Tons Of Cash, But No Income...best Way To Buy House?
Here's a scenario I never thought to ask everyone, but my father worked his tail off for 33 years and retired pretty darn good 
He and my stepmom are looking to buy a home in the next year but as they found out with his parents house he tried to refi this year, since he has no paycheck lenders would turn him down. Tons of money, but no paycheck and lenders turned him down...amazing world huh?
So anyway, this all happened before I knew about this site or I would have asked about that...so what can he do, who can he deal with that will give him a great loan, great rate, know what they are doing, and know that since he has no income he'll be fine and will make his payments?
The property more than likely will be in Arizona, possibly Nevada (didn't know if that changes things or not)
Thanks,
Christian "The Solutions Kid" Beebe
[addsig]
Ok he needs a NINA loan not stated.
No Income No Asset verification.
It requires a good FICO and he will have to make a decent size down. But that is not all bad.
There is a local bank in the area that will do them. Drop me a PM and I will send you the name.
It will help if he uses them as his bank. Banks love it when you keep cash stored inside. I am building a relationship with one of my local banks doing just that.
Define "tons of cash" and the aprox. value of the home that they would be purchasing. Both are relative.
Around 3 million, looking at a $800,000 home.
Christian
[addsig]
I would consider buying that house using cash. With huge twin deficits in trade and federal budget, overpriced stock and housing markets, bonds and savings accounts paying close to zero, being debt-free is not a bad idea, particularly if you are retired.
I would vote for the debt free way as well. Even with 2.2 mill left over, invested correctly, he could just live off the earning every year.
Understand, but alot of that is in stock, options, etc...can be made liquid but not something that wants to be done.
[addsig]
Why not borrow against the stock portfolio. margin rates are very inexpensive.
Bad advice. Real estate is a little bit better than stocks.
Even with a growth index mutual fund, real estate is better.
I wouldn't do it with a Margin account either since you have to borrow against your stocks.
Quote:
On 2003-11-26 23:07, sanjosee wrote:
Why not borrow against the stock portfolio. margin rates are very inexpensive.
Come on now, I just can't believe that if I called 25 banks or brokers and told them that I had 3 million dollars in cash, and wanted to finance a 800k house but I don't have an income that all 25 of them wouldn't come up with a solution in about 5 minutes.
3 million dollars? Where is this 3 million dollars at? Buried in the back yard? If it is making interest that is income.
You'd be surprised how many lenders turned him down and said since he doesn't have a paycheck they can't get him financed, underwriters wouldn't approve it. Crazy huh? And these are the bigs boys in the business.
[addsig]
Hey Solutions,
No offense but this whole topic is absolutely rediculous.. If you parents have an net of 3 million and your being an active member on here, the many possible solutions and better investment ideas are plentiful..
Obviously I'm gonna agree with another poster, pull his funds from their current investments buy his house cash!! This is a far better investment that any stocks, commodities, or otherwise.. Your parents would be paying MORE money in interest on any r.e. loan than they are earning on there invested funds in addition to many investments are not secured and high in risk (stock market wonder example).. Real estate would be a wonderful place for them to put there funds & earn an excellent return interest) and monthly stable cash flow while having there funds fully secured by an APPRECIATing assett.. You should be explaining and reccomend to your parents to consider carrying paper on local real estate in their area and/or purchasing and holding rental properties..
You know they would be better off investing in RE including their own house and if they are not open to that concept tell your parents to stop wasting your time..
And if they have that much invested there is DOCUMENTABLE income (interest earnings and payments) from their investments and such does satisfy lenders..
My two and them some cents..
Chris
Probably more tax benefits, too. Z
Around here if you put 35% down no one cares about your paycheck.
Quote:
On 2003-11-27 00:05, SolutionsKid wrote:
You'd be surprised how many lenders turned him down and said since he doesn't have a paycheck they can't get him financed, underwriters wouldn't approve it. Crazy huh? And these are the bigs boys in the business.
This makes no sense. There are nodoc loans available all day long for 20% down or even less.
If the value of the investment portfolio has gone up in value your Dad would be killed on taxes. Taking that much income in one year would not be a smart thing to do.
If the investments are held in a tax defered account (IRA 401K) which may be the problem here. Your Dad would be an idiot to pull out a big chunk in one year to pay cash for a house. The taxes would eat him alive.
