Six Ways To Finance Your Foreclosure Deals
Six Ways To Finance Your Foreclosure Deals
With all the hype about how to buy houses with no money down and make a quick fortune, it’s easy to see why people get agitated when they’re told you need money to make money in real estate investing.
Well, you may not need a fortune, but you’re going to have to shell out some cash for every real estate deal you do.
The good news is it doesn’t have to be YOUR money.
And it doesn’t have to be gone for that long.
There no doubt are sellers out there who will sell their properties for no money down. But what about the rest of the people involved in a real estate transaction?
Who, for example, is going to pay the Realtor, pay for the title insurance policy, the homeowner’s insurance policy, the appraiser, etc.? These things don’t come free.
You could write a dozen offers to buy properties with creative no-money down financing, and every single one of them probably would be rejected without even a counter offer.
Why?
Simple. The sellers want money. They’re no different from you or me; they have to pay their bills, buy groceries, send the kids to college, etc. You have to put yourself in the seller’s shoes every time you make an offer. Ask yourself, for example, if you had a property with $15,000 in equity, would you rather take $11,000 up front and split, or take $80 a month for 15 years?
Well, what could you do with an extra $11,000? A lot. But what you could do with an extra $80 a month? Practically nothing.
Here are some standard ways of getting money for your real estate deals:
1. Use Your Own Cash.
Of course, this will apply only to some, but it really is the quickest way. Not to mention you could very easily get a discount on the property if you’re able to do this; all-cash means fast closing, and that’s a beautiful thing for any seller. This should be your long-term goal – to buy real estate in cash.
2. Post Investor-Related Ads in the Your Local Newspaper.
This actually works quite well, but it will take some selling on your part. For the most part people hate selling, but they look at it in a different light when they see a $30,000 profit staring them in the face.
Here’s a sample ad:
Earn 10% on your money in as little as
45 days guaranteed!
100% secured investment!
Call xxx-xxx-xxxx
Investors jump at a chance to get into these types of investments. Ten percent in a little over a month is an unbelievable return. The best part about real estate is that you don’t have to give up much of your profits. For example, say you borrowed $10,000 for a down payment on a property. The interest you would pay the investor would be a measly $1,000. And if you’re looking at the right properties, there should always be at least $15,000 profit left on the table before you even enter into contract. Most people would spend $1,000 to earn $14,000 any day of the week.
3. Apply for a Personal Loan.
These are the types of loans you can get from finance companies. Here are their pros and cons:
The Pros
a. Fast approval. Most loans can be applied for and approved the same day, which means fast cash in your pocket.
b. You don’t need to have A-1 fantastic credit to get one of these loans.
c. Most do not have a pre-payment penalty. Always ask this question before you accept any loan. Know that some pre-payment penalties can add up to hundreds or thousands of dollars, depending on the size of the loan. Keep an eye on the fine print.
d. Most do not require collateral. This means you don’t have to put up your house or car to get the loan. That makes things a lot easier, obviously.
e. These types of loans are easy to find. Just look in your local Yellow Pages under “finance companies” or “loans.” I’m sure you’ll have quite a few to choose from. In case you don’t, just Google “personal loans,” and you’ll find more than you know what to do with.
The Cons
a. Personal loans command a higher interest rate – as much as 18 to 26 percent. In other words, you don’t want to keep this type of loan open for long. Just make sure the deal is right, because you can lose money as fast as you make it.
b. Usually these loans have a pretty high monthly payment – they can eat up your bank account in a flash if you keep them open for even a few months.
As you can see, the pros outweigh the cons, but that doesn’t mean that personal loans are a perfect solution. You can lose a lot of money in a hurry if you’re not targeting the right type of property. You probably should use these loans only if you find a deal with an easy $10,000 or $15,000 profit. And remember: Profit doesn’t mean equity. You can’t spend equity, you can only spend cash.
And now, here is a financing technique for people who like to swim with sharks:
** Seriously, be advised that this financing technique can be very risky. It can lead to huge losses for you and your family if you don’t know what you’re doing. So play it safe when you first begin until you can accurately estimate profits just by looking at a deal. **
4. Credit Cards Galore
A lot of real estate investors have used this technique to buy properties at an all-cash price and take advantage of the leverage by doing that.
Basically this is how it works: A person with average credit will find as many credit card applications as possible and apply for them all at the same time. By doing this, the person with average credit can easily get a credit line of $20,000 or more. So this insane investor will take a $20,000 cash advance on his credit card to buy the property of his choice. To use this $20,000 he’ll probably end up paying $22,000 back. Again, not that bad if you know what you’re doing. But before you do this, you better know how to sell the property in a week or two or the interest will take every dime of profit and then some.
In the world of real estate everyone’s situation is different. There isn’t a “one-size-fits-all” solution. Evaluate your situation and make a decision based on what works best for you. You have to do this with every real estate deal you get involved in every time if you want to make serious money in this business.
5. Mortgage Loan
The next source for money is a standard real estate mortgage. This is where it can get a little tricky, especially if you’re not familiar with mortgages.
