http://www.articletrader.com/ Articles at ArticleTrader en-us http://www.articletrader.com/finance/real-estate/3-classic-no-down-payment-strategies.html http://www.articletrader.com/finance/real-estate/3-classic-no-down-payment-strategies.html Wed, 14 Mar 2007 00:00:00 -0500
There are several "classic" methods commonly used to purchase real estate with no money down. There are an infinite variety of situations in a real estate transaction that could lead to a deal with no down payment. But for the sake of reality, I will focus on those that are most commonly seen in the current market.

1. Seller second - The buyer obtains a new first mortgage for most but not all of the total purchase price. The seller finances the rest.

Purchase price: $100,000
Buyers loan: $90,000 (90% LTV) (new first mortgage)
Sellers finances $10,000 (in the form of a new second mortgage)
The buyer has borrowed 100% of the purchase price. Thus, you have100% financing, and no down payment was paid by buyer.

This is not a difficult strategy to employ if the seller has enough equity, is willing to hold a second, and the first mortgage lender approves.

One thing that is not mentioned in most articles about this strategy is the requirement for lender approval. The lender who is making the 90% loan will have to agree to allow the seller to take back a second mortgage. In cases where the buyer has better credit, this is usually OK with the lender. But if the buyer has a lower credit score, the lender may not approve of this. If your credit score is on the lower side, but you have good documented income, you may still qualify.

Talk to your lender ahead of time and find out if creative financing options such as a seller second would be allowed. Make sure you have a lender who is used to working on investment property loans. Some mortgage companies only have programs for owner occupants. You need to go to a lender who specializes in loans for investors.

2. Another common way to obtain a no down payment loan is to utilize one of the many low or no down payment programs that exist. Many of these are intended for owner occupants, but some are available for investors. Again, it is important to talk to the right lender.

If you have an investment property that you want to sell, consider taking back a second mortgage for 5-10%. This is not a huge amount, and it can help you sell your property faster.

When it comes to finding a seller who will help you create a no money down deal, consider buying from an investor who is willing to be flexible. Some investors are willing to do creative financing simply because they understand that it helps them sell houses. It never hurts to make an offer that includes a seller second. You never know until you ask.

There are some points to remember when purchasing investment property with no money down. A key point is the comparison of monthly payments to expected rental income. When you are financing 100% of the purchase price, your payments will be higher. If you have a second mortgage payment to add to a first mortgage, your payment may be even higher. Be sure your rental income will cover the entire monthly payment.

3. More common among professional investors is buying wholesale properties, using hard money to purchase and rehab.

When the rehab is completed, you want to get a new mortgage that pays off the hard money loan. Since this is a refinance, you can take cash out of the property. You may have to bring some money to closing on the hard money loan, but you get it all back when you refinance, so you end up with no money out of pocket. This becomes not only a "no down payment" deal, but also a "cash back at closing" deal.

It works like this:

Purchase price $100,000
Repairs $15,000
Hard money loan $115,000

Purchase and repair, then get new loan to pay off hard money.
New loan is based on 90% of After Repair Value.
For our example, the ARV is $150,000

90% of $150,000 is $135,000.
New loan for $135,000. Subtract hard money loan pay off of $115,000 leaves $20,000.
You keep the extra $20,000 in cash, tax free since it is a loan, rent your house out and let the tenant pay the loan back.
Your gross profit is $20,000 cash and $15,000 equity. Total gross profit $35,000. Not too bad for a couple months work.

Down payment by definition means specifically money that is used to "pay down" the total purchase price. This does not include money for closing costs, points, interest, and other items such as insurance. But if you are buying wholesale properties, fixing them and refinancing to pull cash out, you should be able to pay all your expenses and have a nice profit at the end of the day. (Just keep some of that cash in reserve for emergencies)

If you do 3 houses per year, and you only net $25,000 total, after paying all expenses on each of the 3 houses, you are still netting $75,000 cash and equity in about 6 to 8 months. Plus, if you are renting these properties, you are also creating additional streams of income through monthly cash flow as well as accumulating equity in each property.

This is a solid strategy to achieve a retirement nest egg and ongoing income for life in less than 10 years. If you look around at the real estate investors who are wealthy, the vast majority own rental property, be it residential or commercial.

They understand the concept of buying at a discount, then holding their properties for years. They get to the point where their holdings are worth double or triple the price paid. This is free money that you can earn simply by buying and holding long term. No, this is not as easy as it sounds, but nothing worth doing is ever easy. If it were, everyone would be wealthy.

There are wholesaling companies in every major city that specialize in selling fixer upper properties that fit with strategy number 3 in this article. Look for their signs on the side of the road, their ads in the paper, or ads in local thrifty nickel type shopping papers.

Most deals do require some out of pocket cash, even if it is only temporary, until you refinance.

True no down payment opportunities are pretty rare these days, with interest rates at historic lows. If interest rates go back up, (and they will) we will see more creative financing and more no down payment opportunities in the future.

