them for $400,000, and then turn around and sell 9
for about $45,000 a piece?
If you did this, you would generate about $400,000 and in doing so you
would be left with 1 house free and clear!
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OK – this is not as easy to do as it may sound. Furthermore, in lieu of
contracting to buy the portfolio, you would likely be better off optioning it,
which I will discuss in a bit. But, this strategy is used by investors all the
time!
7.
Non-Real Estate Collateral
People sell real estate for many different reasons, one of which is to
fund another type of purchase such as a new car, boat, or a motorcycle.
Do you have a car, boat or a motorcycle that you wouldn’t mind parting
with in order to buy a rental property? If so, you can try to offer it as
down-payment with the seller carrying the rest of the financing.
One of the beautiful things about Creative Finance is that there are no
rules – if it works for both sides, then it works! So, open your mind…
8.
Conventional Loan Secured by Non-RE Assets
I know that in this section of the eBook I am not supposed to be talking
about anything that requires conventional financing, but this next idea is
different. Let me explain…
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Any time you approach a bank for a loan, the banker will consider many
things (I’ve outlined all of them in detail in CFFU), but the 2 main
concerns will be quality of the proposed collateral and your ability to
make the payments on the loan should you be approved.
Now – if you approach the bank to finance a brand new purchase, it is
very different from asking them to give you a loan secured by something
you already own: you are not showing up empty-handed. Well,
remember that car, boat, or motorcycle from the previous example? If
you own one or more of these or other items of value free and clear, you
may have a strong chance receiving a loan secured by those items
conditioned on your ability to make the monthly payment.
Do you have a job? Can you make a payment every month? If so, this
is certainly worth consideration…
9.
Lease - Option
This is not a favorite tool of mine for the purchase of real estate for
many reasons, which is a subject for another time. However, if there is
no possibility of owner-finance or private money, then in lieu of doing
nothing at all a lease-option can get the job done.
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© Copyright 2013 Ben Leybovich and Just Ask Ben Why LLC. All Rights Reserved
Let’s say that there is just no way that you can convince this owner to
participate in financing with $2,000 – he wants more money down, but
you simply don’t have it and have no access to it. Here’s what you can
consider doing:
A lease-option involves two separate contracts: a lease, and an option.
The lease contract is just like any other lease whereby you gain
tenancy. The option contract, just like it sounds, gives you the option to
purchase the house during a certain period of time (option window) and
at specific price.
As part of the option, you will need to pay an option consideration fee,
which is usually non-refundable but typically not excessive. Thus,
$2,000 may be enough to get this done.
Now – an option does you no good unless you have a way of exercising
it. At the end of the option window you must be able to pay off the
seller, which most likely brings us back to needing traditional financeability.
But, if the option window is long enough, you will have time to work on
your credit and to bank some money toward the down-payment. It’s not
a good way in, but it is a way…
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10. Other Ways to Generate Down-Payment Money
Before I finish this section, I want to address the issue of that $2,000
down-payment a bit further. There is a reason I used this figure $2,000. I believe that it is achievable for most people! I am going to get
your mind going in the right direction by asking you a set of questions.
But, I won’t provide the answers – that’s on you…
•
•
•
•
•
•
•
Do you have $2,000 in the bank? NO?!?!
Are you living on a budget?
Can you put away $30/week for a year and a half?
Do you own stuff that you can sell to generate $2,000?
Do you have a family member that you can borrow from?
Do you own a boat that you can sell?
Do you own a vehicle free and clear or have significant equity in?
You don’t have to sell it…
• Can you pick up a part–time job for a while?
• Etc.
I never said this game does not require sacrifice – It Does!
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Part II.
If You CAN Get a Conventional Loan
OK – so in this section we are discussing some of the options available
to people in better financial circumstance. Do you own a home? Do
you have a retirement account? Do you own other real property? In
this section I’ll discuss some of the ways to leverage your assets into
purchasing an investment property for little to nothing out of pocket.
11. HELOC Down-Payment
As a general rule of thumb, I am of the opinion that equity which is
locked inside an asset is a complete waste. Some of you may disagree,
but I define Financial Freedom as an ability to earn enough money
passively (through investments), to enable me to perpetuate my family’s
life style without relying on a traditional W2 or 1099 paycheck – this is
the goal! I feel that putting my financial well-being under a bosses’
control is too dangerous.
Having said this, just because your balance sheet says that you are
worth 1 million dollars doesn’t mean that you’ve achieved financial
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freedom. Equity looks good on paper, but unless it impacts the income
statement in a positive way, it is useless as far as I am concerned.
Thus, if you live in a big old house which is worth $465,000, but the
balance on your mortgage is $120,000, then you’ve got substantive
leveragable equity. You could establish an Equity Line of Credit
(HELOC) and use the money to make down-payments on rental
property. I used this technique extensively at one point.
12. HELOC / Conventional Refinance
In the example above, the amount of leveragable equity may be
substantial enough to actually buy an investment property outright. If
so, you may have the option of simply holding the property on this
equity (HELOCs will usually give you 10 years or so to cash out) and
using the cash flow from the newly acquired property to cash the
HELOC out organically.
But, another option could be that after having seasoned this investment
for 6 – 12 months you could go to the bank and apply for a cash-out. To
do this, the bank will appraise the property and finance a certain amount
of value out (usually no more than 70%). Thus, you can cash out the
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vast majority of the HELOC out and free up capital to do this all over
again. Furthermore, if you do this right, 70% LTV may be enough to
cash out your entire original investment.
