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	REALESTATE INVESTMENT FORUM
	"Real Estate Investment Analysis And Beyond"  Copyright 1999.  All rights reserved.
	Aggressive Strategies   Ok, be honest.  Did you come here directly from the subscription page?  Is this the information you really wanted?  Or, is it just a sneak preview, and you do intend to go back for the whole enchilada.  Just like the game of Monopoly you have the opportunity here to move directly to Go and collect a little dough. But no one ever won the game that way.  The winners have to work their around the game board, risk money, sometimes mortgage their property and manage their way to victory. In the end patients is rewarded when they have all the property and all our money.  If you haven't worked your way through the Fundamentals then you are not ready to deploy these techniques. You don't have to go through the more advanced exchange and finance theory.  That is, unless you want to get rich. But, proper preparation is the first act of a responsible person seeking to purchase real property without cash. If you are not ready, go back. If you are ready then the following purchase, negotiating and financing strategies are offered in no particular order. The way in which you encounter these opportunities is likely to be as random as the order in which they are presented.  Individually, the opportunity to use many of these techniques is very limited. Collectively, however, they empower you with extraordinary wealth building skills. If you take the time to clearly understand each method, visualize the responsible application of each technique and maintain an active presence in the market you will find yourself face-to-face with exceptional real estate investment opportunities every single day. PROVEN TECHNIQUES FOR PURCHASING REAL ESTATE WITHOUT CASH
WASH AND WEAR	The "wash and wear " method forms the template for most all assumptions techniques. Think of it as the "expando" theory of financing and try to make it fit where ever you can. The most common variation on this theme is an assumption in which the buyer takes the property and any existing notes "subject to" and executes a subordinate note for the seller's equity. A very straight forward way of acquiring title without cash.  A simple give 'n take. The seller gives the property to the buyer and takes a note for the equity.
THE WRAP	An interesting way  to acquire real estate without cash is to execute a note which assumes all existing debt as well as the seller's equity. This is commonly referred to as a wrap-around mortgage and in some states is accompanied by an all inclusive deed of trust. This procedure uses a process of wrapping the existing mortgage and security instruments in a new mortgage usually with differing terms and conditions that favor the seller and where the payments by the buyer are made to the seller. The seller then makes all payments to the underlying or pre-existing debt. This particular method generally requires a seller that is in possession of a very  low note rate. The attraction for the seller is the arbitrage, or interest rate spread, created by the difference between the existing note rate and the rate applied to mortgage which "wraps" that note. Find out if the wrap will work in you area. You are advised to find an attorney to write the contract and all instruments to be recorded.  Not all title companies recognize this method of taking title if the primary lender has included a due on sale clause. This caveat applies to any assumption in which the underlying note is "taken subject to" the existing terms without the lenders's approval.
PARTNERSHIP	This is an exceptional way for several people with limited resources to acquire real estate.  You can create a  "no cash" interest in the partnership  by bringing the partners together, locating the property and negotiating for the purchase.  The group should share some common elements such as similar income, business experience and  education. If you intend to form a partnership be sure the each prospective partner is fully aware of the manner in which you expect to participate. You will, of course, require a partnership agreement.  Perhaps the attorney would like an interest in exchange for the legal work.  This is a time tested and respected way of acquiring an equity interest without cash . However, as the "point man" for the partnership you will probably be expected to assume something more than an equal division of the management responsibility.  It just goes with the territory.
PURCHASE WITH CREDIT	"What credit? I don't have no stinkin' credit"  In certain cases you do. And plenty of it. The use of closing credits has started many wide-eyed visionaries on they way to a real estate fortune. Standard prorations in any purchase agreement include property taxes and insurance contracts to be assumed. Depending upon the the time of year the buyer may be receive large prorations which may be kept until the obligation, or payment, is due. If you are purchasing a commercial building standard prorations also include tenant rents and deposits. And, there could exist a large deposit balance if local code mandates that tenants deposits be maintained in an interest bearing account. Other credits typically include money for deferred maintenance such as roof,  pool, paint, floor and window coverings, landscape maintenance and pest control. If there is bond debt negotiate a pay-off and accept a credit.  All this money can be applied to the purchase price. Don't be surprised if after prorations and credits your down payment is covered.  Don't forget, however, that all this money has been received in consideration of deferred obligations. Be particularly cautious with regard to tenant deposits, and plan to scramble a little.
