How I Bought This House For $0

I'm very proud to say that this property right here was free it cost me zero dollars I was able to buy an income-generating property here in Los Angeles for nothing and I think it's at this point that people are supposed to comment it's free real estate well I mean that's kind of true but with a little bit of a catch I mean we're not talking about buying a property with no money down or doing a hundred percent financing or taking advantage of a real estate loophole called adverse possession where you take ownership of an unclaimed property although that would be actually pretty cool but now when it comes down to it this property that I'm filling in was zero dollars out of pocket to own so here's how this works and how you can do it to 24 months ago I began looking for an income property around the mid-city area of Los Angeles and I really liked that area in particular because it was close to nearby transit it was surrounded by several large new developments it was only a 15-minute drive away from the beach and most importantly it was really one of the few areas in Los Angeles where property prices were still selling for under a million dollars welcome to LA so I started searching for a property but it couldn't be too new because then I would have to pay a premium for it but it couldn't be too old either because then it would take too much time to fix it needed to have a decent square footage without being over built for the area and most importantly it had to be priced below what it was really worth so I definitely had my work cut out for me so after six months of searching and writing offers and getting outbid and otherwise not finding a single opportunity the perfect place came up it was a 1920 Spanish duplex plenty of original charm it absolutely needs to be fixed up but it wasn't horrible either it just needed some TLC and the price listed for 585 thousand dollars the second I saw the new listing notification pop up on my phone I immediately got my car to drive over I called the real estate agent on the way I told her I was stopping by I got the lockbox code and I arrived at the property just 30 minutes later and once I got there I saw it and I realized that they under priced it even though it was listed for 585 thousand dollars I can tell it was easily worth about 675 dollars but I knew I had one major advantage working for me I was the first one to see it and I had a small chance to get my offer accepted before anyone else could take a look and realize just how good of a deal this was now here's a quick real-estate lesson for everyone in real estate really what you pay for a property comes down to leverage if the seller prices a home well and gets multiple offers then they have all the power and with that they can get an even higher price knowing that several people want it and expecting each of them just outbid each other however if the seller has no one else interested the buyer has all the power the buyer is the one who dictates the terms and the price knowing that if they walk the seller has nothing so given that I was the very first one to see it I knew I didn't have any other competition at the moment so that was a strategy that I played it turns out neither the agent nor the seller had any idea what the home was worth the owner was from out of the area the real estate agent was also from out of the area and they just picked an arbitrary price based off what they thought it was worth without really doing any research so their loss was my game so I made them an immediate offer I'll pay full price guaranteed to close under the condition that the owner accepted immediately two hours later the owner accepted my offer which by the way it was very very lucky because just like I had thought other people saw the property after I did and realized how well it was priced how do I know this because I found out the next morning that they received an offer at six hundred and fifty thousand dollars from a buyer paying all cash that was sixty five thousand dollars higher than I offered just a few hours earlier but they didn't get there as fast as I did now in real estate everything is timing and the early bird gets the worm then after a 30-day escrow the property was officially mine I bought it for five hundred and eighty five thousand dollars I put a hundred and fifty thousand dollars as a downpayment and I got a loan for four hundred and thirty eight thousand dollars to cover the rest now if you're confused about how I got the property for free because I just said I paid 150 thousand dollars as a down payment I promise I'll get to that but it's really important to follow this information because it'll all piece together at the very end now like I mentioned earlier the house needed some work the floors were scratched the she needed to be torn out the bathroom was disgusting the landscaping was overgrown the roof needed to be replaced and it needed paint lots of paint this costs time and money so I spent another two months and roughly $80,000 fixing it up basically I was turning it into a more aesthetically pleasing version of itself and bringing back some of those original 1920s characteristics that were just lost over the years this meant that when I was finished I had invested a total of two months worth of time and about two hundred and thirty thousand dollars into her property which I claim I now have for free now this is where the magic of real estate happens no longer did I have a rundown dilapidated property in need of TLC I had a remodeled 1920s Spanish entertainers dream home with charming original hardwood floors and a gourmet chef's kitchen you can tell I'm a real estate agent but anyway most importantly that meant this property was worth more than what I had originally paid for it so I went to the bank and I told them I wanted to do what's called a refinance this is when the bank will give you a new loan based off the current value of the property not the price that you paid for it and the market value was very favorable to me an appraiser determined the value of my property for a remodeled 1920s Spanish duplex was now seven hundred and eighty thousand dollars just shortly after I bought it now this is a big deal because number one I bought the property for five hundred and eighty five thousand dollars I spent $80,000 fixing it up my total cost was six hundred and sixty five thousand dollars subtract that from the new value of seven hundred and eighty thousand dollars and that gives us one hundred and fifteen thousand dollars worth of profit so given the new higher value the bank is able to give me a mortgage of up to five hundred and eighty five thousand dollars and then give me back one hundred and forty five thousand dollars in cash now if that doesn't make any sense here's how it works the current mortgage is four hundred and thirty eight thousand dollars the bank's new loan is five hundred and eighty five thousand dollars the new loan pays off the old loan and that leaves us with one hundred and forty five thousand dollars left over after paying some transaction fees so where does that 145 thousand dollars go well since the no more loan on the property it just goes to me this means I was originally two hundred and thirty thousand dollars out of pocket to buy and remodel this property but then I got a one hundred and forty five thousand dollars back meaning that at this point my only out-of-pocket cost to own a property here in Los Angeles is eighty five thousand dollars now I realize that's still not zero dollars as a claimed in the title I promise I'm getting to it it'll happen just stay with me here so anyway