20 Feb No Money Down
Every so often you may hear investors talk about no money down deals. To understand how this works it seemed appropriate to post an article that goes into detail about a no money down transaction and how it is structured.
This is not a legal treatise nor a Commentary on Dodd Frank. With any luck part or all of Dodd -Frank will be done away with in 2017. Don’t forget to thank the National Real Estate Investors Association and all of their Chapters across the nation for working on this diligently over the last several years. Please consult with your own attorney before proceeding with a No Money Down Deal.
My interest in No Money Down deals was sparked by reading “Nothing Down for the 90s” by Robert G. Allen. https://www.amazon.com/Nothing-Down-90s-Robert-Allen/dp/0671725580
Although a little dated it is still an interesting read.
Below you will read about what I consider our best ever No Money Down Deal and present it for your review. But first a short list of the players.
A no money down deal requires a few key individuals.
Seller
Buyer
Lender
Realtor
Title Company/ or Attorney
Others as needed
The Seller: The perfect seller wants to sell the property but doesn’t need all the cash at closing. This type of seller can finance anywhere from 10 to 100 percent of the deal and can make it work for you. The will charge you interest on the amount you borrow.
The Buyer: Hopefully that is you. The deal needs to make sense for you.
The Lender: Unless your seller finances 100% of the deal you will need to seek out a lender for the remainder. Different lending institutions have different requirements They may demand 10, 20 or 30% down. The means the seller needs to cover the 70, 80 or 90 percent balance of the purchase price.
Realtor: Most but not all deals are done using licensed real estate agents. The structured deal needs to cover their sales commission. Getting the seller to pay their commission out of their own pocket keeps this a true no money down deal.
Title Company/Attorney: A title company issues a title policy. They only do this after researching the history of all deeds and titles on file for the property being purchased. This is for YOUR protection. It is the only way to make sure you are purchasing the property you agree on and that no one else has an interest.
Others: Building inspectors, appraisers, insurance agents, city inspectors and representatives of all the working trades involved in real estate.
EXAMPLE: NINE (9) FAMILY APARTMENT BUILDING – NO MONEY DOWN
We purchased a 9 family apartment building in a rougher neighborhood. It was originally on the market for $159,000.00. Owner was a don’t wanter. Her husband had died and it appeared the individual she hired as her property manager was taking advantage of her. He was not a realtor or professional property manager, just a handy man.
After much negotiation and no other offers we placed the 9 family under contract with the seller. The seller provided a 20% carry back or second mortgage for six years. We obtained the 80% first mortgage from a local “small town bank” in Belleville, IL
$107,000.00 – Purchase Price
$ 21,400.00 – 20% Seller Carry-back / Second Mortgage 6.0% 413.72 / month
$ 80,817.51 – First Mortgage at 6.5%
Our out of pocket expense at closing was only $847.07. The seller paid all other closing costs.
Based upon our inspections we knew there was a lot of deferred maintenance. Do you want to know the real problem? The rents had not been increased for over 10 years. Depending on how long they lived their the rents ranges from $225.00 per month to $275.00 per month.
At closing we walked out with a little over $4,803.62 in rents and damage deposits with the seller paying all but our $847.07 worth of closing costs.
OTHER DEVELOPMENTS OF NO MONEY DOWN
Upon possession we notified the residents of the change in ownership and gave 60 days notice that we were raising the rents to $300.00 per month. One tenant moved out. We rehabbed the apartment and put it on the market for $300.00 per month. Move in was $900.00 which included first, last and deposit.
This beautiful newly upgraded unit sat vacant for 60 days. with no offers.
It was time to change the terms. We raised the rent to $400.00 and lowered the deposit to $350.00 which worked out to a total of $750.00 to move in. Applicants lined up and threw money at us.
Fast forward 5 years. Seller is having financial problems and was calling and complaining about her granddaughter’s problems. The seller wanted early payments and other demands. After a couple of months of this we offered to pay the second mortgage off with an $800 discount for early payoff. She agreed.
$169,000.00 – Sale price after owning for seven years.