Year to Date small cap stock funds are up 30 to 40% and still doing well. Why would anyone cash out something making that kind of return take a big tax hit when they could borrow 6 or 7% money and get a tax break?
My small portfolio that I have been trading is up around 30% and most of the time I have been in cash. Would I pull it out take a tax hit when I could borrow at 7%? HELL NO!!
I don't know everything he has but it would be stupid to pull out the money out of his investments if that is what he is using to live. Why would you pull $800,000 of out your portfolio when you use that to retire on? It would be much easier to finance it, put a big chunk down and go from there.
I think I mislead some of you, but he got turned down when he was trying to refinance his parents house, which he owns, and hardly no one (traditional lenders) would refi him because he had no income...it wasn't until I directed him to other people that they did the deal....ONLY to now find out that they "messed" up the paperwork and the final paperwork reads 15 years where they promised in their orginal documentation it would be 30 years...they are saying it was a mistake by the secretary but they won't change it...so have a lawyer on them...so as of now he has to make payments on a 15 year schedule because they messed up. So needless to say he is a little weary about getting back into working with non of the big names when he goes to purchase his home because what has happened already with the non-traditional route.
After he purchases the home in a year or so, he is going to finance all the transaction that I do and be my private lender because I have shown him what can be done in this business, which will be fun.
He wanted to move to Vegas, which is where I will be going in a year or two, but everything there sells quickly and where he lives in Scottsdale, AZ there is a big fire sale (not literally) where these million dollar homes aren't selling and the builders and owners want to get them off their backs. So even though in my opinion Vegas has more to offer in regards to life if he can get a 1.5 million dollar home for $800,000 then he would be crazy not to.
Any of you read Smart Money magazine?
Christian "The Solutions Kid" Beebe
[addsig]
Why does a retired couple need an $800K home anyway?
Steer your folks away from banks and apply with any mortgage company. Even a novice loan originator could get your folks' home financed.
With 3MM in assets, your folks should be investing in discounted real estate, not stocks, bonds or annuities - well, maybe some. If they are under the age of 70 1/2 they should be investing through IRA's or 401K's
That's what I'd have my Mommy and Daddy do.
C-
Do what it takes to buy it for cash if poss.
JD
Quote:
On 2003-11-28 16:15, jdflybuy wrote:
Do what it takes to buy it for cash if poss.
Why would you recomend that?
But before you answer I want you to know how I think on this subject. This link is to the extream of my way of thinking but it will help you understand where I am coming from on this subject.
http://www.ricedelman.com/planning/home/rule21.asp
Hey SK,
Are your folks set in staying in Scottsdale? I have a great house in Tempe they could get for a lot less than $800k!!!
Ryan
Interesting article, cashman. However, the gentleman that wrote that article also promotes the idea to NOT use borrowed funds to invest in real estate.
Roger
I don't agree with every thing that he says. As for the idea to NOT use borrowed funds to invest in real estate. Perhaps that don't work where he lives! (Sorry I could not help myself)
But this tread is about buying a personal home and keeping a large cash reserve.
A slightly conservative portfolio should way outpace the rate on a fixed mortgage over time. Perhaps not this month or year but over a five year period stocks should do much better than 6 or 7%.
So why take a tax hit to cash out on investment that will out perform the interest you will pay on a mortgage? [ Edited by lacashman on Date 11/28/2003 ]
Solutions, I queston your details. If I had 3M in my portfolio, cash whatever, I am going to know up close and personal, who if taking care of my money. You said something to the effect that the big lenders all said their underwriters would turn it down. I have a lot less than 3M and I personally know the presidents of the 2 local and 1 national bank that I use. True, they lend by committee, but I already know the answer by the time they go into the meeting. If he is worried about the tax issues of paying cash, which I agree would be foolhardy, it can be a fairly simple task to borrow against a pledged account or portfolio. Hopefully he is diversified enough that he knows what I am talking about. In other words he puts up an interest bearing account equal to or greater than the amount he wants to borrow (800k) as collateral against the loan. The bank loves it, they have an asset equal to a debt, and can't lose on the loan.
Good Luck,
Shawn(OH)
I did not know all that cash was not really cash. If the money is in 401k, your dad may pay a penalty and lose tax benefits.
