Problem locating money for closing and down payment on first deal - Posted by Brian Varbel

Posted by Steve on April 06, 2000 at 03:39:31:

Hi Brian,

I agree that Real Estate as a whole is very overwhelming for people just starting out. Just fing your niche…Become a specialist in whatever area of Real Estate that intrests you most. As far as just starting out and looking for money…I wouls suggest fliiping houses at first to build up cask quickly. Raising the money…what a question…There are multidudes of ways to raise the money. Just ask yourself how can I raise the money. Answers will soon fill your head. Never limit your brain from thinking by saying I cant do it or cant figure it out. Try friends, family, a limited partnership or a hard money lender. The sky is the limit so just dont limit yourself. I hope a sentance or two has helped you out…Best of luck.

Problem locating money for closing and down payment on first deal - Posted by Brian Varbel

Posted by Brian Varbel on April 05, 2000 at 19:26:40:

Hello everyone. I live in a market where home values are high (definately a sellers market),houses are selling at or above appraised values, and the economy is excellent and growing. I got prequalified yesterday and a large bank is willing to lend me up to $175,000 for a 4-plex contingent that I live in one unit for a while to qualify the FHA loan. However, the bank wants to see 3 months rent in my bank account and the amount needed for the down payment which cannot be borrowed (at least on a reported credit line), and I need the amount for earnest money and closing costs. We are talking over 12,000 dollars that I need, yet I don’t have it. I am a college grad and I make decent money to start with, but I have not had the time to build up that kind of savings since I’m only 10 months out of school. Even if the seller is willing to carry that 10% I still probably need like 5,000. I know people buy property without any or little of their own money. I found a couple properties I really like and the gross rent multiplier seems exceptable…I want to put offers in ASAP, but I want to know that I can close before I do that–I’d hate to let 12,000 keep me from buying my first income property. I’m trying to take action here in this seemingly difficult sellers market in Colorado Springs. Any suggestions to leap over this monetary hurdle?

Quick approx specs for two four plexs…

buy price: 160,000
Rents: 1,900*

buy price: 167,000
rents: 2,000*

*subtract $500/mo for me to live in one unit long enough to qualify the FHA loan.

Both appear to be well maintained and in good shape, in good neighborhoods, and are fully rented.


Money is not the problem - Posted by PBoone

Posted by PBoone on April 06, 2000 at 09:49:13:

The abovementioned deals are not really deals, so its not money you need!
There are 2 types of “investors”, one is a speculator they have additional cash laying around and figure the market will go up eventually and just place money in areas such as bare land, overpriced multi-units, etc. The other type is and “Active Investor” whom is well versed in the market, the deal and the present day income BEFORE he/she signs any papers. He/She is the person who agrees in the aphorism “Make your money when you buy, NOT when you sell”. It may be time to decide which side of the street you lie.
Lets look at a quick synopsis: Purchase 160K rents $1,600 minus 40% (expense and please do not rationalize the expense by cost saving fantasy) = $960.00 for your loan payment. This would give you a fair purchase price or loan amount of about $119,000.00. Thats just one conventional method of valuation.
Good luck with your investing future, maybe you can find that 4plex you want through the rental section of the paper? one way is to look at the “plexes” and target out of town phone numbers, call, ask them if you could lease the whole building for a period of time (3-5yrs) take over mgmt, maintenace, etc in exchange for the first right to purchase at an agreed price. Bye-Bye bank and the need for 12K in your bank account.

Re: Go for it! - Posted by ken in sc

Posted by ken in sc on April 06, 2000 at 08:16:20:

I say go for it. It is hard to mess up a 3% down FHA 30 yr loan at a good interest rate. My suggestions: First, write offers where the seller pays 3-4% of the sales price in closing costs. This allows you to finance that part of the closing costs if the appraisal comes in for the sales price. Yes, you are right, the mortgage co. wants to see that money in the bank. I flipped my first house and then put that 12K in a money market account. For yrs since, I have shown the mortgage co.s that same 12K while getting the actual downpayment money from elsewhere. I have borrowed against my car, equity in other properties, etc. Also, you can get what the mortgage company calls a “gift letter”. Typically, this is when parents pay the downpayment for their kids and sign a letter saying it is not a loan and does not have to be paid back. You can use this with a friend/relative and still pay it back if you want.
Hope this helps. My advise is to buy 1 or 2 per yr while you are young and don’t mind moving. Those owner ocupied loans are great compared with the loans we beg for later on.