PRINCIPAL REDUCTION AGREEMENT	While the local banker may respect your income potential nodding with approval from across his desk he isn't likely to approve this kind of agreement unless it happens to be your brother or sister.  But it might cause a seller who would otherwise be unwilling to accept a more conventional assumption with small monthly payments to become very vertical.  A reduction agreement may take many forms but the purpose is to add an agreed upon amount above the note to reduce the principal at regular intervals. This could take the form of a monthly, quarterly or annual installment.  This allows the buyer with income, but no cash, to meet the sellers demand for a down payment over a specified period of time. Many sellers will agree to a long term note supported by a principal reduction. While others might agree only so long as it takes to qualify for a conventional loan. Either way the buyer wins.  This can work using any method of assumption.
USE THE BROKER'S COMMISSION	"You want my commission you dirty $&*%*#%!!!!$". Actually, why not.  Most brokers earn between 3 and 6 percent for their services in a brokered transaction. It is not uncommon to find a broker that does not need the money who is willing to use the commission as incentive, or leverage, to complete the transaction. Even if the broker needs the money an investment in the transactions is better than no transaction at all.  Advise the broker of your intent if you plan to use this approach.   And if you do, and the broker is willing to participate, be committed to both the plan and the broker. Remember, the broker has placed time and experience at risk with you. Determine as a part of the agreement if the broker is acting as a lender, or equity partner, and put it in writing.  However, if you don't have any money will the broker's participation be enough. Keep in mind that real estate transactions have been closed on less. If you need added proceeds consider prorations and credits.  Close, but no cigar? Ask the owner to carry some light paper. Perhaps he wasn't willing at first.  But it's surprising how things change when you add a little cash.  If the seller is still reluctant sweeten the note with a principal reduction clause.   If the seller is still digging in add a another partner. (Getting the idea?)  At this point you might have enough to apply for a conventional loan.  If you do put this transaction together subject to a new loan make sure you are working with an experienced loan broker because you haven't crossed all the mortgage barriers yet.  The right loan professional will put you over the top.   Are we having fun yet?
MULTIPLE NOTES	Whether done as a partnership, or individually,  this technique can can render huge benefits for both buyer and seller.  Quite often the seller is willing to create financing subject to the sale of the note.  The problem arises with the discount rate demanded by the note brokers and their clients.  The larger the note, the larger the discount.  This can be resolved by creating multiple notes, and ordering each by size and recording position so as to reduce the overall discount and thereby providing the net required by the seller.  When the owner does not plan to sell the mortgage multiple notes offer added security by providing attractive liquidity should the seller want the option of selling a note for added cash and, in the event of a partnership, separate notes executed by the the partners a creates a common bond of responsibility and risk.
FAMILY MEMBERS	Do I really want to do this?  Probably not, but it is one of the most frequently used methods of obtaining cash. You can borrow  from a family member, or take them as partners. Try to avoid the latter if you can.  If you can't, try to observe the partnership recommendations. Keep in mind that partnerships are fragile, and while friends are not always lost as the result of a bad experience the same can not be said of family members. You better stop now if you are considering a family loan, or partnership, without studying the Fundamentals.
SECOND PARTY - NO DOWN	This technique begins with the creation of  a large first and small second.with both notes executed in favor of the seller. This works much like Multiple Notes except you begin with this strategy in mind, and it requires the property be free and clear. It is an excellent technique to sell a property for which conventional financing is not readily available. The intent is to create a marketable first so that the owner can sell the note with minimal discount and maximum security for the buyer of the mortgage. The terms of the note sale  are agreed to by the buyer and seller.  However, if the buyer's credit condition unfavorably mitigates the terms of the note sale then an off-set in favor of the seller can be worked out through the terms of  the second. It is a good technique when the seller requires cash at close, therefore it is generally set up so that the note is sold concurrent with transfer of title.
