Summary of How to Invest in Real Estate Without Banks, Credit Checks or Cash by Marko Rubel

This blog is a Summary of How to Invest in Real Estate Without Banks, Credit Checks or Cash by Marko Rubel. The title of this book is very compelling and I did have my doubts when I started reading, but it proved to be a very interesting book.

My husband and I have 2 condos, and we don’t qualify for anymore mortgages. However, our properties are our greatest source of wealth, so I naturally have been thinking about how to buy property. I thought our only option was cash, and then to get renters and then refinance with a bank.

This book taught me there is another, better way.

Rubel says that dealing with renters is expensive. They generally don’t take care of your property and you have to do a lot of maintenance and upkeep with renters.

However, if you lease to own, then you have tenants who want to keep the property nice, because they plan on owning it.

Rubel begins his book by discussing how to make money from owning property, and why leasing to own is the most profitable with the least amount of tenant problems.

How to make money from real estate investing:

1. Cash Flow
2. Capital Gains – Buy Low and Sell for Profit
3. Equity Build-Up Due to Loan Pay Down
4. Equity Build-Up Due to Appreciation
5. Tax Savings – Depreciation – IRS 167

Cash Flow

You want to own property because it increases your cash flow, meaning that you actually profit and the rental income is higher than your expenses. This is the case with our rental properties – vacation rentals and for renting a room out from our home. I buy investment properties with the intention that they will bring us cash flow. If the property starts giving us negative cash flow, then I sell it.

Capital Gains – Buy Low and Sell for Profit

We did sell one of our properties and received capital gains, which we used to buy the condo that we are now living in. Without capital gains, we couldn’t have bought this condo. It was very helpful as when we first started buying property, we could only afford a small one bedroom condo. Now we live in a bigger three bedroom condo, all because of capital gains.

Equity Build-Up Due to Loan Paydown

Right now we own two properties that have mortgage loans. Our equity is increasing every month since we are paying down the loans. This is one of the reasons our Net Worth keeps increasing over time.

Equity Build-Up Due to Appreciation

We got our capital gains from our property sale due to appreciation in the value of the first property that we bought. Because it was in a building that allowed legal short term rentals, it’s value went up as AirBnB became popular. When we bought it, we actually didn’t know this. So we sold it about 2 years after buying it and got an addition $30,000 or so from appreciation.

Tax Savings – Depreciation – IRS 167

When you buy an investment property, one of the expenses you can claim is depreciation. Basically, you can take part of the value of your building (not the land) and add it to your expenses. This can substantially reduce the taxes that you have to pay.

How To Invest In Real Estate Without Banks, Credit Checks or Cash

Now that we’ve covered the 5 ways to make money from Real Estate, now I’m going to summarize what Rubel says is the best strategy to invest in real estate without banks, credit checks or cash.

Step #1 Find Expired Listings – Motivated Sellers of Pretty Properties

The first step is the find people who have tried to sell and they can’t get a buyer. You can locate them by looking for expired listings. Marko sends them letters offering to buy their property, and if they call him he sets up an appointment to meet them and see the property.

He says the key is to find motivated sellers of pretty properties. They really want to sell, and have a reason for getting the property off their hands quickly. Some examples are home buyers that can’t make their payments, people who have moved, people who need cash quickly, and people who are selling a properties with complications (tenants that won’t move, tenants that want to move but not sure when, etc). A pretty property is one that does not require repairs, or very few low cost repairs.

Step #2 Buy the Property Without Cash Subject-to the Existing Mortgage Loan

The next step is to buy the property “subject to” the existing mortgage loan. This is the part that was new to me. At the time of writing, in every state except Washington, you can buy a property and keep the existing mortgage loan on it without informing the lender. So the seller still has the mortgage loan in their name however you are getting the property and making the payments.

This is completely legal in all states. He mentions that in some states they have trickier laws if the property is already in foreclosure, and to avoid foreclosure properties in those states.

