RE Investment Strategies

I’m fairly new at REI, been birdogging for awhile, but have been reading the forums and soaking up all the information I can in the meantime.

I recently came across a possible REI scenario that seems like an interesting way to make some deals with little personal risk. I would like some opinions about how good this scheme is and what else it may need to work well.

Basically what this involves is finding (through advertising) people that can’t or don’t want to buy a house with conventional financing. We will finance them at 100% with private money. We will then find homes and negotiate down to 90% or more of the FMV for homes. The 10% or more spread is split between the associates doing the deal and some would go toward advertising, appraisals, inspections and title documents & etc.

Is that an investment scheme that will work and who should I recruit for my team? Will I need a title agent or mortgage broker, a real estate broker, an appraiser, an inspector, CPA, and of course the private money lenders!?!

Thanks in advance!

Howdy Lovnaz:

You have a good idea. You may want to even find better deals with a larger margin. Closing costs and carrying costs can eat you alive. You will need all the team players you mentioned. The more deals you do the easier it will be. I used to be really nervous going to a closing and used to believe that they all closed and on time and under budget. I have learned a lot for sure. Be sure to get enough gown payment so it will be hard for them to walk away. Some like around 10% but do not take less than 5% or you will own it again in a few months in worse shape too. Better to wait another month for a better buyer.

Thank you for your reply. Of course I would want to negotiate for the largest spread possible! ;D

I’m thinking that for simplification purposes here that with a house at $100k a 10% spread would be $10k. Some of that would go toward closing costs, appraisals, inspection, the broker and myself. Maybe a division of $4k for me, $4k for the agent and $2k for the closing advertising etc…and of course the larger the spread the more money there would be to divide. But keep it at 40% per partner and 20% for the closing costs and advertising. And perhaps the 20% for the misc. advertising and closing costs could go in a seperate account kept just for that purpose. The hard money lender would earn money of the loan.

I’m thinking that once we get some good advertising and buyers coming in that we will be able to close on several properties a month.

Those are the basics of it as I see it for now…

I don’t think it will work. Who will want to pay 10-13% (hard money cost) for the “convenience” of not doing a traditional mortgage? If I’m a buyer I say NO WAY. What am I missing guys?


I’m familiar with the program you are talking about. They offer the seller 90% cash, then find a buyer with FICO credit over 450+ and charge the buyer anywhere from $300 up to “repair” their credit. What I see from this program is that the lender will make a fortune on turndowns from people who can least afford to put up this kind of money.

Of the 10%, the lender keeps 3% and you have 7% to split among your associates. I saw a similar program in the '80’s that was a complete scam. This program smells a little dirty to me.

Da Wiz

Mtwizard… the program I’m putting together will completely leave out the Credit Correction service. I know it is a scam and I would not ever involve myself in it. However the 3% to the lender and 7% split to the partners is fair. I do admit I got the idea to put this program together from an associate that is involved in the credit correction scheme, but I am planning on completely leaving that out and concentrating on finding homes for people I want to help find a home and advise them to stay away from the credit correction scams!!

I also wouldn’t have a hard money lender that was that greedy to charge 10-13%!! We haven’t worked out the interest rates to be charged as we are still in the early planning stages, but it will be a fair rate for everyone. Considering we plan on working with multiple clients we may be able to be more generous with the rate since we will be working in volume.

I appreciate your replies and ideas. Thank you!

Anybody out there just paying cash for houses and renting them out. I’ve never done this before, and am actually considering it. I have another job and cash and would like to diversify into maybe 2 or 3 rental props. I like the idea of just offering a check to a person for 25% less FMV and if they agree cut the check, get the title and insert a renter. I don’t like to borrow. Do any of you do this? Is this overly conservative??


No, it’s not conservative. It’s totally radical.

Da Wiz

i learned from personal experience that the best way to repair your credit is do it yourself…The only way to repair it is someone stole your personal info. w.out your awareness.

I’m looking at a semi-similar strategy. I think your strategy is too difficult to do buying houses retail. You need a cheaper way to aquire properties.

Ideally, you buy, rehab, then sell on land contract at a higher price than your costs. Now, you have to do this in a “riskier” area where there aren’t a lot of qualified buyers. That’s why they do the land contract. You just need to find effective ways to screen buyers and require a big enough downpayment to minimize your risk.

My plan is to buy and rehab. Then require the buyer to have a larger downpayment than my own. That way I get a little cash up front and I have zero money in the property. Once I have zero money in the property my ROI is theorectically infinite. Plus, I’m not cash contrained for aquiring more properties.

I make money each month off the spread between my lower principal and lower rate vs. their higher principal and higher rate. Then I get the rest of my equity out when they refinance.

I think it’ll lead to higher profits and less headaches than a lot of other REI methods. Yes, I will have to occasionally foreclose on someone. Fortunately, where I’m looking the land contract foreclosure laws are different from regular foreclosure and very much favor the seller.

I can’t think of a real estate strategy with MORE headaches than extending credit to people with bad credit. Theoretically, the returns are tremendous. In reality you will lose your tail. If you are a nice guy, you don’t stand a chance.

Go talk to the manager of a “Buy Here, Pay Here” car lot and tell him about your plan. He has plenty of experience taking paper from bad credit types. Explain your plan carefully and ask him what he thinks. It won’t be what you want to hear.

The big loser in your plan is the private money lender. Nobody wins because the 10% is not enough to split with the rest of the “team”. The only way that you don’t get KILLED with your plan is if real estate in your area appreciates rapidly over the next few years. And in that scenario there are much better ways to approach investing.

Thank you Steve for your honest reply. That is exactly why I posted…so I would get a real perspective.

What are the better ways to approach investing in an area that is appreciating rapidly?

I was considering Sub2 and Lease to own instead.

u can buy sub 2 and sell LO/CFD, this is essentially a similar scenario to ur orig post. the difference is that the finanincing was and will remain in place, so u need no lenders till ur buyers refi at the end of the contract. if u charge a sizable down pmnt, they will find it harder to walk away if it gets bad for them, but if they do, u keep the DP and do it all again. u will mak $ on the spread, and the backend.

Thank you, This does sound like a better way of doing things. Even though the Money Lenders I am in contact with are friends of a friend I think everyone is right that there isn’t a way for them to make the returns they would want or need.