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Real Estate Investing With NO Money or Credit

Updated on October 15, 2009

This is me - the mean old landlord.

My dream job...

I remember when I first got the idea to be a landlord. I was 15 and working for a friend of the family cutting grass. Not just cutting grass - I was driving a big Simplicity lawn tracter! My employer was in charge of his family's real estate and my job was to ride around cutting the grass. The properties were side-by-side town houses, built one after another around two streets. All the back yards connected along each street; the front yards were punctuated by driveways.

Back then, the rents were $350 per month. I remember driving the mower along the never- ending backyards, saying to myself "350, 350, 350....". In my mind I added up the thousands of dollars in rent that were coming in month after month, and my destiny was sealed. Occasionally I got to see some of the other duties involved in property management - cleaning up after tenants, fixing things, replacing things... But no amount of disgusting, dirty, left behind mess, or gravel-raking (thanks Dad! Yes, a little side story: since my dad was close friends with my boss, when I got a traffic ticket once for driving on a school playing field for $110, I mysteriously was assigned the task of raking the gravel driveways after the winter snow plowing had pushed all the little rocks everywhere but where they were supposed to be.. and just as mysteriously - when my income from this particular activity amounted to $110, I was reassigned to my normal duties!) would deter me from my determination to one day be a landlord.

DEAR READER: just a note - this is more of a novel, and not a get-rich-quick scheme... You WILL learn how I purchased many properties with little or no money - and definitely without credit - but you will also learn why I DO NOT recommend doing that - at least not the way I did, or where I did... So, if you like to read, and enjoy a good story - read on! If you just want to skip ahead, I'll make a heading for you called HOW I DID IT and you can go right to that. You're welcome.

Never really losing site of my ultimate goal, but just being a dumb kid and having no idea how to get there, I stumbled through the next few years and ended up having alot of construction experience; some college classes in Construction Management, real estate, accounting; a great wife; a couple kids; an old Toyota Corolla wagon, a nice car for my wife, alot of tools and the knack for using them - but no real assets. With no degree and a string of dead-end jobs, I still had the heart of an entrepreneur and I still had a dream!

As I looked at the situation, I realized there was no way for me to just magically become a landlord. No one was going to just hand me a property and say "There ya go!". I had alot to learn. "How to learn what I needed to know?"... "What can I do to learn and still make money at the same time?"... "How can I be in a position to get information from the people that know what I want to know?"... These questions burned within me. Then slowly, I realized that there was a way. I had to find a need that 'they' (the owners of property) had and I had to become the solution. What problems did they have in common? What skills did I possess?

While these thoughts were fermenting in my mind, other forces were at work. As I developed a business plan, printed cards, got an office set up in my home, got a PO Box in the community I aspired to live in and even a telephone number from THAT exchange to ring at my not-so-lofty address (THAT was a trick!); one of my dead-end jobs was coming to a definite end. I had everything in place to start a business, except I still had a 'regular' job. The kick in the pants I needed came when I got laid off from the regular job. So, I was in business. But with no customers.

I lived in a duplex owned by my step-grandmother. (YES, I paid rent.. SHE bought that place in her younger years at the insistence of her father, to be an investment! She never lived in it. I moved in to help manage and care for the place, as she and my grandfather were getting older and having a hard time with it). It was on a fairly busy street with businesses on one side and houses on the other. In my preparation phase I had gone across the street to the print shop and had my cards, letterhead and envelopes printed there. In speaking with this business owner, he did not need any work done, but expressed disbelief that he could not find anyone to cut his grass for less than $40. I asked a few questions and found he was hoping to get it done for $20. I got the address and told him if he liked the job I did he could pay me $20. My first customer.

I did not own a lawn mower. Luckily, I found an old mechanical push-type lawnmower in the garage of the duplex I was renting. I went right over to the guys house and cut the grass. For weed-eating I used scissors. Yes, scissors. When he came home I was done and I collected my $20.

Soon I had 15 lawn care customers (and all the necessary equipment). I bought a Toyota pickup truck to let the Corolla wagon take a rest. As I talked with customers, I was often asked "Who do you know that can _____?" I always knew who could do that. It was me. Whether it was fix a washing machine or unclog a drain - it was me! Soon I was a do-it-all-fix-it-guy!

BY THE WAY - obviously, cutting lawns did not cut it financially. As soon as the unemployment ran out, I was working all night as a security guard, and doing the other stuff in the daytime and sleeping whenever I could. You gotta do what you gotta do.

Pretty soon, I was able to stop the night job... Or should I say start a NEW night job? Yes, another big break came when I got a chance to bid on a cleaning contract for some commercial offices. True to my method of saying YES to every opportunity - I was a cleaning business! But I did not own a vacuum, mop or big garbage can on wheels... yet.

The daytime yard work/handyman work brought me into my closest proximity to being a landlord when a man called me to mow the grass at his 16 family apartment building. Soon I was the manager of this building and when the city inspector came to check the fire alarm system, I got referred to some other property owners. I was then in the property maintenance/ management business big time! I had given up all the little yards I had mowed, and was cleaning offices at night and doing property maintenance/ management during the day.

By then I had a nice van with my company name painted on the sides. I finally gave up the cleaning business and concentrated on the other things. Along the way I had built decks, fences, remodelled kitchens and bathrooms, poured concrete, done landscaping and painting, weatherized buildings to meet DILHR codes, installed sound-proofing in offices and industrial settings, and various other projects. There was no job too big or too small as far as I was concerned. I had a CAN DO attitude!

