How to Accumulate Rental Properties with Very Little Money Down
Do you want to own rental properties but have very little money or none at all? Then you need to listen to the following article on buying rental properties using seller and existing financing. In today’s seller’s market, it can be difficult to purchase properties to fix and flip because you have to buy the property for a price that allows you to make a quick turnaround profit and that usually means making offers at 25-30% below the asking price with very few offers accepted. Rental properties, on the other hand, can pencil out financially, even if full price offers are made, as long as the rental income is sufficient to justify the investment and especially if seller’s financing is put into place.
Here is what you do. Look for properties that are already rental properties with tenants that are taking good care of the property so there are no rehab costs. Then make offers on the property at no less than 90% of the asking price so that sellers are interested. Ask the seller to carry a note for 99% of the offer price. Then take the property subject to the existing loan so that the owner is only carrying paper for the difference between the 1st mortgage and your offer price minus the 1% down payment. An example is as follows:
The asking price is $100,000 so you offer $90,000 and ask the sellers to carry a note for $89,000 with a $1,000 down payment and take the property subject to the existing 1st mortgage of possibly $75,000. You will then pay the seller a month fee based on the total loan amount of $89,000 at an agreed upon interest rate amortized over 30 years with a balloon payment at the end of 5-10 years. You will set up an escrow account with a bank or title company (neutral third party) who will collect your payment and make the payment on the 1st mortgage. You now have a rental income property with a loan in place for 1% down, no origination fees and a reasonable monthly loan payment in place. You have no out of pocket cost for rehab and the place starts paying rental income immediately.
All you have to do is make sure the rental amount is sufficient to return a positive cash flow that makes you a sufficient return on your investment. An example is as follows:
The house cost $90,000 to purchase with only $1000.00 down. The monthly payment on the seller’s financing at 6% interest amortized over 30 years is $539/month or $6,432.00 annually. The rental is $1,000/month or $12,000.00 annually with a net income after expenses of $7,800. 00. The net income minus the mortgage payments equals $1,368.00 annual income along with paying the principle debt off. Since your investment is only $1,000.00, the income of $1,368.00 equals a 136% return on investment.
With $10,000.00 you can purchase 10 homes and let them pay themselves off over time until you eventually have 10 homes bringing in $7,800.00 each annually for a total annual rental income of $78,000.00. Plus the original value of each home will increase over time by 3-5% annually.