By the eighth chapter of my book, Get Back Up, I have made my way out of the South Philly projects, joined and been released from the army with a service connected disability, worked in fast food until I was so badly injured in a car accident that I could no longer stand on my feet long enough to do so, and became a life insurance salesman. I hadn’t really achieved the American Dream yet, but I now thought I’d found the way: ‘No-money-down’ real estate investing.
It was the early eighties and no-money-down investing was all the rage. Late-night TV was filled with infomercial hucksters selling courses on how to get rich quick buying real estate for no money down. What they didn’t tell you is that the less money you put down, the more you borrow. The more money you borrow the harder it is to cover your payments with rent, resulting in negative cash flow or money out of your pocket every month. This is more of a get poor slow problem than it is a get rich quick opportunity.
I didn’t know that at the time, of course, and so with a partner I set off on this next phase of my life. First, I got my real estate license and then I set out to get some listings and make some sales. I ordered business cards that said I was a commercial real estate specialist even though I’d never sold a house in my life, and soon people were listing their properties with me. I found that if you called yourself something, especially if it was printed on a card, people would just accept it.
It wasn’t long before I thought I had my first sale. All the terms were agreed to and we were at the closing table. However, it turned out that I had quoted the monthly payment to the buyer only including principle and interest, not realizing that most monthly payments also included taxes and insurance. When the buyer learned the entire payment amount, he walked out of the closing and the deal was lost. I really thought once you were at the closing table the deal was done. It was not.
I almost had a similar situation happen at my next closing when the buyer learned that the seller had removed the refrigerator from the house. The buyer assumed it was included in the sale, but the seller never said it was. I ended up using some of my commission to replace the refrigerator and saving the sale. I soon learned I wasn’t going to get rich like this and so I decided, with a partner, to try that no-money-down scheme.
This was at a time when FHA and VA mortgages were fully assumable with no qualifying. That is, anyone could just assume an existing mortgage and take over the payments. Doing so didn’t even require a credit check. If you could buy a house for what someone owed on it, there would be no money down. In most cases people wanted more for their house than what they owed, but if you could get them to take a second mortgage for that amount, you still had a no-money-down deal. You now had two mortgages, of course, but still there was no money out of your pocket.
We found a house that was very cheap but in need of a great deal of repair. The seller was willing to sell the house at a price below its appraised value, so we convinced him to agree to a higher price but to credit us back some money for repairs at the closing. Bottom line is we got the house and a check for 5,000 dollars. We did even better than no-money-down. We also now had a house we needed to fix up so that we could then flip it for a profit.
The only problem here was that we weren’t very handy. Luckily my brother Dennis was good at home repair and he was willing to work with us to fix this place up. In the meantime we found another house to buy. In this case there was an assumable FHA mortgage with a balance of $40,000. The seller wanted $50,000. We asked him if he would be willing to give us a second for the difference. He declined, but after some negotiation he accepted our offer of $45,000. We used the $5,000 we’d gotten from our first house to complete the purchase. We now owned two houses, and so far, no money had come out of our pockets. We were on our way to no-money-down real estate riches.
The one major problem with no-money-down real estate, however, is debt. Any funds you don’t have, you borrow and that means you have to pay them back. That’s where renters come in. The plan was to rent our second house. The tenant would be paying our mortgage and the house would go up in value, allowing us to sell it for a profit. In addition, we were fixing up our first house and we figured we’d flip that one for a profit as well.
This plan would only succeed if the tenant kept paying the rent and if we were handy enough to fix up the house ourselves, as we had no money to hire anyone to do it for us. Neither of these things came to fruition and soon both our houses were in foreclosure. Suffice it to say that our get rich quick, no-money-down real estate dream turned into a nightmare, and once again I was presented another opportunity to get back up and start over.
- Confidently declare yourself to be something, and people will believe it.
- A real estate deal isn’t done until the deal is closed.
- No-money-down doesn’t mean free.
- Forget get-rich-quick schemes. Get rich slow is much more achievable.
George A. Santino helps people who want to break down barriers, including self-imposed barriers, to success. Check out his Amazon bestselling book, Get Back Up: From the Streets to Microsoft Suites.