REFINANCE SUBJECT TO SALE	This is identical to Second Party-No Down except conventional financing is available and the second party is the bank.  Using this technique the seller puts a new loan on the property which is then taken "subject to" by the buyer who executes a second for the remaining equity.  This most favorable application of this technique requires the seller secure the new loan pursuant to terms acceptable to the buyer.  However, if the seller's credit or the property condition unfavorably mitigates the terms of the loan then an off-set in favor of the buyer can be worked out through the terms of  the second. It works both ways.  It's faster easier and less expensive than Second Party, but exposes the buyer to the "subject to" risk.
REFINANCE YOUR HOME	Home equity is a great source of cash using tax deferred dollars.  It is also fast, easy and dangerous.  Often  used with the assumption that market growth will shelter the risk, many unsuspecting investors have lost there home when both the resale market and their investment turned against them. The recommendation here is never put your home at risk unless you can afford it. If you decide on this option without working through the Fundamentals let us know and will refund your money. You will need it to pay the divorce lawyers.
CO- SIGNER	Don't just stand there.  Go find a sugar daddy, or a rich relative who adores you.  If this is your solution offer the co-signer a financial incentive.  Give them more than your love and be prepared to perform. Most often co-signers agree to help for no other reason than affection.  They are vulnerable and poorly informed with very little understanding of the risk they are assuming.
UNSECURED LOAN	Don't forget your own good credit as a means of adding to the creative mix.  People have a tendency to overlook the obvious when the adrenalin begins to flow.  The minimum payment on most credit cards is little more than interest only.  If you have credit lines with attractive interest rates the net cash flow from the property may be more than the minimum payment. Run the NOI against your credit lines.  If it's positive you have an arbitrage with capital growth potential.  A smart use of money.
VALUE ADDED	When forming a partnership use value added incentives.  The formation effort alone may not be enough contribution in the minds of your prospective partners.  Should this be the case offer to provide the management, and, if necessary, agree to make needed improvements using certain skills that you  may have. If necessary make the profit you receive at sale contingent upon a value added formula which firsts provides for a minimum return to the partners. Lending institutions own property they have take in foreclosure, or that have been voluntarily given up by the borrower.  These properties are managed by the institution's REO department (real estate owned), often at a loss. Contact the various lenders in your area for a list of the properties available for purchase. If you find one you like make a value added offer. Such offers are accepted every day.
PLEDGE RENTS	Pledge the NOI  from the property until the agreed cash down has been funded.  This technique may be used with conventional, or private financing. When asking that a seller carry it may also be a test of the owner' faith in the continued income potential of the property. When working with an REO the offer may stand alone, or be included with a "value added " proposal as incentive for the loan.
ASSIGN RENTS	This technique assigns the income from the property, therefore providing added security for the loan  This is not a pledge where the income is given to the seller along with the note payment pursuant to fulfilling a down payment requirement. If an assignment doesn't work, try a pledge.  But don't surrender the income stream unless you have to. This will not work if you are also assuming notes which contain an "assignment of rents " clause, or when applying for a conventional loan since these notes almost always contain a rents clause.
SHARED EQUITY	Also know as an AB Partnership.  This is a very simple agreement in which Partner A supplies the purchase money, and Partner B manages (or lives in) the property  and makes the mortgage payments. The income and profit is distributed in accordance with the partnership agreement which contains a termination date at which time the property is sold, or refinanced to remove Partner A, and the profits are distributed.
PLEDGE PROFIT	A variation on shared equity. This technique proposes an interest in the future profit in exchange for cash down, or a lower note rate on the financing. When used as a replacement for the down it eliminates a note payment in exchange for an interest in the equity growth, thereby increasing the cash flow.  This is another form of owner carry except the seller agrees to accept profit instead of note payments.  This kind of pledge will increase the income stream whether used as a replacement for cash, note rate, or both.  This proposal almost always has a termination date requiring the sale of the property, or some other means by which the seller can foreclose on the settlement. Therefore, measure the cash flow and profit potential carefully in relation to the settlement date when structuring this kind of agreement.
