If you know how to make money on properties which have no equity, you'll be able to do deals most other investors can't. You will have the competitive edge over your colleagues.

In this climate of the real estate market, there are an abundance of sellers who want to sell their home, but they don't have enough equity to cover a real estate agent's commission. Some may barely have enough equity to even cover their closing costs. Most of these sellers are just waiting for someone to come along and provide them with a solution, and that maybe you, if you know what solutions to offer them.

You might be pondering "If the property doesn't have any equity, how am I supposed to make any money?" There are several ways in which you can make money on a property even if you are paying full market value. They are... buying "Subject To", doing an Agreement For Deed or Lease Option, and doing a short sale.

One way to make money on a property which is 100% financed, is to take over the property "subject to" the existing loan. Then, you can Lease Option the property to a tenant/buyer. You could not only make money by getting an upfront deposit, but you can also make money every month by charging a higher monthly payment. You can even tie the sales price to a future appraisal. This way, you are building up equity in the property until your tenant/buyer exercises their option to buy. That equity would be your third payday down the road.  There's more you can do with "subject to". Say take over the property on "subject to" and find a buyer who's going to live in the property. Many people who wish to own a home are ready to pay five to ten thousand dollars above market rate, if they didn't qualify for the loan.

Some sellers are going to be reluctant to deed you their property at a one-time payment. An Agreement for Deed or Lease Option might be useful here.  This way you will be making the monthly payment equivalent to the seller's loan installment. Also, the purchase price will be the amount owed on that loan.. The net effect is that you are taking over the loan and getting the title later. This time period builds up equity.

If the seller is behind on their payments, it could be a great opportunity to get the lender to do a short sale. This would create equity in the property by the lender taking less than what is owed on the loan. If the property is financed at upwards of 100% of its value, the lender already knows they are going to take a loss. It's just a matter of how much of a loss they are going to take, and how much time and money it will cost them in the meantime. If you can get the lender to give a hefty discount, you could come in with private money and close on the deal. You could then do any repairs needed on the property and retail it.

If you're unable to get a large enough discount to use hard money, you would then have to flip the deal directly to a pre-qualified homebuyer. The key here is to get the property sold to a homebuyer quickly before you have to close on the short sale because you don't want to even try to come up with funds anywhere near full price. To do this, you must have a buyers list built up ahead of time and know how to get the buyers qualified quickly for financing.  Be cautious to take into account that on a thriving market, building your buyers list and getting buyers qualified for financing will be less problematic then on a soft market.