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This is an example of the kind of expert advice and training you will receive when you become a member of The Real Estate Arena. Members enjoy access to a suite of web-based training programs for beginning to advanced investors, a virtual office with essential business, marketing and networking tools, along with weekly training, all for a very low monthly membership. For more information go to The Real Estate Arena.

Source: http://www.articletrader.com ]]> http://www.articletrader.com/finance/real-estate/flipping-retailing-leasing-options-short-sales-confused-by-all-the-strategies-out-there.html http://www.articletrader.com/finance/real-estate/flipping-retailing-leasing-options-short-sales-confused-by-all-the-strategies-out-there.html Wed, 14 Mar 2007 00:00:00 -0500
The focus is usually on specific strategies and the step-by-step process by which to execute that strategy. The idea is that this gives you a repeatable, easy to understand process that you can learn and implement quickly.

But after years of learning about real estate and then years of teaching and consulting I have realized that this approach can inhibit your ability to understand how real estate investing works at the most basic, fundamental level.

It is sort of like teaching a kid how to play baseball by saying:

1. Get a hit.
2. Get on Base.
3. Score a Run.

While this is an easy "strategy" for scoring, it leaves the player with no understanding of the fundamental skills necessary to get a hit.

It's exciting to think about scoring the winning run, or making $50,000 on one real estate deal. However, most people who can do that on a regular basis have been working at their craft, diligently practicing and mastering fundamental skills.

These fundamentals are really the keys that unlock the door to investing success.

Home run king Hank Aaron's success was in his mastery of the fundamentals of a proper batting swing. That swing gave him the ability to break the most famous record in all of Baseball.
A real estate investor faces the same challenge when trying to "hit a home run" and make big money with real estate.

Like star athletes, you must master the fundamental skills of your craft, and learn to apply those fundamentals to every prospective deal. The bottom line is if you want to be a star in the "game" and make the big money you have to be good at the right things. But strategy based training tends to divert our attention away from the fundamentals.

Back in the early 1990's I heard Carleton sheets saying that rental property was the way to go. I went to a seminar and heard another guy named Russ Whitney saying that I should be finding houses that were in bad shape and fixing them up.
Then I saw another guy on TV talking about how he got cash back at a closing, and actually made money by buying a house! It certainly seemed that there were plenty of ways to make money in real estate. Still I had what some people refer to as "Analysis Paralysis ".

Today I realize that my “analysis paralysis” was caused by a lack of understanding. The plain fact was that I simply did not know the fundamentals of real estate investing. You might say I knew I needed to “get on base”, but I simply did not know how to “swing the bat properly”.

After a few months of reading articles, searching real estate websites, buying books and tapes, and going to seminars, I piled in the car and started looking at houses. But every time I looked at a house, I felt confused and unsure about what to do and how to know if this really was a decent investment property. For some reason, I just could not seem to connect all the dots

It seemed like my “career” was going nowhere. I went from one seminar to another hoping that each one would be the one that would clear up all my questions. Finally, out of sheer frustration I decided to get my agent's license. As a new agent I was required to take some classes on Real Estate Finance.

We learned to calculate net profits on a sale, buyer’s payments, and how to do comparable market analysis. These calculations were not such exciting stuff at the time, but several years later, when I made the jump to become a full time buyer for an investment company, this gave me the ability to adapt to the investment market quickly.

Using my baseball analogy, you might say "I was working on my swing."
I did not know it at the time, but I was honing those fundamental skills that would later enable me to get involved in bigger deals with higher level investors.

Looking back on all this experience I can't help but notice that the most successful investors, the ones who are truly financially independent as a result of their real estate activity, are those who have mastered these fundamental skills.

Every property has a value, location and character all its own. Mastering the fundamentals means being able to obtain key pieces of information, and then let that information dictate the investment strategy options based on that information.

The greatest single problem facing most investors in the current market is a lack of adaptability to changing circumstances. I believe that this lack of adaptability is primarily the result of not understanding the fundamentals of Real Estate Economics. It sounds pretty highfalutin' but all we're really talking about are the Real Time Market Value, income potential, and costs.

Each property will dictate to you what your best investment options are if you can gather those key pieces of information.

Your starting point is to understand your market well enough to define an average of property values by the square foot - NOT house to house, as with comparable market analysis.

In a stable to improving market as we had from 1995 to 2005, it is easier to avoid mistakes when calculating value. But in a changing market where prices are tending to shift down because demand is changing or slowing, it is essential to be aware of what I call the Real Time Market Value. Learning this fundamental skill is critical for hitting "home runs" with real estate deals.

Fundamental Skill number one: Know Your Real Time Market Value, and use this value to calculate your offer price.

When you pay too much going in, few, if any, strategies will keep you from losing money.

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This is an example of the kind of quality training and information you receive when you become a member of The Real Estate Arena. When you join TREA you’ll have access to live and recorded investor training, networking and investing tools, all for one low monthly membership fee. Get more information at The Real Estate Arena.

Source: http://www.articletrader.com ]]>