USE YOUR PAPER	If you have taken back a note on real property you can negotiate with your paper.  You can sell your not(s) for for cash, of you can offer the (hypothecate) them as collateral. You can also exchange you note in lieu of cash as the down payment.  Since it is rare that a note is offered into a transaction and accepted without a discount of its face, or remaining value, this strategy should be based on the theory that a depreciating personal property asset is being replaced by an appreciating real property asset. You can also  use the discount practice of the mortgage industry to create cash.  Use the money you have to seek out a note that can be purchased with a large discount then resold at a small discount. The note brokers make their living this way.
BARTER	This very effective approach is particularly applicable to certain  professionals and those engaged in service industries.  Doctors, lawyers, dentists, travel agents and the like provide high demand service which is easily exchanged for like kind. And parish the thought, most barter is exchanged without reporting for tax purposes. If you happen to be one of these people make this offer right up front.
IMPROVEMENT AGREEMENT	You have found  a distressed or neglected property that offers excellent profit potential if certain improvements are added, but you don't have money for both the cash down and needed improvements. It is  either one or the other. This may offer the financing solution you need to put this excellent "value added" opportunity in you column. Try to work out an improvement agreement in which the seller carries the necessary paper and you make the improvements. This accomplishes many things for both parties. The seller gets a sale, a well secured loan and relief from the property. As the buyer you get the property and an increase in the cash flow resulting from the improvement and with added cash flow an increase in value. If the Seller wants to retain an interest in order to benefit from the added value then write a sale lease back agreement, or give the seller an option to repurchase all, or a percentage interest in the property, based on agreed upon terms pursuant to the completion of the improvements and return of the assets to full service.
TRADE ON EXPERIENCE	This is a perfect opportunity to sell your property management experience.  Many sellers will create the required financing if they can just be sure that the buyer has the experience to manage a difficult or unique property  to a profitable outcome.  With a good property management resume you probably have the financial resources needed  for real estate investment.  But why use money or tie up valuable assets when you can leverage your skill into a profitable property. As a good property manager you also have exposure to purchase opportunities that others with less experience don't have.  Contact other property managers to determine if they have problem accounts which they would like to sell or refer.  You are likely to find that many of these property owners have become disenchanted with with real estate ownership and are candidates for a purchase. You can take it from there.
CREATIVE PAPER	Opportunity doesn't always show up at the right time. Suppose you have a property that you would like to exchange.  You have located the property you want but the property owner doesn't want yours and you  have been unable to effect a sale.  Consider this technique.  Since all your cash is in the form equity offer the owner of the exchange property a note for the purchase price to be secured by both his property and yours.  If the owner wants more cash than would be received from the note pledge the income from your property.  This provides the benefits of an exchange, but if you subsequently sell your property it will not qualify for tax deferred treatment unless you arrange for a reverse exchange through a facilitator. This not particularly difficult and may be necessary if the owner of the exchange property requires a cash settlement by a specified date.
1031 EXCHANGE	This is the ultimate in purchasing real estate without cash.  It is often ignored because the property owner either fears the process, or has become attached to the property owned. The Exchange Model shown in "Real Estate Investment And Beyond" demonstrates conclusively that maximum wealth, and particularly maximum cash flow, is the result of an aggressive exchange strategy.
USE A SECURITY AGREEMENT	Use valuable personal property as security for the purchase. Collectables are more popular and profitable than ever today. Many collectables have large markets and market makers which protect and sustain their value.  If you have a collection for which the value can easily be determined, then you have real estate purchasing poser.  This may be an especially appealing form of security for the owner willing to finance the property but wants protection against any possibility of foreclosure. The value of your collectables in the form of a security agreement would replace the property as security for the note and permit the property owner to seize the collection as collateral in the event of default.
LAND LEASE	Land is the long term component of a real estate investment. Eventually the improvements will become functionally, or economically obsolete but the land will always increase in value either as a function of inflation or higher and better future use. A technique used many time to raise acquisition capital has been to arrange for a sale of the land under the improvements and then lease back from the investor. The land sale has the additional potential of creating more cash than is required for the down payment, thereby  giving cash out to the buyer at close.  The basic requirement for this technique is that both and land investor have long term ownership objectives. This works especially well for a buyer that intends to occupy or employ  the property for commercial use, and a land investor that wants to create a management free annuity with the added benefit of capital growth through appreciation. The buyer is also disposing cash the non-depreciable component of the asset for cash. This exceptional technique is an often overlooked solution for two investors with long term needs.