Depending on how good your credit is, you will either go to a bank or to a mortgage company to obtain a mortgage. As with any bank loan you’re going to need good credit, so if your credit is a little on the shaky side you’re going to have to find a mortgage company (also known as a mortgage broker).
OK, say you found a mortgage company and you’ve looked through the various loan programs and you have chosen the best program to fit your needs. Your last step is to pick a loan officer you can trust. Sad to say, but a lot of loan officers out there don’t have a clue about most mortgage programs available today. Some loan officers will tell you anything you want to hear just so you get the loan from them. There is a lot of money in originating loans, so don’t underestimate what someone might tell you to benefit himself.
The point is, be aware of all of your surroundings when doing business in the real estate sector. Real estate is big business and not for the faint of heart. There are sharks in every business and you don’t want to learn that the hard way.
Remember, there are many ways of financing other than standard mortgage originations. Your best bet with mortgage brokers is to call them directly and ask questions, because loan programs and rates change daily. You have to do your own research if you choose to use this type of financing.
6. Hard Money Lenders
And what, pray tell, is a hard money lender? Not unusual that you should ask, because there are only a few sources for hard money loans available today.
A hard money real estate lender loans on the future equity of the house after repaired value. Unlike conventional lenders, these lenders don’t care about what the house is worth at the present time. They don’t even want to know; all they care about is what the house is going to be worth after it is fixed up and ready to sell.
Here are some important facts about how hard money lenders work:
1. They loan on future equity, not what the house is worth.
2. They can close in as little as two weeks.
3. You will not go through nearly as much red tape as you would if you went through a conventional lender.
4. They give you the money to fix it up in a draw-type system. (If you don’t know what that is, just follow the example below; it will explain everything to you.)
5. Hard money loans are short-term loans, generally 3-6 months.
6. They generally loan as much as 65% of after-repaired value. For example, if you found a house for sale for $20,000 in as-is condition and it would be worth $60,000 after repairs, the hard money lender would loan you as much as $39,000, which would leave you with almost $20,000 to hire someone you’ve found to help bring the house into a livable condition.
7. Hard money lenders usually do not require a down payment. You read that right – no money down. A conventional lender almost always requires at least 20 percent down with good credit for an investor property. Depending on how bad your credit is, however, you may have to pay a small fee. But some hard money lenders can even finance that fee directly into your loan; you just need to ask them about that.
8. And last but definitely not least, they will give you money even if you have bad credit, no pay stubs or no tax returns. This really opens doors for most entrepreneurs.
Let’s face it, many of us who’ve ventured out on our own to start businesses probably have had some bad credit experiences that a conventional lender would laugh at. So these hard money loans are a second chance for us to make some serious money in real estate. Find the deals, get approved and make some huge paychecks.
Here’s a real-life story about a hard money deal:
(** Addresses have been altered to protect the privacy of the people involved. **)
3435 Detroit Street (HUD home)
Purchase price = $43,000
After repair value = $88,000
(Investor took out 60 percent of after-repair value, which was about $53,000.)
That left him with $10,000 to repair the house. He estimated the work would take about eight days. The house needed new siding and paint. He got bids on the work. (You can, of course, choose to do the work yourself.)
Bids:
Contractor A: $12,000
Contractor B: $9,000
Estimate from a local handy man:
Labor: $2,000
Materials: $2,500
Total $4,500
He didn’t have time to deal with the handyman. So he went with Contractor B with the bid of $9,000. He had an escrow of $10,000, which meant he wouldn’t break his budget.
When the work was completed the hard money lender had an appraiser check it out, and then the lender cut the contractor a check for $9,000 – all within 48 hours.
It was that simple, with nothing out of his pocket.
** That is how people with bad credit and no money make fortunes in real estate. **
Here are a few more tips:
** Don’t even LOOK at any deals until you decide how you’re going to pay for them.
** Once you make your money decision, you need to target your market. Pick a certain city or a certain part of town to invest in. You need a working knowledge of the supply and demand. You cannot be an expert in five cities at the same time. So in the beginning you must target a city or area and stake your claim. You should start by targeting lower-priced properties.
This is where an investor can make huge profits right away. It doesn’t take special contacts or that much knowledge to make deals go through on lower-priced homes. Think about it: Most people are not going to let an amateur investor write contracts and deals on $500,000 homes – it ain’t gonna happen!
** Look for lower-priced houses that need some sort of cosmetic work. A house in perfect condition is the exact opposite of what you’re looking for.
What you want is the “dog” of the neighborhood, the ugliest, nastiest looking house on the block. This is the type of house you’re going to do some work on and get appraised for $30,000 more than you paid for it. You’ll never get rich buying houses at market value. That’s a fact. It’s just like stocks, you always have to find the diamond in the rough that no one’s paying attention to.
By: Dave Tishendorf
Article Directory: http://www.articledashboard.com
To get a $1 million line of credit regardless of your credit record, go to Dave Tishendorf’s website at www.buy-foreclosed-home.com.
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