Pieces are installment payments, monthly

Pieces
Pieces are installment payments, monthly or otherwise,
with interest or no interest, principal only or P&I, or
with interest paid in a lump sum after 10 years. Whatever
is agreed upon by both parties.

Banks have conditioned us to believe the 30 year
fully amortized note is the only way an installment
payment can be structured. This is far from the truth,
and once you can pry a sellers' thinking away from
this sterotype structuring a deal that is a win for
both of you becomes much easier.

Lump Sum
This is what everyone is used to; all the underlying
loans are paid off and the seller receives their
equity in a lump some of cash. You hear it referred
to as Cash-to-new-loan by realtors and loan agents.

When the buyer has the ability to pay cash for the
property, the universe of deals available to him/her
opens up dramatically.

Different Form
This is where the equity is paid to the seller with
almost anything that the seller perceives is as
valuable as the equity in the property. So instead of
taking the equity as cash, the seller may agree to
take some Microsoft stock, or a condo in Miami, or a
mobile home in Georgia, a car. Anything can used as
payment for the sellers equity as long as the seller
is happy to take it.

Combination
The fourth and final way a seller can receive their
equity is through a combination of the other three
- pieces, lump sum, and different form.

eg. The owner of a 50 unit building wants to retire
and go on a road trip with his wife. Instead of
waiting he agrees to you assuming the $1.2M loan,
taking back a $600,000 note at 6% interest, $100,000
cash, and motor home valued at $100,000, for a total
price of $2M.

As you might be already thinking, the possibilities
for different combinations are only limited by your
imagination ... and your negotiating skills.

Different Ways To Buy
When you are starting out it's very likely you either
have all your money tied up in other investments,
like stocks or bonds, or you just don't have any
money, saved or otherwise, so buying an apartment
building using your own money isn't an option.

This is how it is with most people sarting out, so
you have to look for ways to purchase the property
with no money out of your pocket.

The list of different ways to buy with none of your
own money would easily top 100, but let's not stray
too far off the beaten track and look at a few of the
most common.

Partner
This is a simple arrangement. Once you find a
profitable deal you team up with a money partner
to raise the cash needed to close. The partners job
is to provide money for the earnest money, the down
payment, closing costs, and repairs if needed. Your
job is to manage the property, execute your value
plays to capture the upside value of the property
and the sell the property at the market peak to
realize you and your partner's profit.

This is a great way to get started, no cash or
credit need by you, just your knowledge and your
time and effort. The downside is you give away half
the deal to your partner.

Seller Financing
Also known as Owner Financing, this is when the
seller agrees to finance all or part of the purchase
price. Because there is no bank involved, no credit
or large cash down payments are required. You and
the seller are free to set up whatever financing
makes the deal work for both of you.

If the seller is flexible there are many ways you
can go:

- Seller refinances to pull cash out of the property,
carries back a 2nd for the balance of the purchase
price. You take over the new loan Subject-To.

- Seller's property is free and clear. Seller carries
back a 70% LTV 1st at 7%, 30 years, carries back a
2nd for the balance, principal only payments.

- You take over the existing loan Subject-To, Seller
carries a 2nd, no payments for two years, then
interest only for 5 years, ballon payment at the
end of 7 years.

- And so on. As long as you and seller are in agreeemt
about owner financing you simply structure the terms
that allow both of you to get what you need out of
the deal.

Raise Money From A Private Lender
When you get a profitable deal under contract and
you need cash for earnest money, down payment, closing
costs, rehab, you go out and find a private lender who
will loan you the money so you can cover all of these
and close. You pay the private lender an attractive
rate of return (8-12%) they are unlikely to get anywhere
else with the same security.

A lot of investors have problems understanding private
lending. "I mean, who on earth would hand over their
precious savings to someone so they can go and buy a
piece of real estate?"

Well ... let's list a few:

- thousands and thousands of people who have their
savings sitting in a bank being eroded by inflation
while collecting 3% interest.

- veteran landlords who are sick of the game but still
want the passive income.

- attorneys who work 80 hour weeks, make a lot of money,
want to be in real estate but don't have the time to
be personally involved.

- accredited investors; high net worth individuals
who want their money to grow at high rates in a
secure environment.

- a fellow investor who may very well be in your local
Real Estate Investment Club (REIA).

- this list too goes on and on.