I liked the story of Ed and Pat so much I wrote one myself.
Disclaimer: I gave those names to my friends, but I know those 2 guys and their stories are mostly true.
I have a friend, Pat, who was working for Comverse Tech in MA and another one, Ed, working for Lucent Tech in NJ. Pat is very frugal, always buys pre-owned cars, shops at discount stores, lived in a 2-bedroom apartment for 8 years, while making a 6-figure salary, to save enough to make a huge down payment on a house he built. In 2000, he told me he had $300,000 in company stocks, in addition to his 401k. He refinanced several times to bring his mortgage balance down.
When I met Ed, he was building a 12-bedroom house in Bridgewater, NJ, driving a BMW and a minivan. He took a huge mortgage with interest-only payments. He wanted his money to work in the stock market, not stay tied up in a house. He wanted his tax-deductions too. He had a lot of LU (and other tech shares) and options and LU was trading over $50. A couple of months later, LU, went down to 18 and he modified his house plan a little bit. When I asked whether he thought about selling his LU, he thought I was crazy, he could not sell at 18, when he didn’t sell at 50.
To make the long story short, both Ed and Pat lost their jobs. Pat’s $300,000 holding of stocks is worth about $30,000, but his $350,000 house is worth about $550,000. He has $200,000 mortgage on it. He has taken a job in a community college for $30,000 per year. He still lives in his house, owns two cars without any car payment. I have introduced him to a broker, who is arranging loans for real estate investments. He has an income and a decent home equity.
I have not kept in touch with Ed. He never got his house built and LU stocks went under $1. I hope Ed is doing ok somewhere. The massive tax cuts, wanton government spending and printing of paper money have created enormous liquidity in the economy. Liquidity and low rates are driving home prices so high that rental incomes are not enough to generate any cash flow. S&P is trading at more than 30 times earning. As a rule of thumb, if stocks trade at 20 times earning, they go up about 5% over the next 10 years. Dollar is crumbling as federal budget deficits and trade deficits widen. Pat is not sure how long foreigners will keep on funding the twin deficits. Liquidity-driven economic growth is not being translated into job growth; jobs are going to China and India. Corporations, governments and consumers are drowning in debt. Pat thinks we can get out of this debt trap by creating massive inflation and debasement of dollar. Pat is also very worried about the implications of massive unfunded social security and medicare expenses. So Pat says if he had $3m, he would buy his house with cash, buy some properties with positive cash flow, split rest in stocks, bonds (US and Euro-denominated German) and Gold coins. He would try to live off his rental and investment income. If the doomsday scenario doesn’t play out, he can still give the gold coins, bonds and the houses to his grand kids someday and they will call the grandpa a saint.
Ok,
to be fair the market can provide a pretty good return. My cash on cash might be higher with CRE but I had turned 104% in my trading account by September of this year (now down to 96% but the year is not over yet).
There is an advantage of pulling it off margin. If you rates are good you might be able to get it for 1-2-3%. Additionally you would own the home free and clear. If the market tanked again you would still own your home (depending on your equity agreement).
Whereas if your equities tank you might not be able to make payments, might lose your home, and would have little to show either way.
Regardless of the many ways to do something there is an opportunity out there. If you buy it and hold it for a year or two (even at a higher interest rate) I would think that as the owner of record it would be easier to get financing.
Best of Luck
PS enjoyed your work on the spreadsheet, saved me time and $$
Randall
[addsig]
Ditto...these equities could be in stocks paying little or no dividends, and considering retirement goal, perhaps reallocating now with 15% max. capital gain, and rebalancing to a more modest home (10% of their net worth), another 40% placed into mortgages, rentals, and get the remaining 50% into dividend paying stocks and royalty trusts. The treasury's current rate of increase to money supply has got to change eventually, and the bond mkt. is ripe for slaughter when rates surge, creating great opportunity for liquid capital...that's my take. Keep in mind that some of us could enjoy historically long retirements in the future, requiring withdrawl rates of <4% of capital in order to accomodate.
I agree with everyone. There are loans that can be done for your father. A broker may have to work an extra day to get it done but everything is possible with that much money.
Pay Cash, if not there should be a number of banks that can finance them.
Yeah this is not an issue as long as the credit is good. We have a 100% no doc program for owner occupied properties. There must be some other problem we're not aware of...