Hold it a minute - lets take a course or two first … - Posted by JohnG

Posted by JohnG on April 05, 2000 at 21:28:55:

You just spent 4 years in college so that you could start to “learn” how to do your job.

Why is it that people think that they need 4 years of study for a job that in many cases you don’t use what you’ve learned and yet when it comes to real estate they just want to jump in and see what happens.

Get some real street education here on this site. Order a few courses (and by the way these courses are a steal when you compare the value versus tuition for your college courses) and start slowly with knowledge and determination. Only when you get a few deals under your belt - then you can go wild and start putting together lots and lots of deals.

Good luck and go for it.

Don’t Forget Vacancy & Collection Losses - Posted by Jack-NY

Posted by Jack-NY on April 06, 2000 at 19:03:34:

PBoone, I think maybe your forgot to add in the vacancy and collection losses.

Is the rents $1,600 per month? if so then $1,600 X 12 $19,200 per year, less 5% (960.00) v & c loss would leave $18,240 per year for the EGI Effective Gross Incone, less your 40% expenses of $7,296, which leaves you a NOI of $10,944 with a cap rate of 10% The indicated value based on the income approach would be $109,440 property value, you need to know your numbers and work them out, Potential Gross Income sounds good to most people until you get down to your NOI. Hope this helped, good luck…

Jack, NY

Re: Go for it! - Posted by brian

Posted by brian on April 06, 2000 at 13:43:26:

Thanks for the encouragement. I’m at a battle within myself if I should try to buy in a rough market where I won’t make money on the deal up front and hold out for a deal where I can make money on the purchase. I just shopped lenders and one came back with an offer for full 100% coverage of my loan amount. I’ll be making some big decisions in the next day or so.

Please don’t assume things about people - Posted by brian

Posted by brian on April 06, 2000 at 01:40:20:

Please take no offense to this but I sort of resent your comments when you don’t even know me. I have a couple courses and several books and have been sort of obsessing about realestate for over a year now. I am just very intimidated because I’m new–that is not a crime. I am tired of sitting around and doing nothing but reading and know that I need to act to get the best education of all. Even though I’ve read so much, doesn’t mean that I am confident or know what I’m doing when I’ve never even done my first deal. I am trying really hard to make something happen pretty soon. I want to learn and at the same time be successful, but there is a point when one must take a leap of faith and try in the face of darkness. All I ask is for advice, not a lecture on how I must not have gone through courses. To be honest I feel overwhelmed with a perponderance of information. I don’t know what to do or where to go…does this make sense. I have so many chapters on financing and finding money, and yet, I’m trying to work my deal in a very difficult market and under uncreative conventional circumstances and these people aren’t willing to work with my creative ideas. Does this make sense. I am looking for direction. I am a smart guy; I’m just new…thats all.


Re: You can do it - go for it - Posted by Lib Cassin

Posted by Lib Cassin on April 06, 2000 at 07:00:37:

Hi Brian:
I read your post and thought how wonderful, a youngster, getting started early, way to go - I wish I had done just that. Take what helps you here, and let the rest go, you are doing right, and all of the very experienced people that I have talked to say the same, you learn from doing, sure you might make a mistep or two, dont let that stop you, experience is a great thing, and starting early is the VERY BEST thing you can do.

As for the money, you are right, a measely 12k will not stop someone of your ability, I agree with the post that says anchor in the question and you will find all the money you need. There are a 100 sources out there, you have to decide which one to pursue. Have you a credit card? March in to a bank and hit them with your deal, talk to Terry Vaughan on this site, he is a master on how to work with lenders, also Ed Garcia knows a whole lot. Check with the people who are part of your deal, ie., seller, brokers, anyone, everyone you know, do please email me and let me know how you get a long, I am so delighted to see someone doing what you are at a young age, I bet you will be a millionaire in a few short years

Good luck