BiggerPockets

Our company recently held a free educational seminar on real estate investing. After the seminar was over an older retired couple came up to me and asked me if what they were told in the seminar was true. I talked with them briefly and told them to call me on Monday. To make a long story short, they called me that Monday, I was able to get them approved for perm. financing and I was able to help them buy 5 investment properties, all with no money out of their pocket and in a few cases was able to put money into their pocket. I tell you this story b/c they told me that they spent over $40,000 in boot camps and seminars where they were always told if they wanted to " REALLY " learn what to do they would need to spend more money and go to another seminar. They met me, ended up buying 5 houses and didnt spend 1 cent. I think real estate education is important but you need to find people who are doing what you want to do and follow them.

Most boot camps and seminars are just ploys to get you to fork over more money for either more boot camps,expensive courses or high priced coaching which doesn't teach crap.

I have found that you will pay for education one way or the other. You will either pay up front to attend a class or seminar of some kind (regardless of the quality of the class), or, you will pay for the education through the school of hard knocks. As they say, 'if you think education is expensive, wait to you see what ignorance costs'.

I was able to get them approved for perm. financing and I was able to help them buy 5 investment properties, all with no money out of their pocket and in a few cases was able to put money into their pocket.

Will you share with us, please, how you accomplished this?

I third the motion :mrgreen:

Here is how I was able to accomplish helping them get 5 properties with zero down. I have a local hard money lender who will do the loan for anyone who buys property from me. I had them get pre approved with a local lender I use. The hard money lender lends 75% of the ARV and charges 5pts on the front end and 1pt per month until the loan is refinanced. My clients had a good credit score, good income, low DTI. Once I received the approval letter it was just a matter of finding the right property for them. Now they have 5 properties that have 20% equity and positive cash flow and it was all with no money out of their pocket. If you or anyone is looking to invest in Memphis I can do the same for you. Thanks

Its hard money. Short term until the property can be fixed up and refi-ed. 5 points and 12% is pretty good for hard money. 75% LTV is excellent.

Have to find pretty good deals to make this work, but if you can do that, this is a good way to minimize the out of pocket costs. To truly be at nothing out of pocket, you'll need to cover the points, closing costs, rehab costs, and the monthly payments all out of that 75% LTV loan.

Hopefully "positive cash flow" includes all expenses, not just taxes and insurance. I'd consider all expenses to include property management as well as allowances for maintenance, vacancies, and the inevitable bad tenant. To apply the 50% rule, rent needs to be 2X the P&I payment. From my research on Memphis, this seems very do-able.

This strategy is getting more difficult, though. I'm hearing six months seasoning, even for a straight rate and term refi. I assume these are conforming loans, so getting five of them would be nearly impossible.

Its not bank financing. If you can get bank financing, that's ALWAYS going to be better than hard money. That line of credit won't carry you very far if you're having to put down 20% on every purchase, and fund the rehab from it. Not to mention carrying the property while its being fixed up and rented. And, you'll have a hard time getting any bank to finance some of the REOs I've seen. The condition is just too poor.

I've seen interest rates on hard money as high as 18%, though that was with just a flat $1000 fee. I've seen it as low as 12% and two points, but that lender will only go to 80% of purchase and 80% of rehab.

Originally posted by Michael Rogers

Its hard money. Short term until the property can be fixed up and refi-ed. 5 points and 12% is pretty good for hard money. 75% LTV is excellent.

Everyone is different, but a 5% origination fee, then 12% interest (with WSJ prime at 3.25%) seems high to me. Most loans I've done with my bank have had a ~1% origination fee. They typically lend 85% LTV. If I need help making up the difference I have a line of credit that floats at prime plus 1%. Maybe a line of credit with a bank might work better for someone with good credit.

Have you received your terms listed above recently? Is it a commercial loan?

Have you received your terms listed above recently? Is it a commercial loan?

I believe what you are getting at is that banks are having a tough time lending at near prime right now. That's a good point. With prime at 3.25% it is impossilbe for them to make money when they are paying depositors 2% or 3%. The spread is just too lean.

I just renewed my line of credit last week and the bank notified me they were decoupling from WSJ prime and using what they were calling their own "Southern Heritage Bank" prime rate until the Fed raises the Fed Funds rate back up. The Southern Heritage Bank rate is generally about 50 to 100 basis points above WSJ prime. So I'm basically paying prime plus 1.5%. Does that answer your question?