The HUD-1 settlement statement or form that is used in real estate closing, provided by the Federal government, has line 203, which shows as:

203. Existing loan(s) taken subject to

It is on this line that the mortgage loan amount outstanding is recorded.

According to Rubel, the bank has the legal right to require immediate payment of the entire mortgage loan if the sale is made without the bank’s written consent. This is a part of the “due-on-sale” clause.

“If all or any part of the Property or any interest in the property is sold or transferred without Lender’s prior written consent, Lender may require immediate payment in full of all sums by this Security Instrument (p. 60)”.

However, he says that in his experience the bank has never required immediate payment because you are paying the mortgage. Why would they go after you if they have properties where payments are not being made?

Rubel mentions that some attorneys and escrow companies will tell you this method of sale is illegal, because they do not understand it. When he asked the attorneys to provide the law that makes the sale illegal they could not come up with it. He says when you make these kinds of deals, you may have to call several attorneys and escrow companies before you can get one who will process it for you. Do a Title search and have an Escrow company close on the transaction.

Finally, he recommends always protecting yourself by putting in a clause in the closing of the sale such as this:

“Subject-To Acknowledegment

Name and Address of Lender Subject to one or more indebtedness that may be called due upon this sale: (fill in bank, loan number, etc)

The undersigned, being the Purchaser and the Seller of the above-identified real property, hereby acknowledges that the closing performed by XXX is a “subject to” loan closing, and that there is a prior existing indebtedness secured by a first lien Deed to Secure Debt upon the real property being purchased. Said prior indebtedness has not been assumed by the Purchaser and remains the obligation and responsibility of the Seller.

Purchaser and Seller acknowledge that the transfer, conveyance, or sale of any interest in the property, including legal and equitable interests, may violate the terms and provisions of any existing security instrument, mortgage, or deed to secure debt, and the mortgagee holding such instrument may call the indebtedness secured thereby due in full (p. 61).”

Obviously this type of deal is very favorable to you as the purchaser, as you are not liable for the mortgage loan. However, as the purchaser your intention is to make payments on the mortgage loan, and Rubel states that if you use the next step in his system, you will always have the cash to do so.

Step #3 Lease the Property with Option to Own For Maximum Cash Flow and Better Tenants

Rubel recommends taking most properties you buy and then selling a lease option on the property to a tenant who wants to buy the house in the future. He explains it as follows:

“The lease option (also called “rent-to-own”) is an arrangement whereby the tenant/buyer is renting the house from the investor and has an exclusive right to buy that house in the future. In exchange for getting that right, the tenant/buyer gives the investor a down payment (called “option consideration”) usually in the amount of 3-5% of the purchase price, pays the premium rent, and takes care of all minor repairs. This is an excellent way to get all the benefits of having a rental, but without tenant hassles (p. 52)”.

The option consideration is used as a down payment for buying the house. If they decide not to buy at the end of the term (usually 1 year or 2), then they lose the money. In other words, you keep it as the non-refundable option consideration.

Rubel says that most buyers walk away, for various reasons. They move, or they have a family emergency, or they decide to buy somewhere else, etc. When that happens, you just repeat the process with a new tenant/buyer.

The ones that do buy, you then cash out by paying off the mortgage and keeping the profit (which you locked in because you set the sale price at Fair Market Value, which is higher than what you bought it for).

In the meantime, while they are paying the lease rent, you are cashflow positive, as the rent covers the mortgage payment and more.

He recommends having 2 separate contracts one with the option to buy and one with the lease. This is so that landlord-tenant law only applies to the lease, and not the the option to buy contract.

He also recommends you put in a clause that states you have the right to increase fair market value of the sale upon getting an appraisal. This is to help guarantee you get any appreciation in the value of the property while they are living there.

7 Methods of Buying Without Banks, Credit Checks or Cash

Rubel lists 7 Unlimited Funding Program (UFP) methods of buying. It’s his way of categorizing the types of deals that you will come accross.

