Where to start on funding cheap properties?

Question

I am new to the game, as in brand new and I do not have a clue where to really start.

I currently own a house that we plan on living in for at least another 15 years or so, but we are very much underwater still, by maybe 40k or so. So borrowing on the equity of my first home is obviously not an option.

I want to buy a cheap house for a long term rental, I plan on holding on to it for a decade or so before considering selling it. When I say cheap, I mean upwards or $50k, but I have many options in the $30-40k area. Naturally these homes will need a little work, mostly cosmetic, but anywhere from $5k to $15k.

So assuming one does not have much cash on hand, but has excellent credit, what are the options out there? How do people with no money get loans to buy and fix up a property? Thank you very much.

Bill Jones · Answer

Also the property is owned by an LLC with 3-4 members guess how many one time exemptions we can get out of that

Bill Jones · Answer

Use an MLO it's not that complicated

Brian Gibbons · Answer

good question, of you are seller financing a ton of properties as a llc, how are you dealing with Dodd Frank?

Account Closed · Answer

@Bill Jones Since you are selling offering seller financing to owner occupants, are the Dodd Frank requirements that went into effect in January  changing the way you do things?  Are you using mortgage originators?  Are you doing the required ability to repay check etc?

Bill Jones · Answer

Hi Kevin, Here's how I do it...Or should I say we, through group investing.

.

1. Purchase inexpensive homes $5000-$20000 (I have an inexhaustible supply of these kind of homes they are not junk they are totally livable and not in need of repairs. They are not in a war zone there in a good area of the country that I'm from and totally familiar with. with all cash we can close on these homes within days.)
	
	2. We, that is us the investment group resell the homes holding the first trust deed or a land contract...The return on investment is astounding... here's and example:
	
	Purchase Price $6000
	
	Sell Price $30000
	
	Down Payment $1000 (The reason we can sell at this price is the low down and low monthly payments..Cheaper than rent)
	Hold note for 10 years 120 months at 11%
	
	Payment $399.48
	
	Yield 95.88% (That's unbelievable)
	
	Months until return of initial investment 12.52
	Total payment $47,937.60
	Profit $42,937.60
	
	But here's the best part..If we want we can sell the note as follows:
	
	FULL SELL
	Yield 20%
	Sell price $20,671.06
	Discount $8,328.94
	Profit $15,671.06
	
	PARTIAL SELL
	Yield 30%
	Months 60
	Sell Price $15,223.54
	Remaining Balance $18,142.24
	Total Profit $34,192.74
	
	The financing possibilities are endless...

Jay C. · Answer

Hi, You have a good plan but can I be honest? Your a ways off. What sunk this whole industry a few years back was too much borrowing/leverage. You have to be in a good spot with your primary home and have a decent cash wad if you are going to safely stem in IMO. The objective is to make money not risk everything. Some lender will not lend to someone with no landlord experience as well.  I wish you the best of luck.

Joe Butcher · Answer

There's no cut and dry answer. Every deal is different and every region is different.  And if you're buying a property for $35k you can bet theres going to be some repairs.

Just from your own numbers you are giving you already need 15K.

Once again, set a goal for savings (say 15-20K over 12 months or whatever you can afford) and while you are doing that start networking and educating yourself. Go out and look at properties. See whats out there. Network with rehabbers and buy and hold guys in your area and ask how they got started and how much money it took them. Once you do that you will start gaining more clarity and insight as to what it will take for you.

Kevin Reid · Answer

How much money would one need? Honestly I can come up with about 10% (5-6k) of what I want to spend. Some of the properties I am looking into are around $23-35k, but I would want $10k on top of that for some improvements and to set aside for emergencies.

I'm not planning on going out tomorrow and doing this, but I do want to jump in before the prices start rising faster then they have been around here.

Joe Butcher · Answer

I don't know about "NO money".....you're going to have to have SOME kind of skin in the game.

I took a part time job to help finance my investing. Why not focus on saving money for the next year and whilst doing so, educate yourself and network as much as possible, especially if  you're new to the game.

Go to your local REIA and network with RMLO's that work with investors. Network with hard money lenders. But even with them you still need some money.

Learn about creative financing as well. Ben Leboyvich has some great blog posts about it.

Kevin Reid · Answer

Homepath.com looks like a promising deal, I wonder if there is a catch since the properties seem to be way below market value?

I don't want to flip houses, at least not yet, and borrowing money from family or friends is not an option in my mind, to much drama involved. Thanks for the info.

Does anyone have any other recommendations?