BiggerPockets

There is a dark side of buying a property with no money down at full market value.

I get alot of calls each week from people that bought their property last year and got a 100% loan and now they have to sell the property.

As a Realtor I have to tell these people that they will often have to bring 10k-20k to closing to get rid of the house and pay Realtor Fees and Closing Costs.

Often the seller wants to just mark the house up an additional 20k to see if it sells (which never happens). I have to tell the sellers that the house will never appraise for what they are trying to sell the house at.

The moral of the story is that [/b]if you don't pay to get into a house then you may have to pay to get out of it if the market goes down[b].

FSBO maybe saves you 3%. You'll still have to pay 3% or so to the buyer's agent. And you'll still have all the other closing costs, title insurance being the expensive piece.

if you don't pay to get into a house then you may have to pay to get out of it if the market goes down

I disagree. If you don't have at least 10% equity, then you'll have to pay for transaction costs. If someone has only 10% equity, they have no equity. So, if you put nothing down, and prices even remain flat, you'll have to pay to leave.

These exorbitant transaction costs are one of the biggest problems with real estate as an investment. Stocks used to have huge transaction costs, too, though never as bad as real estate.

Originally posted by Lee Allen

There is a dark side of buying a property with no money down at full market value.

I get alot of calls each week from people that bought their property last year and got a 100% loan and now they have to sell the property.

I disagree. There is nothing risky about buying with no money down in and of itself. The risk comes from not having enough equity.

Lee did say "no money down at full market value". Lots and lots and lots of folks bought houses just like that in the last five years. They still would if the loans were still there.

I was pointing out that the last few years homebuyers that bought houses at retail value now have to pay to get out of the house.

That's more a reflection that many people who try to be real estate agents can't really cut it and move on to greener pastures. The reality for a seller is that they have to pay 6%, more or less, to agents to sell their house. There are still a few mutual funds that charge that kind of load, but for the most part no-load fund have come to dominate.

Originally posted by Lee Allen

I was pointing out that the last few years homebuyers that bought houses at retail value now have to pay to get out of the house.

Most of us investors realize that. It is common knowledge taht if you bought at retail market value at the peak of the market, you were upside down shortly after.
The real key is this, if you are buying as an end user, make sure you plan on staying for a long tim and can afford the fixed payment 30 year ammortized loan payment. That way, does not matter what the market does. If buying as an investment, you should not pay full market price ever!

I know of one new homeowner that had been renting for years. A few months after moving into the property the AC unit died. The homeowner wanted to know who was going to pay to get it fixed.
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HAHA, LOVE IT! :lol:

Originally posted by Mr_Investor

Simple solution FSBO.

Did you know that about 80% of FSBO eventually list with a Realtor. Its because most FSBO have never sold a house before and they are unrealistic about what it takes to sell a home. They believe that if they put a sign in the front yard and then list it on one of the FSBO websites it will sell. After a few weeks of getting calls from buyers that want to come over to see the house and then finding out that they can't get qualified they get flustrated and just list with a Realtor.

Most Realtors have made the same mistakes that a FSBO makes but they learn from them and learn how to screen people.

I get calls from "buyers" all the time that just want to go "look at the house" and I tell them that we need to go ahead and get them preapproved. Most of these "buyers" are really not interested in buying but they just want to look at houses. They don't think twice about calling an agent and having him drive 30 miles to show a house that they are not going to buy.

FSBO is not a good idea, since they will most likely end up having to sell for much less b/c of the small buyer pool. Depending how many assets they own and equity, Short Sale might be the best option, but they will likely have to pay taxes on the forgiven amount. Make sure the lender does not hold them accountable for the short sale amount.