1. UFP Method #1: %0 Down – Instant Ownership
2. UFB Method #2: Paid2Buy – Seller Pays You
3. UFB Method #3: Note4Equity – Seller Carries
4. UFB Method #4: Cash4Deed – Tiny Down = Deed
5. UFP Method #5: Reinstatement – Foreclosure Reversal
6. UFP Method #6: P-J-L – Junior Liens Discounted
7. UFP Method #7: Assign2Buyer – Wholesale “Subject to” Deal

UFP Method #1: %0 Down – Instant Ownership

Buy a property with a mortgage loan is 80% of the property value. You put no money down and buy subject-to the existing mortgage loan. The reason they would sell to you at 80% the property value is that you show them all the costs they will be saving such as realtor fees, ongoing mortgage payments, property taxes, etc.

He says you can get a list of properties that have 80% LTV and send them postcards letting them know of your services and a quick sale.

UFB Method #2: Paid2Buy – Seller Pays You

This happens when you buy a house where the seller has very little equity. After going through the costs of the sale, they will realize that they will have to pay to sell it. He says they may already know that. He gives the following example on page 83:

Fair Market Value of a House is $100,000, with a mortgage loan of $90,000

$97,000 Conservative Sales price for a quick sale, minus

–

$6,000 Real estate commission

$3,000 Closing Costs

$4,000 Holding Costs (payments, utilities, etc. until house sells)

$90,000 Loan balance on the first

_________________________________________

-$6,000 Net (negative)

Next you tell them in a perfect scenario, they will pay $6,000, but if the house falls out of escrow then they would have to pay more in holding costs.

If they pay $5,000 now for a quick sale, they will be certain of the costs. Rubel says that if they aren’t broke, they will go for it.

Even if they aren’t in the negative after the above calculation, you can still ask the seller to pay the next few payments, which is also paying you to buy.

UFB Method #3: Note4Equity – Seller Carries

In this case, after doing the math you might find out the seller has $14,000 in equity. Depending on how fast they want to get paid, you could offer them $10,000 in a promissory note to be paid upon you selling the property at a future date. You can secure the promissory note with a lien on the property. The note would not have an interest rate, so it would be getting a 0% interest loan from the seller.

UFB Method #4: Cash4Deed – Tiny Down = Deed

In this case, they have equity and they need cash to pay for moving costs. So you could offer to pay $2,000 in cash at closing and $8,000 in the promissory note. Or discount it to $5,000 cash instead of the $10,000 promissory note. Of course, you would need cash for this kind of deal.

UFP Method #5: Reinstatement – Foreclosure Reversal

Basically, you find a property that is already behind on payments and is already in foreclosure. At closing, you pay to reinstate the loan, so that the house will no longer be in foreclosure. This usually requires a larger amount of money as the payments and interest all have to be paid to get the loan current. However, the seller is usually very motivated, and you can often get a better deal on the price of the house.

UFP Method #6: Payoff-Junior-Liens – Junior Liens Discounted

In this method, you find someone who is in foreclosure and has 2 loans on the property, and get a large discount on the 2nd loan.

For example, on a house worth $100,000, the first loan is for $70,000 and the second loan is for $30,000. If the foreclosure goes through, at the foreclosure auction, investors usually bid up to 65-70% of the property value. So the second loan would get nothing from foreclosure.

So you can offer the second loan $3,000 to pay off, and they will accept because it’s better than nothing. So at closing, you pay $3,000 to the second loan, and keep the first loan.

UFP Method #7: Assign2Buyer – Wholesale “Subject to” Deal

You find a house that doesn’t have enough equity for you to buy it. You get the right in the contract to assign. Then you find a buyer who doesn’t qualify for a mortgage loan who wants to buy it “subject-to”. You pay yourself a small assignment fee and let the buyer close directly with the seller. Rubel says this is a last resort with deals that are not attractive.

Conclusion

The book is written like a sales letter, and is hyping the training program offered by Marko Rubel. I liked it a lot as it taught me methods of purchasing real estate that I had never heard of.

It has a lot of case studies that are interesting to go through. If you are interested in real estate investing then I highly recommend you read the book!

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