What makes a person a candidate to be a private
lender is they have excess funds sitting in an
account somewhere that they wish were getting a
higher return. You know you have a private lender
when, if you contact them and ask if they would
like to get 10% return on their money secured by
real estate, their eyes light up.

There are many, many other ways to buy property
with none of your own money, and they can be used
with success to enable you to purchase a profitable
apartment building with none of your own money.

The Downside To "Non-Cash" Financing
The downside to most of these techniques though, is
they are specific solutions to unusual situations
that are not too common.

When all you have are creative, "non-cash" financing
methods to acquire property, you limit yourself to
just the sellers who can be helped with those
techniques and forgo all of the other sellers who
are highly motivated (like banks) and quite willing
to come down on price, but require you to pay cash.

When you can pay cash, the universe of deals available
to you opens up considerably. Adding "all cash" to
your arsenal allows you to work short sales and REO's
aggressively. In essence, being a cash buyer gives
you the ability to fill you deal pipeline as full
as you want it.

When you consider the realm of commercial lending
it is sometimes hard to really comprehend the scale
involved. Small loans are a few million dollars. The
larger commercial loans are nine figures. The
insitutions making the loans have balance sheets in
the tens of billions of dollars.

They operate under different guidelines to residential
lenders because there are no unsophistcated borrowers
to protect. If you are ambitious enough to be an
investor, it's buyer beware. As a result commercial
lending is very entrepreneurial and creative.

But when the economy turns south and the holders
of these huge notes have to take the property back
all of a sudden those former assets are now non-
performing assets and liquidity is very important
to the lender.

Availability Of Cash
For a lender in distress, loaded with REO, what
matters to them is that the cash is available. An
all-cash offer at a low price will be accepted by
the lender over a contingent offer every time.

Owner financing is not even considered.

In some cases, the very existence of the lender is
at stake so the primary concern they have is that
you are going to come through and close with cash.
Price less a concern than the certainty that you
will close so they can restore some liquidity to
their company.

It's investors with the ability to buy with cash
that can take advantage of these opportunities.
Of the ways to buy apartments using none of your
own money that we talked about above, only two
involved paying all-cash; getting a partner, and
borrowing from a private lender.

Control
Taking on a partner can be hugely beneficial for a
beginning investor. Firstly, because the partner
brings the financial resources to the table the
beginning investor doesn't have yet. Secondly, often
a partner can mentor the investor with business
advice and real estate specific advice that may
otherwise take you years to come across.

However, once the investor has built up his/her
own track record and have accumulated financial
resources of their own, there really isn't any
good reason to continue doing deals with a partner
for only 50% of the profits.

What begins to make more sense is borrowing money
from private lenders and taking control of the whole
process. Private lenders allow you to cover all of
the cash requirements of the deal and you get to
keep the lion's share of the profits for yourself.
And when you are talking about large apartment
buildings, this is a considerable amount of money.

Private Money Sources
So having decided that being a cash buyer opens
you up to the most opportunity and that utilizing
private money is the best way to do that, where
do you find it?

A private lender is anyone who would be thrilled
to get around 10% return on their money secured
by real estate.

That covers a lot of people, and it covers even
more when you take into account those that don't
know they are interested yet because they don't
know about it.

The frst place to start is your immediate contacts.
I know, you're afraid of sounding like you are
coming on with some MLM deal. That's a legitimate
concern given how off-putting that is. The best
approach is to narrow the list of people you contact
to those you know have money, then be up-front and
direct in your conversation with them.

You could open with, "Hi Jim how's things. I'm in
the process of buying an apartment building and I
need to raise the money to cover the down payment
and fixup costs. I'm looking for people to be private
lenders in the project. Would you be interested or
do you know anyone who would be interested in earning
10% return on their money secured by real estate?"

You'll either get a response of "tell me more", or
the person will wave you off. If you do get the
brushoff don't be discouraged, it's just one person,
and there are many more fish in the sea. But also,
you have planted a seed. If you keep contacting
people you know you will eventually find someone
who wants to invest, and word will eventually find
it's back to the person who gave you the brushoff.
It's truly amazing how the phenomenon of social
proof can change the attitudes and behavior of
people. Someone who formerly viewed investing with
you as too risky will suddenly be a fervent advocate
once they are faced with missing out on an opportunity
his friends are all making money on.