that was a year ago and guess what's happened since then besides smashing the like button if you haven't done that already well so far my property predictions from 2017 when I bought the place have been correct the new developments that were under construction two years ago have now been finished and have attracted new talent and new business into the area the new tax reform that went into effect in 2018 also made owning real estate valued more than a million dollars just slightly less desirable from a tax perspective so more and more people wanted to buy anything they could under a million dollars and that happened to be right in the area that I bought now in addition to that we also had something unexpected happen all of this recent economic uncertainty has led to interest rates going down at the time I was paying four point six percent interest on my mortgage of five hundred eighty five thousand dollars which at the time was actually a pretty competitive rate given that it was a cash out refinance but now since interest rates went down what I was paying was just too high so what does any good real estate investor do when this happens well they go shopping no not that type of shopping interest rate shopping I went from bank to bank to bank to get a quote on a new mortgage now I started off by getting a quote of 4.2% which would saved me about a hundred and forty dollars per month on my mortgage now that's not bad but I knew I could do better I then took that quote to another bank and had to beat it and then it took that quote to another bank and had them beat it and another Bank and had to beat it and it soon became really just like a race to the bottom to determine which bank would give me the lowest interest rate just to get my business and from that ladies and gentlemen is how I got a 3.75 percent fixed-rate 30-year mortgage on a cash out refinance now for anyone not in real estate that right now is pretty much like a unicorn of the deal but the size of that loan was still undetermined it all came down to a third-party appraiser which determines from a neutral perspective what the property is actually worth and thankfully for me property values in the area have gone up a lot in the last year so much in fact that the appraiser value the property adds you want to take a guess nine hundred and sixty five thousand dollars that is almost one hundred and ninety thousand dollars higher than I received just a year earlier but this also meant I can do yet another cash out refinance not only to lower my interest rate but also to get some cash back and given the new nine hundred sixty five thousand dollar value I was allowed a six hundred and seventy five thousand dollar mortgage leaving thirty percent worth of equity still in the property now just like the last example my current mortgage is five hundred and eighty five thousand dollars the bank's new loan is six hundred and seventy five thousand dollars the new loan pays off the old one and that leaves us with about eighty five thousand dollars left over in my bank account after paying some transaction fees that meant that after everything is said and done not only do I have two hundred and ninety thousand dollars worth of equity in the property but I now save an extra two hundred dollars a month on my mortgage interest payment and I get back all of the two hundred and thirty thousand dollars that I invested leaving a total out-of-pocket cost to own this property in Los Angeles for zero dollars like I said the first or financed got me back one hundred and forty five thousand dollars and then the second one got me back eighty five thousand dollars that was everything I invested in this property so now it's basically free real estate now yes I know people are going to get triggered and I'm sure some people will say but it's not free gram because you had to spend two hundred and thirty thousand dollars to do this that's not free now yes this is true but first of all this isn't exactly rocket science either and many of you can do something similar and buy a property to get all of your investment back with substantially less money than I have invested you don't need two hundred and thirty thousand dollars to do this and I know many people who have put down substantially less money to have very similar results secondly in real estate the only number you really care about is the net return that's it if you invest $20 into a property for one year and then you get all of your $20 back but now you still own the property that's what's important to focus on not the cost of the original $20 is how any successful real estate investor things and yes I know if people didn't get triggered from the first example they'll say something like yes but you have to pay it all back that's not real money cuz that's alone you're taking a loan and yes while you do need to pay that back you're pretty much borrowing money from yourself you're just becoming your own lender and lending yourself money to go and spend so you're paying yourself back in real estate your ideal situation is that you can control a hundred percent of an income generating asset by having as little of your own money invested in it as possible this really gives you the opportunity to invest your money in other higher generating opportunities than keeping your money tied up in an asset where it isn't actively working for you and no this is not what caused the real estate crash of 2008 there is a very big difference between speculating on real estate appreciation on stated income 100% financed variable interest rate short-term loans and then expecting the market to appreciate and value to pay for that loan versus taking out a 30-year fixed-rate mortgage on an income-generating property leaving 30% equity in the deal if people don't understand that then I give up I quit there's no other way that I can say that this is really just the name of the game when it comes to real estate it's about finding a good deal putting your money in it making it work for you we're financing your money back out of it keeping the property and then go and use that money to do it again and it's by doing that over and over and over again that you could soon build up your own real estate empire for free by just smashing that like button if you haven't done that already so with that said you guys thank you so much for watching I really appreciate it like the last one these types of videos take me forever to edit like this is probably like 12 hours worth of editing to do this if you wouldn't mind just hitting a like button for the YouTube algorithm it just really helps out the channel dramatically just something as small as that that's it like otherwise the video is free just just if you do that that's great also if you made it to the end and you haven't already subscribed yet make sure to subscribe that also is totally free to do also feel free to add me on Instagram I post there pretty much daily so if you want to be a part of it there feel free to add me there thank you again for watching and until next time

Channel: Graham Stephan

Views: 2,425,340

Keywords: real estate, real estate investing, real estate investing for beginners, real estate investing strategies, real estate investing with no money, real estate investing 101, real estate passive income, how to make passive income, passive income strategies, passive income for beginners, passive income ideas, passive income 101, how to invest, investing for beginners, how to invest for beginners, investing strategies, how to make money online, how to become a millionaire

Id: smvvTw5GhyM

Length: 13min 18sec (798 seconds)

Published: Mon May 20 2019