- Investing in real estate can be intimidating, but there are ways to get started, even if you're low on capital.
- The self-described 'clever investor' Cody Sperber started investing in real estate with no money to his name, and now he's done hundreds of million in deals.
- Sperber utilizes a number of investment strategies from 'wholesaling' to 'bird dogging,' and said investors low on capital should use these and other strategies to get started.
- Visit Business Insider's homepage for more stories.
Investing in real estate can be intimidating, especially for beginners who are low on capital. But there are ways to get started, take it from Cody Sperber.
The self-described "clever investor," Sperber started investing in real estate with no money to his name. Now, he's done hundreds of millions in deals.
It all started in college, when a friend flipped a house for an $80,0000 profit. Sperber couldn't believe it, having always thought you needed deep pockets, a real-estate license, construction knowledge, or connections to flip. But when his friend pulled out a napkin and penciled out a "no money down" home flipping strategy called wholesaling that didn't require capital or risk, Sperber was hooked.
He started flying all over the country, going to seminars and workshops, and bought dozens of courses trying to get started. But nine months later, he was $30,000 in credit card debt and still hadn't done a single deal.
He threw in the towel and got a job as a bookkeeper to pay the bills while he finished school. "It was the worst job I ever had," he said.
But soon after, a good friend invited him to attend a real estate seminar in San Francisco, put on by a real estate guru named Jack Miller. "At first I didn't want to go, but I decided to join him at the last minute," he said. "That one event changed my life. When I walked into that room, I knew instantly it was different than any other event I had ever gone to. Jack was the real deal, and his community was full of dealmakers."
During a break in the seminar, he met an "old-timer" named Lyle Wall, who quickly became Sperber's mentor. "I knew his mentorship was the piece I was missing," Sperber said. "I convinced him to take me on as a student, and over the next 30 days he taught me more than the previous nine months of books and tapes."
Within 30 days, Sperber had his first big wholesale deal, and flipped it for a life-changing $40,000 profit.
He quit his job as a bookkeeper, hit the ground running, and with Wall's help flipped well over 1,000 properties over the next few years, growing his real estate investment strategy along the way to include rehabbing, spec-building multi-million dollar properties, owning residential and commercial rentals, and eventually becoming a private money lender as well.
Having began his journey in debt, Sperber has strategized his way to hundreds of millions in deals. And he shared the strategies he said investors low on capital should use to get started.
Wholesaling real estate, also known as "no money down real estate" is the process of finding and controlling heavily discounted real estate and then selling it to a cash buyer. Unlike flipping, he said, a real estate wholesaler doesn't do any renovations or additions, and carries no costs.
It's how he got his start investing in real estate, and he said it's an easy way for beginners low on capital to start building their bank accounts.
"A wholesaler will find and contract a distressed property then find an interested party to buy the property," Sperber said. "The wholesaler contracts the home with a buyer at a higher price than with the seller, and keeps the difference as profit."
While most of the American public wouldn't sell their home at a discount, Sperber said about 15% of the population is often motivated enough to do so. The objective of the wholesaler is to seek out these highly motivated sellers — who are enticed by the appeal of quick cash or the freedom that comes with relinquishing responsibility of a property — and then enter into a contract with that seller before shopping the contract to a real estate investor who has deeper pockets and wants to rehab the home.
2. 'Subject-to' investing
"Subject-to" investing is purchasing a property subject to the existing mortgage that is already in place.
Essentially, this is when an investor comes in and makes back payments for a homeowner who is behind on their payments, as opposed to the home falling into foreclosure. The original owner then deeds the property to the investor and moves out — often to downsize into a more affordable living space — while leaving the loan in place and the property under the investor's ownership.
And as the buyer in a subject-to, Sperber said you aren't formally assuming the loan. The terms of the original note stay the same, including the name in which the loan was purchased. Instead, you are taking on the responsibility of making sure the mortgage is paid on time until you renovate and resell the property.
An average return for a subject-to investment is hard to give, according to Sperber, who said profits can differ greatly depending on expenses at hand.
3. Tax lien investing
When you purchase a home, you're required to pay property taxes. And if a property owner defaults on those taxes, Sperber said, the city government can make a legal claim — or "lien" — against the property for the amount owed.
That's where a tax lien investor can step in.
For the city to recover the money the property owner hasn't paid, the city sells tax lien certificates to investors. The delinquent homeowners then have a period of time — usually 120 days — to pay the investor the tax, penalties, and interest owed, Sperber said. If they fail to pay off the delinquent amount, the investor can foreclose on the lien and take possession of the property.
That said, tax lien investing most often occurs on single family homes, Sperber said, and works best in smaller markets, often returning an interest rate between 4% and 6%.
4. Bird dogging
"Bird dogging refers to someone who spends their time trying to locate properties with substantial investment potential," Sperber said. It can be a lucrative strategy for those looking to maximize their profits for less.
Essentially, bird dogs find deals and bring them to the wholesaler, having plugged themselves into a real estate community to find and source deals.
With no risk, no license, and no real estate experience required, a bird dog usually represents the first half of a wholesaling deal, looking for motivated sellers or undervalued properties with the intention of passing the deal on to a real estate investor in exchange for a percentage or fee.
That said, representing half the wholesale process means a bird dog's average return can fall around $6,000, about half what a wholesaler would typically profit.
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