A Zero Down Deal

A Zero Down Deal

When starting on the journey of real estate investing, it’s hard to figure out which way you should go. It make’s it even harder when you have little to no money.

 

This was the problem Ashley and I had experienced. We were broke. I mean flat broke. Like I was going door to door with my pressure washer trying to get up enough work for grocery money kind of broke. We didn’t know how we were going to start investing. We just knew we had to.

 

As we went to different teachers, we found different types of deals structures that we could get involved in with little or no money. The first one we tried was master leasing.

 

A master lease is when you rent a house from someone with the right to sublease it. Normally it works like this: you rent a house for a below- market-rate. You put in a tenant who pays you the going rate. You make the spread between what your tenant pays you and what you pay the owner.

 

This is a fantastic way to have rental income without having to own anything. All you have to do is be able to manage the property. This structure works great with owners who are tired of being landlords. It’s also a good strategy with out-of-town owners.

 

Case in point: the first master lease we had was on Kids Drive. The Owners wanted to sell their house but couldn’t. They had bought in the height of the market and values had plummeted below what they owed. They had taken jobs in Atlanta and had left the house sitting with a “For Sale By Owner” sign.

 

We got together with them and found out we couldn’t buy the house because of values. We also found out that there was very little room between what it could rent for and the owner’s payment. The house would rent for $850 and their payment was $800.

 

For us, $50 a month was not enough for us to go to work.

 

So here is what we did: We agreed to rent their house for $700 a month. We also got paid the first month’s rent for filling the house. We found a nice couple and rented it to them for the going rate of $850 a month.

 

I know what you’re thinking: “You mean to tell me the owners were willing to lose $100 a month?”

 

The answer is yes. It sounds crazy but they came out better than you think. You’ve got to remember their house had been sitting vacant for almost a year. A vacant house costing $800 a month will eat you out of, excuse the pun, house and home.

 

They went from paying $800 every month to only paying $100 a month. That means their monthly bills got reduced by $700. That was a huge relief for these owners.

 

Next, a vacant house means utilities, insurance and lawn maintenance bills. All those bills were now being paid by our tenant. Not paying those bills put more money in the owner’s pocket.

 

But their biggest benefit was the emotional relief. That house was no longer a mill stone around their necks. You just can’t put a price on that.

 

So, does it always take money to make money?no money down 2

 

The answer is no. We literally had no money involved in this deal.

 

We got the first months rent of $850 and an income stream of $150 a month. That’s $2,650 in the first year. We also got to practice being landlords without having to worry about paying for repairs because it wasn’t our house. This was on-the-job training with little to no risk.

 

We started out master leasing and we still do them for tired landlords and out-of-town owners. Couldn’t you do the same?

 

Joe and Ashley English are full time investors in NW Georgia. For more information go to www.cashflowwithjoe.com

 

 

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3 comments

    1. Great Question. The owner is protected because they never lose their interest in the house. The house is still theirs.

      There is a lease between you and the owner. This one is called the master lease. And a separate lease between you and your tenant. This is called the sub lease. In our lease, if for any reason the owner wishes to cancel the lease, they can do so by giving a 45 day written notice and pay us a months rent in liquidated damages. We in turn do the same thing to our tenant.

      Done right, they is very little risk in this for you and the owner. For a great course on master leasing, check out http://www.davidtilney.com

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