My efforts were rewarded. I was known as the one to call to get the city inspectors off your back, or to get an apartment ready fast, or to fix something quickly and inexpensively. I was honest, never over-charged and always over-delivered. I would go to any neighborhood no matter how 'dangerous' (by then I learned a few things, always go in twos, always armed) and anytime of day or night. I kept a virtual hardware store of supplies on hand in the van or in one of my garages - so it did not matter what needed fixing - I was ready, even if the stores were closed!

Then it happened.


I got a call from my first "Don't Wanter". In my travels, I was noticing some people had somehow figured out how to buy property for investment, but then for various reasons were not happy about it, or needed to get out of that situation. Here was a lady with a big-time job at big-name company who tried to invest in real estate only to find the time required and the associated headaches were more than she could deal with. Silly me. I offered her $1,000 more than her asking price if she would be willing to sell it to me on a land contract with nothing down. It worked!

Unfortunately - this was the beginning of my troubles. I'll explain more about why later.

Then I was hooked! I started seeing opportunities with every service call! I was well acquainted with the maintenance needs of buildings and could accurately assess the needs and 'deferred maintennace'. I was able to see the quality - or lack there of - of the tenants, and the number of vacancies vs the income and expenses... And interacting directly with the owners allowed me to gauge their willingness to accept alternative methods of transferring ownership.

I started pooring over the Investment Property For Sale sections of the newspaper. In my inpections of various properties for sale I often would come away with another maintainnace and/or management customer.

The key was to find owners who:

  1. owned the property free and clear
  2. did not need to 'cash out' 100% right away
  3. were interested in NOT doing it any more

The biggest obstacle in this quest was real estate agents. They could never figure out how to get paid in these deals, and I never did figure that part out either. If you can figure out how to get them paid and still go into the deal with no cash out of your pocket - then you are smarter than I.

I just looked at properties listed by agents as practice excercises. I would run all the calculations, and see if there was cash flow and just make a really low offer. Of course all my offers were predicated on there being no 'due on sale' clause in their existing mortgage and the seller being willing to carry back a second... These offers were always refused.

BUT - when the owner was selling the property on their own - then I get out the big guns!

Owners/sellers actually have to PAY money out when they sell! The bigger the property, the more they have to pay. Why? You ask? Security deposits, prorated tax payments, other liabilities.

You may have no real money to put down - but assuming the liability for deposits and taxes has just freed up thousands of dollars and a huge burden that the seller would have to pay. You may even use this to your advantage and get price concessions.

Let me give you an example:

Say Mr. D. Wanter owns an 8 family building, fully rented and each renter paid him $500 deposit when they moved in. That's $4,000 that Mr. D. Wanter is going to have to come up with before he can sell to you. You say "Nevermind about that, I'll take the liability of those deposits and you can count that as $4000 off the price of the building".

Same for tax payments paid to an escroe account or just taxes due. Take the amount (usually a certain amount each month X whatever the number of the month it is, October would be 10) add that to your liability and BAM! Another huge chunk down AND a tidy little sum that Mr. D. Wanter doesn't have to come up with or can keep if he has it.

Now add in any 'deferred maintenance' (stuff that any normal owner who DID give a darn would have done already) Say, new carpet in the common areas, or new roof, of resurface parking lot - whatever it is that is obviously needed. And get accurate estimates. He knows already what those items will cost him if he keeps the place. You can also address items that may not be 'deferred' but may be expected soon - such as all the appliances are as old as the building, all the carpets/flooring in the apartemnts are nearing the end of their useful life... Whatever you see that is ready to be replaced soon. You can do one of two things here, or a combination: you can ask for a further price concession, citing the value or a portion of the value of these known soon-to-be-needed improvements OR use these items as a bargaining chip.

The bargaining chip is: you are willing to forget about all the things needed and take on the responsibility for these improvements IF he will carry a note for 15 years at 8% interest... or whatever terms you need to make it work.

Once you do your first deal - you begin to see deals everywhere. It gets easier and easier. And what first seemed impossible (buying with no credit and no money) seems completely possible - even FUN!


Or what happened to me could easily happen to you.

Several things happened to me, and I wasn't aware that they were happenning til afterwards.

First, as I became a landlord. I was no longer the manager or the maintenance company. I was doing the same work - but at the end of the day, I had no one to send a bill to. AND the time I spent on MY places took me away from PAYING customers - so it was a two-edged sword.

Second, and this was a shocker! Although I was making big money maintaining and managing apartments for others - there was NOT big money in being the owner! The piece of the puzzle that was missing from my picture, the ONE THING no one told me - all the big-time customers, with their big-time jobs, doctors and lawyers with their big-time incomes - these were my customers - they were TRYING to lose money. And they did. And it was okay. For them. It helps off-set those big incomes. And of course with a 30 year mortgage coinciding with a 30 year career - it was perfect. As soon as the big-time job ended and the big income stopped, the building would be paid for and everything continues just fine in their world. In THEIR world. I was not in their world. Yes, I was a landlord. Yes, I went to the same landlord meetings. Yes I even played golf on the same days and had a Cadillac too. But no - I could NOT afford to be 100% financed AND lose money. Month after month. Year after year. Thousands. Thousands upon thousands. I jumped in with BOTH feet! $980,000 in debt in 18 months. It took me years to get rid of those places.

THAT is what you SHOULD be asking yourself: WHY is this guy willing to sell ME (an unknown entity) this place (if it so great) for NOTHING down? If you get the bug - you will see only roses and not smell the moldy basement or see the asbestos on the pipes or the drug dealing across the street...or, or, or...

But it was not ALL bad. I learned alot. I learned what NOT to do. I still believe in real estate as an investment - just not the WAY I did it or WHERE I did it.


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