I just bought an 8-unit building in the PHX Metro area and ended up with cash at closing. We found a private mortgage to cover the first 60% (@ 12.5% interest) and the owner carried the other 40% on a second (@ 8% interest). Both notes have balloons due in five years. I gave the owner full price (which amazed him, because one unit is vacant, but he’s an out of state owner so it’s tougher for him to manage than me). The contract we signed gave me all the deposits ($1400) and 27 days of pro-rated rents (almost $2000). There were some other concessions in the contract as well for deferred maintenance. The bottom line is, he’s been milking this property for 10 years and got to keep over $80,000 of the cash from the first. (The key here was, he had lots of equity, so getting a full price offer and then crediting it back to me at close still FELT like a full-price offer to him, which is equity he didn’t really earn.) P.S. Even with the one vacant unit, I have $185 positive cash flow each month. I haven’t read LeGrand’s stuff (yet), but in creative real estate, there’s definitely more than one way to skin a cat.
Keep at it, everybody. The circumstances are what really make these deals fly.
I need examples to understand??? - Posted by Mike(Maine)
Posted by Mike(Maine) on April 25, 2000 at 08:23:01:
Hey everyone,
I own Carlton Sheets video on getting cash back at closing but I still do not understand the concept. Could someone please give me an example where that opportunity comes along and how to aproach the seller(realtor). Also, how do I determine the amount I could receive? Do I need any specific qualifications? Is this method a common thing or something that comes along once in a blue moon?
Re: I need examples to understand??? - Posted by Clay Catoe
Posted by Clay Catoe on April 28, 2000 at 20:57:48:
I don’t think most lenders will allow a borrower to get cash back at closing. However I have used a credit union and was able to get rehab money. The amount was baised on contractor estiments, and the cost was much lower. The difference like was profit to me.
I’m no expert, but I’ve been studying for several months and have begun making offers. The way I understand it though is getting money back at closing is simply taking a bite of your equity up front.
Example:
You find a home with a FMV of $100,000.
You get a contract on it for $75,000 (because you’re an awesome negotiator!)
You get a loan of 80% LTV of $80,000, buy the house, and keep $5,000 at closing.
Now, if you had only borrowed $75,000, you’d have $25,000 in equity (on paper). By borrowing more, you simply take a chunk of that equity up front. While you do have $5,000 in your pocket, you now only have $20,000 in equity on the property (again, on paper). That’s nice to get, but you will be paying interest on that money because you borrowed more than the price of the home. It’s just like getting an 8% loan if you go through a traditional lender. Much more through hard money lenders.
The only problem with your scenario, is that nowadays most lenders aren’t making loans that way.
They lend based off the lower of the purchase price or appraised value. So in your scenario even though the property may be worth $100k and you are buying for $75k the lender is going to base his loan off of your purchase price. So if they’ll make an 80% LTV loan to you, you will only get $60k. You will have to make a 10% down payment in most cases unless it’s owner occupied and you will have to have the seller carry a 2nd for the remainder. The lender may allow the 2nd, and maybe the seller will forgive it down the road. It’s a tough thing to pull cash out at closing these days unless you’re getting it from escrowed taxes or seller repair concessions sometimes. Otherwise you have to wait 6 months to a year to refinance to get any cash for that equity.
You guys are reading outdated material! - Posted by Celeste M
Posted by Celeste M on April 26, 2000 at 06:22:38:
Carleton gives good advise if it were 1977 or somewhere in that era , but we are in the 2000 era!
Invest in Ron LeGrands “3 MODS”. They are only $997.00 and can be purchased online right on this site.
Study it for a day and you questions wiill be answered so clearly!
Help me out here readers (Am I right?)
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