$106,200.00 – Less Original Sales price after $800 payoff discount
$ 62,800.00 – Increase in value
So what is your best No money Down Deal?n you may hear investors talk about no money down deals. To understand how this works it seemed appropriate to post an article that goes into detail about a no money down transaction and how it is structured.
This is not a legal treatise nor a Commentary on Dodd Frank. With any luck part or all of Dodd -Frank will be done away with in 2017. Don’t forget to thank the National Real Estate Investors Association and all of their Chapters across the nation for working on this diligently over the last several years. Please consult with your own attorney before proceeding with a No Money Down Deal.
My interest in No Money Down deals was sparked by reading “Nothing Down for the 90s” by Robert G. Allen. https://www.amazon.com/Nothing-Down-90s-Robert-Allen/dp/0671725580
Although a little dated it is still an interesting read.
Below you will read about what I consider our best ever No Money Down Deal and present it for your review. But first a short list of the players.
A no money down deal requires a few key individuals.
- Seller
- Buyer
- Lender
- Realtor
- Title Company/ or Attorney
- Others as needed
The Seller: The perfect seller wants to sell the property but doesn’t need all the cash at closing. This type of seller can finance anywhere from 10 to 100 percent of the deal and can make it work for you. The will charge you interest on the amount you borrow.
The Buyer: Hopefully that is you. The deal needs to make sense for you.
The Lender: Unless your seller finances 100% of the deal you will need to seek out a lender for the remainder. Different lending institutions have different requirements They may demand 10, 20 or 30% down. The means the seller needs to cover the 70, 80 or 90 percent balance of the purchase price.
Realtor: Most but not all deals are done using licensed real estate agents. The structured deal needs to cover their sales commission. Getting the seller to pay their commission out of their own pocket keeps this a true no money down deal.
Title Company/Attorney: A title company issues a title policy. They only do this after researching the history of all deeds and titles on file for the property being purchased. This is for YOUR protection. It is the only way to make sure you are purchasing the property you agree on and that no one else has an interest.
Others: Building inspectors, appraisers, insurance agents, city inspectors and representatives of all the working trades involved in real estate.
Example: Nine (9) Family Apartment Building – No Money Down
We purchased a 9 family apartment building in a rougher neighborhood. It was originally on the market for $159,000.00. Owner was a don’t wanter. Her husband had died and it appeared the individual she hired as her property manager was taking advantage of her. He was not a realtor or professional property manager, just a handy man.
After much negotiation and no other offers we placed the 9 family under contract with the seller. The seller provided a 20% carry back or second mortgage for six years. We obtained the 80% first mortgage from a local “small town bank” in Belleville, IL
$107,000.00 – Purchase Price
$ 21,400.00 – 20% Seller Carry-back / Second Mortgage 6.0% 413.72 / month
$ 80,817.51 – First Mortgage at 6.5%
Our out of pocket expense at closing was only $847.07. The seller paid all other closing costs.
Based upon our inspections we knew there was a lot of deferred maintenance. Do you want to know the real problem? The rents had not been increased for over 10 years. Depending on how long they lived their the rents ranges from $225.00 per month to $275.00 per month.
At closing we walked out with a little over $4,803.62 in rents and damage deposits with the seller paying all but our $847.07 worth of closing costs.
Other Developments of No Money Down
Upon possession we notified the residents of the change in ownership and gave 60 days notice that we were raising the rents to $300.00 per month. One tenant moved out. We rehabbed the apartment and put it on the market for $300.00 per month. Move in was $900.00 which included first, last and deposit.
This beautiful newly upgraded unit sat vacant for 60 days. with no offers.
It was time to change the terms. We raised the rent to $400.00 and lowered the deposit to $350.00 which worked out to a total of $750.00 to move in. Applicants lined up and threw money at us.
Fast forward 5 years. Seller is having financial problems and was calling and complaining about her granddaughter’s problems. The seller wanted early payments and other demands. After a couple of months of this we offered to pay the second mortgage off with an $800 discount for early payoff. She agreed.
$169,000.00 – Sale price after owning for seven years.
$106,200.00 – Less Original Sales price after $800 payoff discount
$ 62,800.00 – Increase in value
So what is your best No money Down Deal?
No Comments