Cashing Out 2-3 Properties / Year
Hello all. I know someone who says they get their income this way. Sounds good, just want to see who else is doing this . I played around with doing it last year pre LAYOFF (Now working, but credit got messed up during unemployment 
) ..anyway, while it was difficult to locate ideal properties I did find a couple.
So here is how I was told it works.. true or false?
oExample: house for sale $180K
oBetween market value and a high appraisal you can get it appraised and get financing for , say $200K.
o Include clause or addition to contract stating the additional $20K is for improvements (might not need this) and at closing seller gets his check, seller's lender gets their portion for mtg, and you get the keys to your house, plus a $20K check.
0 You bet that I will check that my mortgage payments will be covered or "close" to what I am going to rent property for..
o rent it out, rent pays mortage, put some of the $20K away for maintainance or in case house is not occupied, and balance of the $20K is , lets say , your income.
0 one year, just an example, down the line, market goes up, sell property, make another 5% or so, and do this 2-3 times per year, rake in $15k-$20K on each property and you have $45K-$60K income anually.
Good or no good? Possible?
I got another question on mortgages but will post seperately.
BTW, I can't do this right now, but hopefully in the next 12-24 months, unless I find someone as a partner (their credit, my $ if needed, and my "supposedly" knowledge, if this in fact works.
thanks
That sounds like your looking for 100% financing for investment property which is pretty rare to come by. The other thing I would comment on is that 20k for "improvements" might make the mortgage company want to know what they are paying for and control the money.
Would you believe I got approved 100% last year before layoff? I can't believe my credit turned so bad and was so good ..
Granted on the loan paperwork, I put down owner occupied, I didn't tell them it was going to be rental property, if that makes a difference.
It does, you can get 100% for owner occupied and even 95% for "second home" fairly easy using conventional mortgage companies. But if you don't own a house right now, then you can state you are going to occupy it and get the 100%. What you do after closing is your business.
This is a system that works very well. But you still need to get the property at a discount. And you need to be rather creative sometimes to make it work. Many of the banks are getting edgy about cash out for repairs or "improvements" and some are requring that the "improvement" money be put into escrow and withdrawn as the improvements are made (with receipts).
Also, I know it was hypothetical but, 5% increase on $180K purchased retail in one year is only 189K. You will need to wait three years at 5% to break 200K and make an additional profit in the case you mentioned.
But take the case of a house I just purchased: Retail appraisal is $185K. Bought it from the 2nd mtg holder (who had just foreclosed) for 160K and pulled out 10K for roof repairs (according to the most expensive contractor quote) and another 10K in real estate comissions (This is why I got my license). It will be lease optioned for 190K, term of one year, $1200/mo and 8-12K down depending on the new buyer's situation.
FYI,
I know someone doing just what you want to do. But, she makes sure the spread between payoff and appraised amount is bigger, like 50k, and then gets a 90% ltv. It took her a while to get started. She saves a year of payments for each property. She has been doing this for a year and now closes on average 4 a month. I will be doing this soon too.
You have to be able to get a new loan, and that is what I am in the process of checking out.
Good luck
Thanks to all, I agree I didn't add my #'s, but we got the idea right, .... I just
Yeah, my freind who used to do this, said the same thing, "keep a year's worth of mtg payments in the bank" if you can. Wow $50K that would be a big spread... nice...
I thought for the most part, a bank or mortgage co would lend you the "lesser" of the appraised value or the purcahse price???
How does this concept work if this is true - or isn't it?
I'm just getting started, about to purchase my second property.
Thanks!!
There are a zillion lenders out there with many different programs and criterias. You can get a loan that is based off of the appraised value and not purchase price. That is why a good mortgage broker should be a part of your team. They qualify you based on your criteria instead of you going to several banks trying to meet the banks' criteria.
Tanya
Untrue statements on a mortgage app are generally not a good idea: a lie in writing is called fraud, and therefore it is punishable by law. If your lender finds out after closing that you are landlording, they can accelerate and call the note. You would have a difficult time securing financing later, on your future ventures. Also, your lender and insurance companies DO communicate, so you can lose your insurance too. As a mortgage broker, to me it does not matter either way: I make the same $ for an investment loan as for an owner occupied one, but I would not want to share a cell with Bubba, just so you can save $50 a month.
Be responsible!
Pete
Yeah, I've found, in general, lying is bad Karma, and oftentimes gets you in trouble with people with badges. If you only got a 20k spread, that's mighty tight, by the time you pay acquisition costs, holding costs, and fees. Seems like you need to find something with a lower LTV...
Making sure that you have the reserves in the bank is using wisdom. Last year, I purchased a property and at the same time let someone borrow a large sum of $ expecting it back within a short time. Well, I had an unexpected accident in which I could not work for the next 9 months and my life went upside down. My credit is totally messed up but I have not given up and once again back in the game. Needless to say, I never received the $ back. The bright side (I'M ALIVE) and I've chalked it up as "lessons learned".
I think what a lot of newer investors say to themselves is, 'here's a property that's below market value (slightly). How can I make this deal work?' I think that although it's important to be creative, one is better turning down marginal deals and waiting for the right deal to come by. Just a thought.
-e-
Thanks for all the repsonses. We are discussing facts and numbers not "morality" issues.. thank you very much.. and this is in "theory" . As far as I know when all is said and done its not worth the savings checking off owner occupied vs rental property
thanks for the info I requested ansered straight.
I've have heard some bad stories from friends in that past where they have heard of people having several loans outstanding and then they get called in. Does this happen often? If it does and still if it doesn't this type of investing seems a higher risk than some other types.........comments?
You can not get a legitimate loan based on a higher appraised value than the purchase price. Lenders will not grant you instant equity (it is called seasoning). You can refinacnae based on teh higher value in as little as 30 days but that is a different situation. Now, improvement allowances are done, but only if they are legit. You can also get a construction perm loan based on a future/improved value but both of these scenarios are different from "pocketing" the cash or not putting it back into the house. This is a bad way to try and make a deal work. There is 100% financing for investment properties available and I do them all the time for clients (I own a mortgage company). However, I never do 100% financing for myself. The rates are too high and there are much better ways to do it. Only if my clients have no other options and are dead set on a particular home will I do it for them. The problem is that unless you get the house at a very good discount, 100% financing will often put to tight and often upside-down in terms of the payment vs. what you can get for rent.
Keep talking to people and reading on this site and others...there are better ways, even if you don't have the credit or cash to get the best deal...
You can not get a legitimate loan based on a higher appraised value than the purchase price. Lenders will not grant you instant equity (it is called seasoning). You can refinacnae based on teh higher value in as little as 30 days but that is a different situation. Now, improvement allowances are done, but only if they are legit. You can also get a construction perm loan based on a future/improved value but both of these scenarios are different from "pocketing" the cash or not putting it back into the house. This is a bad way to try and make a deal work. There is 100% financing for investment properties available and I do them all the time for clients (I own a mortgage company). However, I never do 100% financing for myself. The rates are too high and there are much better ways to do it. Only if my clients have no other options and are dead set on a particular home will I do it for them. The problem is that unless you get the house at a very good discount, 100% financing will often put to tight and often upside-down in terms of the payment vs. what you can get for rent.
Keep talking to people and reading on this site and others...there are better ways, even if you don't have the credit or cash to get the best deal...