Everyone has seen the infomercials.  They promise real estate riches on no money down. They promise financial independence by real estate ownership  They have also spawned countless variations in real estate markets all over the country.  Let’s say you are a potential real estate tycoon. Here are step by step instructions on one way to do it.

1.  Find an attractive property. We are not talking attractive in the usual way.  We are talking about a home whose owner is in some financial distress. This owner needs to be free from their monthly mortgage payments. You should look for owners who are behind on their payments, or who are newly divorced, or who have lost a job, or who have medical bills. It does not matter the reason for their need for a quick sale. The more distress they are in, the better your opportunity. You should develop a list of potential properties like this

2.   Find a good buyer. We are not talking about a good buyer in the usual way. We are talking about a buyer who has a bad credit history, or who has been foreclosed upon, or who for whatever reason, can not qualify for a mortgage loan. You should develop a list of potential buyers like this.

3.  You are going to need some legal forms. You will need a contract so you can contract to buy the home from the seller. The contract form should not obligate you to make a down payment or to pay earnest money. You might prefer to use an option to get the seller obligated to you. Regardless of which you prefer to use, the terms of either will clearly set out your intentions to put your good buyer into possession of the property. You will not be obligated to close with the seller, until your good buyer can buy it from you. This buyer will sign a lease-purchase contract with you. So you will need that form, too.

4.  Now you are ready to go. Start trying to match your property with a buyer.  Be careful not to commit yourself to a written contract with the seller until you are sure you have one of your good buyers ready to sign the lease-purchase with you.  Explain the beauty of your plan to the seller, only leave out the part about you becoming a real estate tycoon, and getting the home with no money down. Tell the seller the buyer just needs to make some lease purchase payments, and work on their credit rating. Then the buyer can qualify for a mortgage loan to purchase the property from you. Tell the seller the buyer will move right in and begin to make payments.  The seller can leave the property and the payments behind. Tell the seller you plan to collect enough from the buyer to make the mortgage payments and a small profit. You will make the payments. Tell the seller you will take care of their property.

5.  Put your good buyer into the home.  Do this by explaining the beauty of the plan from the buyer’s perspective. Concentrate on your ability to rehabilitate their credit, and help them get a mortgage loan.  They can realize their dream of home ownership with your help.

6.   Here is how you make your money.  When you buy the home this is what professionals call a quick sale. This means that you pay considerably less than full market value to the seller. You should contract with the buyer to sell it to them for as much profit as you can. Plan to collect enough lease-purchase payment each month to make a small profit every month above the mortgage payment. The result is you have bought a home with no money down, and you are cash flow positive from the start. Get as many transactions going as possible.

Well, there you have it. This is perfectly legal. No real estate license is required, because the tycoon acquires an ownership interest in the property by contract with the seller. As licensed real estate professionals you can see the potential problems for consumers here just as well as I can. We have heard some serious horror stories from consumers who have gotten into these situations.  My most memorable one is from a seller who moved away, and later received a foreclosure notice. He returned to find the house trashed.  This happened when neither the tycoon nor their buyer honored their obligations. About all we can do is to continue to encourage consumers to seek traditional real estate opportunities from licensed professionals.  You can help by helping consumers understand the potential problems inherent in these kinds of practices.

Again, it should be noted that the information presented in the preceding article relates ONLY to people buying & selling houses in the state of ALABAMA and their agents.