13. Owner-Financing w/ HELOC Down
In lieu of utilizing a HELOC to finance a down-payment with an
institutional lender financing the rest (as discussed in number 11), in this
technique (having utilized our HELOC for the down-payment) we look
for an owner to finance the majority of the purchase.
This technique has one significant advantage over the one in number
11. If you can find the right kind of owner, it may be easier to get the
owner to finance 70% of the purchase than a bank…
14. Private Money In / Institutional Out
This is one of my favorites. I use a form of this technique on a lot of my
deals. Similar to financing the entire acquisition with a HELOC and then
refinancing with an institutional loan, this technique entails financing the
purchase with private money on the way in, and refinancing with an
institutional loan.
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Keep in mind the following – I do not recommend any transactions that
are a shorter time horizon than 5 years, and even that may not be
enough time!
15. Owner Down-Payment w/ Conventional Loan
This is a bit more difficult to do now days than a few years back, but it
can be done. The essence of what is being done here is 100% financing
of property, with the owner financing the down-payment - and banks do
not like that at the moment.
It is possible however. The deal which is a candidate for this will need to
be an above average opportunity. By and large, banks want to see a
Debt Service Coverage Ratio (DSCR) of at least 1.2 – you will need to
do better… at least 1.4-1.5 DSCR (I discuss this extensively in CFFU).
Fundamentally, your success in being able to facilitate this technique is
a function of a strong relationship with a bank, so start working on it!
16. 401k
Some investors with higher paying jobs and 401k retirement plans,
borrow against their 401k. Personally, I am not a fan of 401k retirement
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© Copyright 2013 Ben Leybovich and Just Ask Ben Why LLC. All Rights Reserved
accounts. They offer very little choice, and the choice they do offer is
between mutual and other balanced funds. 401k was supposed to have
been designed to help you not lose money – I am not quite sure if the
design worked…
But, due to the design features which are supposed to limit exposure
and risk, the best you can hope for with a 401k is tracking the
performance of the market at large – that’s not good enough for me, and
it’s not good enough for many other investors. Is it good enough for
you?
If there is a way to tap some of the value in such an account via a loan
or a line, it may be worth considering…
17. Self-Directed IRA
If you chose to utilize a retirement account for your Real Estate
Investing, a more effective way may be through a Self-Directed IRA
(SDIRA). This still not a widely-known or used investment vehicle and
there are only a few custodians licensed to service these, but a truly
self-directed account can be directed by you to invest in anything at all,
including real estate.
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When utilizing SDRIA, the investment can never go through you as this
would be considered self-dealing by the IRS - and a host of other rules
and regulations apply. Furthermore, you are unlikely to be able to
convert your current employer’s 401k to an SDIRA; however, a 401k
from a previous employer is a prime candidate.
I do not specialize in these. While they can be a powerful vehicle for
Real Estate Investors, the paperwork must be done correctly, and the
type of deals you chose to do have to be picked carefully – you don’t
want to lose your retirement capital! I’ll be happy to point you in the
right direction for additional research if you contact me…
18. Equity Bridging and Blanket Notes
This is another favorite of mine, but in order for this to work you must
own some amount of real estate. I discuss this in great detail as part of
Cash Flow Freedom University, but here is how this works in short:
Investors with larger portfolios are sometimes able to use a technique
we commonly refer to as Equity Bridging, which allows us to utilize
equity locked in a property, or multiple properties we own, to
collateralize lending for the subject property we are purchasing.
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The tool that is used for this is the blanket note, which results in an
umbrella mortgage. This type of a note cites multiple pieces of real
estate as collateral for lending, which in effect pulls or “blankets”
leveragable equity of multiple assets together. This technique negates
the need to refinance each building to generate capital – much, much
more on this in CFFU.
19. Unsecured Line of Credit
Those of you with strong financials, lots of assets, strong income, and a
well-established relationship with a bank may be able to achieve an
unsecured line of credit. These are hard to come by now, but it can be
done. Specifically, if you are looking for a relatively small line of credit
while your financial statement is very strong.
20. Long-term Private Money
Well – I saved the best for last. I started out by stating that 100% owner
financing is the best game in town, and it is – there are no concerns of
qualifying with the bank or needing to come up with the down-payment.
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Well, long-term private money is the next best thing. Imagine having
access to private cash which could stay invested in a deal for 5, 10, 15,
or 20 years – WOW!
Much as owner-financing is hard to come by, private money lives in a
world of its own. How do you find it? Who can you talk to? Who should
you not talk to? What do you say and not say? What do you need to
know in order to have a chance of attracting this type of investment
capital?
This is what Cash Flow Freedom University is about!
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© Copyright 2013 Ben Leybovich and Just Ask Ben Why LLC. All Rights Reserved
Thank you!
I hope that you’ve enjoyed this eBook as much as I enjoyed writing
it.
If you’d like to know more about my perspective on Real Estate
and Finance, as well as learn tips and techniques that can help you
profit, please check out my blog and my instructional videos by
visiting www.JustAskBenWhy.com
If you wish to acquire in-depth knowledge of Real Estate Investing,
please consider joining Cash Flow Freedom University.
If you have any questions about anything in this eBook or
anything, please email me or connect with me on the social
networks at /JustAskBen
Thank you and good luck in all of your endeavors!
Sincerely,
Ben Leybovich
[email protected]
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© Copyright 2013 Ben Leybovich and Just Ask Ben Why LLC. All Rights Reserved