OfflineI was talking to a student today who was doing a deal in California where she had arranged a hard money loan for 75% of the purchase price and rehab cost. She had put a property into contract for 640K and its ARV was 1.3 mil. She had also lined up a contractor/investor who was willing to joint venture with her and put all the money up for the rehab, which meant that with the loan she had arranged, she did not have to put any money into the deal. She and the contractor had agreed to split the profits. The rehab cost were 225K, and the closing and holding cost were approx. 156K and her financial cost were 46K, leaving a profit of 233K to be split by her investor and her. Now that is a sweet way to make a great profit with no money down. I have listened to a few people tell me there are no deals to be made in California because prices are going up so fast that properties are getting multiply offers above asking price. Well, apparently there are still deals to be had, if you look in the right places. The properties in coastal areas can be expensive, but the profit margins can be very healthly if you find the right investors to joint venture with you in doing deals. The investors are out there just waiting to find the right project in which to make a good return on their investment. Find it for them and you will profit too. Builders can be a great source of money because they want to generate build jobs for themselves and their crew. Utilize them for the benefit of both of you. Have a great day!
Deals with no money down
Posted on: Thu, 11/07/2013 - 02:54
WOW whata deal. We havent thought about adding builders to our buyers list but thats going to change.. Let me get this right, find a builder/investor venture with him and he has his crew rehab and both split the profit. Will a builder do that up front at his cost and hold that until its sold?
That sounds like the builder has a lot of skin in it and I/we have nothing,hmmm.
Aaron-n-Suzy
Don't underestimate yourself. YOU have the deal. Without which, the builder has $$ just sitting in the bank looking for a use...
Karen
"You're never too old to be what you were meant to be!"
www.deangraziosi.com/real-estate-forums/investing-journals/59128/day-for...
"Shining Like a Star & Dancing on Sunshine"
"Shoot for the moon! Even if you fall short, you'll still land among the stars!"
Karen is right! It can be a hard concept to grasp..I know I have struggled with it.
Aaron-n-Suzy we have got to remember that we are bringing something to the table, knowledge, skills and most importantly the opportunity meaning the deal!
Builders and developers are a great asset on your team!
Btw, thanks for sharing the story coach. It helps put things into a practical light!
warmest regards,
Lisa Richardson
Karen, Lisa thank you both and yes I keep thinking we have to bring money into a deal, gotta get this out of my thoughts.
Going to be calling builders after this week end, we have our 3 day training this week end so we are super excited and will keep everyone posted.
Thanks again.
Aaron-n-Suzy
I remember my three day training. I got home and immediately started taking action. Literally I put up three ads on Kijiji(same as Craigslist) at 11:30 p.m.
and at 7;30 the next morning my phone was ringing.
We came away from our B.O.G. training having met other great investors and our trainer Chad was terrific.
Looking forward to following your journey.
warmest regards,
Lisa
Our trainer was Brock he did an awesome job.
We now have 3 buyers on our list, one of them rehabs and another likes the finished rehabs,thinking about trying to get both ends of this deal who knows.
Coach, we now see that contractors cannot only help with rehab pricing but are buyers as well, looking for one as we speak.
Thanks again
Aaron-n-Suzy
My wife attended Dean’s one day live event on August 26, 2013 in St Paul, Minnesota whiles I had traveled outside the country. When I came back, she explained everything about the success in real estate. We had fears about the trends in real estate market, but watching Dean’s blog has helped us to overcome our fears and doubts, and currently on our day 3 for the 30 days formula course. So far, we have started to identify our goals, action steps, potential problems and how to overcome the problems.
Charles K S Anku
Congrats on tacking that big step forward. Deans site is full of helpful people so dont be afraid to ask anything.
You should fill out your info more so everyone knows more about you guys, it helps.
Best wishes
Aaron-n-Suzy
It may sound like a good idea to buy a home with no down payment. It’s hard to save for a large down payment, and it’s scary to part with that money after you managed to save so much. No money down loans would seem to be a solution, but they’re hard to find and often a bad choice.
What it Looks Like to Put No Money Down
How is it possible to buy a home with no money down? You generally have to get creative. One of the most common approaches used before the financial crisis was the 80/20 loan (or “piggyback” loan). You’d borrow 80% plus 20% -- therefore 100% -- of a home’s purchase price.
The 80% loan is very similar to a loan that most homebuyers use when they make a down payment: a plain-vanilla loan like a 30 year or 15 year mortgage (fixed rate or ARM). Where does the other 20% come from? It’s a second mortgage that you apply for simultaneously with your first (80% mortgage).
How Second Mortgages Work
No More No Money Down
Nowadays, it’s hard to buy anything with no money down. Since the financial crisis, lenders are averse to taking on that risk and allowing you to do so. It was fine in the past when they assumed that home prices would only rise, but now everybody knows that losses are a real possibility. If you don’t pay the loan off, they’ll foreclose and have to sell your home. They need to sell it for more or less what you paid (it costs money to foreclose and sell a home), and that’s not always possible.
You may still be able to buy a home without a down payment. A few programs, such as VA loans, still exist. FHA loans, and even conventional lenders, may also allow you to buy with a relatively small down payment.
FHA Loan Basics
Is this a Bad Thing?
It’s probably no tragedy that these loans are a thing of the past; you’re better off without them. They've caused headaches for lenders, but they’ve also caused plenty of heartache for borrowers.
No money down loans result in higher interest costs -- the price you’ll pay over the life of your loan -- because you’re paying interest on 100% of the purchase price. What’s more, second mortgages generally have higher interest rates than first mortgages, so you’re paying a premium to borrow the extra 20%. Yes, it is possible to refinance or pay the second mortgage off early, but it’s easier said than done.
To see how interest costs change when you borrow more, run some numbers with a loan calculator.
In a similar way, buying a home or car with no money down means you’ll have higher monthly payments. If you can’t save money for a down payment, is a higher monthly payment in your best interest? These loans allow you to get the purchase done today, but you have to deal with the consequences for years to come.
Finally, you may have to pay for private mortgage insurance (PMI) when you have less than 20% equity in your home (in other words, when you've borrowed more than 80%). This extra monthly expense will add thousands or more to your total lifetime cost and it further increases your monthly payment.
Essentially, you’re taking a big risk when you buy with no money down. Your income needs to stay the same or increase and your home needs to increase in value more quickly than you bleed cash (who doesn’t believe those things will happen -- but how many people have been proven wrong)?
Is it Always Wrong?
Does this mean you should never buy a home with no money down? Not necessarily -- but they are often misused and abused. If you evaluate all the alternatives, you may find that it makes sense to skip the down payment. However, you need a solid (as opposed to hopeful and optimistic) long-term plan that allows you to pay off the loan in good times and bad. jpritchard