SPLIT LAND AND IMPROVEMENTS	This differs from the land lease in that the land and improvement are split pursuant to an appraisal for the benefit of the buyer and seller. The buyer executes a note for the improvements and the seller takes  the land in lieu of cash. Long term objectives are, once again, the motivation behind this technique.  This is a better arrangement than the land lease for the buyer since since there is no lease obligation.  The seller's estate receives the long term benefit of land appreciation.
PURCHASE LEASE BACK	The Sale lease back has long been a technique used by an owner/occupant of commercial property  to raise needed business capital without vacating the business location.  The owner simply sold the property to an investor conditional upon executing a lease for continued occupancy.  The purchase lease back technique recognizes the possibility that an attractive long term lease could be substituted for the owner's need for cash. The buyer accepts title to the property, assumes any liens and executes an attractive lease for the seller. This generally works only when the seller cannot locate an  investor with cash, and needs to be structured so that the lease payments cover debt to be assumed by the investor.
KEY EMPLOYEE	Are you a key employee?  Particularly in today's economy many company's are looking for ways to to provide added benefits for valuable employees and insure long term service.  Perhaps you have been designated as such by your company and you don't know.  It is not unusual for a company to withhold this information from the employee until some action by either party precipitates required action. If you suspect that you are, ask. If you have been identified as  a key employee consider negotiating real estate investment benefits instead of the more conventional housing, bonus, insurance contract or annuity. You may even be able to create an immediate income stream while the investment remains within a corporate shell.  Check with your attorney.
BORROW AGAINST FUTURE EARNINGS	Don't over look your earning potential.  This is an extremely significant consideration when conventional lenders underwrite home loans for borrower's with less than 20% down.  If they think its important, you should consider it a valuable financial asset.  If you are a key employee you should have no trouble borrowing against future earning.  After all, this is another way the company can insure your long term presence. If you are a professional take it to the bank.  Many lenders loan against future earnings expectation on a signature and secured with a life insurance contract.
SELLER GUARANTEE	There are times when the property's income cannot be established with certainty.  This is particularly true when the income is derived from a commercial lease with a percentage clause.  You should always attempt to establish value based on performance minimums. If , however, the seller insists the property has income potential  that justifies the asking but cannot be demonstrated factually based on the property's past performance or current market data, make him put  is money where his mouth is.  Agree to the price conditional upon purchase money financing. There are many ways to structure the agreement which include payments to the note dependent upon the property's actual income.  Percentage overrides can be verified based on the tenants actual payments to the lease and the mortgage payments can be adjusted accordingly. If the lease income continues to fall short of promised expectations a provision can be included which adjusts the purchase price to reflect historical income.
ASSIGN ASSETS WITH CASH VALUE	Do you have an annuity, personal injury settlement or a court ordered judgment that provides you with a long term income stream or guaranteed future payment?  Assign them as a down payment.
EXCHANGE PERSONAL PROPERTY	Many real estate transactions have been settled, all or in part, with the exchange of a boat, car or an airplane.  A lot of vintage Corvettes and T-Birds have been offered and received in a real estate transaction. Continue to keep in mind that all of these techniques can be mix and matched for the desired outcome.
SELL SECURITIES	This is more of a solution than a technique and applies to millions of people.  Sell securities where the market value is below your basis to raise cash. Here's the technique. If the stock is beginning to go up in price offer the securities to the seller at below market price in exchange for the financing.  The seller may like the idea of getting property management relief for stock having potential.
MORTGAGE OVER BASIS	This is a land development technique.  If you have an idea for a real estate investment that requires development your take-out mortgage following the completion of the improvements could well exceed all the development acquisition cost. It is not possible to go into all the ways in which this can be accomplished here. you need only understand that the anatomy of a development looks like this: Land cost + Development Cost = Total Cost A mortgage is then placed on the completed project. If the mortgage value is greater than the Total Cost then the developer has a completed project, the return of all investment capital and a profit.
GET A REAL ESTATE LICENSE	With a real estate license you can immediately benefit from three to six percent in cash proceeds from the transaction which can be applied to the closing.