Buying homes with 100% financing - Posted by David Cruz

Posted by John Corey on May 12, 2006 at 02:16:39:

JC,

Do you know how to compute the cash flow for a property?

Debt service is one expense. 100% financing does not always produce negative cash flow.

John Corey

Buying homes with 100% financing - Posted by David Cruz

Posted by David Cruz on May 10, 2006 at 04:52:57:

I would like to know if it is possible to buy an investment property with no money down. Example say the house I’m buying is 90K and I offer 80K and he accepts. Can I raise the price in the aggrement to 90K and use the 10K for closing cost.

Re: Buying homes with 100% financing - Posted by John Corey

Posted by John Corey on May 11, 2006 at 14:14:41:

David,

You sound like you are not very experienced. I am somewhat concerned that a simple answer could be harmful (a little knowledge can be dangerous).

Yes, you can buy NOO with 100% financing. It might not be the best thing to do as the cash flow will likely be a lot worse than if you had a down payment.

Second, some folks obtain 100% through methods that are common but not legal. You need to know where the lines are and many advisers either do not know or will participate in the fraud.

Work with a skilled loan officer who can keep the deal clean while still meeting your objectives. Understand that they will assume you know what you are doing. They will figure you know how to deal with the cash flow issues. They are not there to verify that the deal you are doing is a good one.

If you are buying a house for 80K then the house is worth 80K to most lenders. The extra 10K in value does not exist in their mind and they will not lend on it.

If you agreed to buy the house at 90K and the appraisal backs this up then they will consider the house worth 90K. You can agree with the seller that they will cover certain costs up to some number (normally between 3% to 6% depending on what the lender will accept). You and the seller could agree something larger but if the lender will not allow a larger figure then the numbers will not work. There is no law preventing the seller from offering to pay more than 6%. It is a business rule the lender imposes if you want their money.

If you do anything to spin the numbers to hide the true facts of the deal from the lender then you are committing a criminal act (crime == possible jail time, etc).

Focus on clean deals and ones that are worth doing (both the short run and long term make sense).

My first two deals were nothing down and I have done more since then. Some of the time the best deal is not nothing down. It is not a universal goal.

One other point. If you lack the cash to put into the deal consider a partner who has the cash. The lender will be happy that there is cash in the deal and you can focus on best price and cash flow. You give up future profit but are able to do more deals compared to only focusing on 100% financing. The deal will still be nothing down to you so your return will be infinite.

There is a difference between 100% financing and having zero of your own cash in a deal.

John Corey

Re: Buying homes with 100% financing - Posted by broker

Posted by broker on May 10, 2006 at 17:17:45:

I am a broker and an investor myself. I offer true 100% financing on investment properties, with up to a six percent seller contribution toward closing costs.

Best Regards,

Lawrence Vleck

Re: Buying homes with 100% financing - Posted by Acosta

Posted by Acosta on May 10, 2006 at 16:51:31:

Merchant’s Mortgage is a good “investor” lender.
720-554-9525 (not sure if they are nation wide)

Re: Buying homes with 100% financing - Posted by Judah hardmoney Hoover

Posted by Judah hardmoney Hoover on May 10, 2006 at 16:45:51:

The first thing you need to do is get a good mortgage broker. I just closed a two unit last month with 6% sellers asst. It was a non owner and it was vacant at the time of purchase. A good mortgage broker will?

  1. have investment RE of his own
  2. have access to hardmoney
  3. will think VA and FHA is out dated and a waste of time (go sub-prime all day)
  4. will know will know local banks, and what they are looking to lend on at this time, each will be different

Establish a relationship with a broker, he will have access to hundreds of national lenders and local banks.

Re: Buying homes with 100% financing - Posted by RJ Baxter

Posted by RJ Baxter on May 10, 2006 at 07:18:42:

This is possible, but most lenders will limit the amount of closing costs the seller can pay to 3% of the sales price, and in many cases only 2% on a 100% financed investment property.

Re: Buying homes with 100% financing - Posted by JC

Posted by JC on May 12, 2006 at 24:35:26:

How can one make 100% financing positive cashflow, buy below market 10-20%?

Great Advise - Posted by Judah hardmoney Hoover

Posted by Judah hardmoney Hoover on May 11, 2006 at 20:22:20:

Great advise John… lenders are cracking down on fraud big time. It is a shame how many investors want to hide things from the bank, thinking they are getting away with something

Re: Buying homes with 100% financing - Posted by JC

Posted by JC on May 12, 2006 at 24:33:17:

Will 100% financing always give negative cashflow or not, or it depends on interest and terms?

Re: Buying homes with 100% financing - Posted by John Corey

Posted by John Corey on May 12, 2006 at 02:07:10:

JC,

There is no specific discount that is needed. You need to know what the property can produce in terms of income and net income. Then you need to look at the debt service. You will find that in some markets you might be able to pay full retail and obtain positive cash flow. In other markets you might need a 60% discount or more to get positive cash flow.

100% financing is not always a good objective. There is a big difference between 100% financing and buying a property with none of your own money. For some deals it is better to get a partner to put in cash than it is to buy yourself with 100% debt.

John Corey

Re: Buying homes with 100% financing - Posted by lawrence

Posted by lawrence on May 12, 2006 at 11:32:00:

Hey JC,

To answer your question, there is no relation between 100% financing and neg cash flow. The only reason you would have negative cash flow is if your payment is higher than your properties revenue. I have a lot of investors who use interest only mortgages to create cash flow. Which makes sense - because if they plan on holding the property less than a few years, they are not going to pay down the principal balance anyway.

Best Regards,

and let me know if I can get you any quotes.