The following is a trick I used to flip a house with no down payment. When I was 19, back in the early 80’s, I owned several pieces of real estate but was always looking for ways to make fast money.
Flipping real estate was one way I found to put quick cash into my pocket and I could do it with no down payment.
The key was to find sellers that had vacant property since they were generally very motivated sellers and it’s easier to work with vacant properties (I’ll explain why later). I would use my real estate agents MLS computer and pull up a complete listing of every vacant home in the area.
One day I was doing a search and found a home that looked very promising because it had lots of water damage from a broken water heater. The house was vacant and the hot water heater in the underground basement sprung a leak which flooded the entire basement and even part of the first floor. Needless to say the house smelled bad and needed electrical work, new subflooring, carpeting, sheetrock work, and paint.
When I was talking to the owners they told me not to worry about the damage because their insurance would take care of it. A light bulb went off…
I realized that I could buy the house at a bargain price because it was damaged and have the sellers insurance company pay to have it all fixed. Then I could sell the house AFTER the repairs had been made.
It was a no brainer. The house was easily a $100,000 (over $300,000 in today’s market) but the owners were scared that it wouldn’t sell because of the damage, so they agreed to sell it for $70,000.
I put in the contract that the repairs must be made before closing and set the closing date 90 days away to give them time to make the repairs and time for me to flip the house.
I wanted to make this a no money down deal, so in the blank on the contract where it listed the amount of earnest money I wrote in “$5,000.00 promissory note”. Then I gave my agent a $5,000 promissory note from a blank form I picked up from an office supply store.
The sellers thought nothing of the promissory note and it was held by my agents office the same as a check for earnest money. In fact I could have made it for $10,000 or $15,000… It was just paper. I knew that if I didn’t flip the house before the time of closing I could always void the contract by not approving the repairs or several other weasel clauses I had in the contract. This made it a true no money down deal.
Since the house was vacant I put in the contract that I would be allowed to have a key to show it to appraisers, contractors, and anyone else I saw fit. This allowed me to run a classified ad in the paper and show the home to potential buyers. Sometimes sellers balk at giving the buyer a key prior to closing, so I would sometimes counter with a clause that gave me the right to enter with my real estate agent at any time with her using her lock box key. I had a good relationship with my agent, so this method worked for me.
The repairs were done in 30 days. I now have a contract allowing me to buy a $100,000 home for $70,000. Not only is it a $100,000 home but it’s a home that now has brand new carpeting, fresh paint. a newly refinished basement — It smells and looks just like a new home. And I now have 60 days to find a buyer. It wasn’t too hard. I found a buyer to buy it within a week for $90,000. In hindsight I could have probably sold it for $100,000 since the restoration made it better than the average homes in the neighborhood. It even appraised out to $135,000.
Instead of closing on it myself and then selling it to the new buyers, I simply assigned them my contract. At closing the sellers and my buyers all met with the closing attorney and I left with a check for $15,000. I gave the sellers a $5,000 kickback to keep them from objecting to anything.
Everyone left happy.
I haven’t done this type of home flipping since the 80’s but it worked so well I thought I would share it.
