Finally, Grants for Investors!!!!!!! - Posted by Susan-FL

Posted by Frank on April 06, 2002 at 12:57:53:

I’m agreeing with Tim here on this one. Susan be very careful in this strategy! I have been a buy and hold investor in Cleveland for only 4 years with 19 rental units (5 2-family and 3 3-family) doing similar deals to the ones you are doing but without the “program”. You are just paying a fee to borrow money. This program is not necessary. People have been inflating purchase prices for a long time and thinking of creative ways to get more BORROWED money. It simply makes you more leveraged, i.e. more risk. It seems like a gold mine on the surface, but you have to look at the numbers for what they really are. You could be upside down in a hurry as Ed Garcia would say. It seems on the surface that if you add all of those 15 property cash flows, together will have the money to cover any of the others. It simply doesn’t work like that unless you have solid safe numbers. If each deal suddenly spawns a negative cash flow per year, you have a large negative cash flow and possibly large expenditures which your cash flow will not cover. I don’t say this to kill you deals but to point these things out from someone who has moderate experience. I’m not Joe Kaiser, but I’m definately not a newbie. I had a talk with Ed Garcia and he pointed out the flaw in your (my previous) type of thinking. Granted I’ve done fine with what I have but I have a large reserve and I do literally all the work myself except steep or high roofs and furnace installation.

In your numbers, you have $82/month for taxes AND insurance on a 90k house. Is that a typo? If not, I’m moving to Florida. You don’t have any maintenance or repair on these properties either. Your not selling them on L/O or L/C are you? You have to figure these things. After you seller carryback is paid you might be fine but that’s 10 years down the road.

The guys who post on the site usually know what they are talking about. (I wish I knew about this site 3 years ago). Try to REALLY understand what they are saying. I don’t think anyone here is trying to not disclose there secrets, or kill deals, they really are speaking from experience to help.

Like myself, you have already sold yourself on the deals making sense, and they might if you have a large reserve and/or skills to do things at minimum cost, but if you don’t have either of these, be very careful.

Finally, Grants for Investors!!! - Posted by Susan-FL

Posted by Susan-FL on April 05, 2002 at 19:59:13:

I have been waiting years for a company to help us investors and now I have finally found one!

This is my testimony!!!

After years of buying (or trying to buy) homes with 20% investor loan programs a friend of mine turned me on to this this non-profit that provides grants for homebuyers.

At first I figured that if was just like any other gift program, but after talking to them I discovered that they help investors as well as home buyers.

It seem too good to be true so I check them out through HUD and, to my suprise, found out that HUD allows gift funds from non-profits as part of the closing funds.

I informed my lender about the program and applied for another 20% investor loan on a 90k piece of property that I had been looking at for a couple of weeks.

Here are the numbers:

Type :3/2/2
Purchase Price : 90,000
Final Price : 95,000
Financing (P.I.) : 80% or 76,000 @ 8.25% for 30 = 572.44
Taxes & Insurance: 82.00/month
Down : 20% or 19,000
Grant : 5,000
Seller 2nd : 10,000 @ 10% for 6 years = 185.26/monthly
Out of Pocket : 4,000
Rented for : 950.00/month - section-8
Net Income : 110.30

I am going to do many of these deals!!!

Check them out at www.alphaassistance.com

Help is finaly here!!!

Re: Finally, Grants for Investors!!! - Posted by Detroit Erin

Posted by Detroit Erin on April 07, 2002 at 17:23:50:

Isn’t this a similar thing as seller concessions? If I were selling a house and the buyer wanted money for closing (I actually have a case like this working out as we speak, additional advice is always welcome), why wouldn’t I just raise the price (6%) so that the buyer can use that 6% money at closing to help with closing costs/down payment? This is assuming the appraisal will support the inflated cost of the house. Is that the same or no?

Re: Finally, Grants for Investors!!! - Posted by Ronald * Starr(in No CA)

Posted by Ronald * Starr(in No CA) on April 06, 2002 at 21:43:14:

Susan–(FL)------------

I agree with JohnBoy’s post hesre.

I don’t invest in multiple unit residential properties. But my best friend Sam does. Last month he was moaning to me about having 4 vacancies in his very nice townhouse development, which has, if I recall right, 16 units. “It really kills my cash flow,” he told me.

You may not be ready to actually buy properties if you don’t know for what realistic expenses to plan. I suggest you may want to start with some smaller properties first, say 2-4 unit, and move up to bigger properties as you develop your expertise. You need to develop your application forms, bookkeeping system, house rules, techniques for selecting renters, etc. Experiment on a smaller property where you don’t have as much risk of high negative cashflow.

You might also want to contact the IREM–Institute of Real Estate Management–which is a part of the NAR–National Association of Realtors–in Chicago. Each year they compile and sell actual apartment operating expense information sheets for something like one hundred metropolitan areas across the country. You can buy the whole book or they will fax you a few cities for $5 a city, last I heard.

Good InvestingRon Starr***

Re: Finally, Grants for Investors!!! - Posted by Ronald * Starr(in No CA)

Posted by Ronald * Starr(in No CA) on April 06, 2002 at 21:41:25:

Susan–(FL)------------

I agree with JohnBoy’s post hesre.

I don’t invest in multiple unit residential properties. But my best friend Sam does. Last month he was moaning to me about having 4 vacancies in his very nice townhouse development, which has, if I recall right, 16 units. “It really kills my cash flow,” he told me.

You may not be ready to actually buy properties if you don’t know for what realistic expenses to plan. I suggest you may want to start with some smaller properties first, say 2-4 unit, and move up to bigger properties as you develop your expertise. You need to develop your application forms, bookkeeping system, house rules, techniques for selecting renters, etc. Experiment on a smaller property where you don’t have as much risk of high negative cashflow.

You might also want to contact the IREM–Institute of Real Estate Management–which is a part of the NAR–National Association of Realtors–in Chicago. Each year the compile and sell actual apartment operating expense information sheets for something like one hundred metropolitan areas across the country. You can buy the whole book or they will fax you a few cities for $5 a city, last I heard.

Good InvestingRon Starr***

Re: Why use grants…? - Posted by Anthony-OH

Posted by Anthony-OH on April 06, 2002 at 17:10:51:

I’m a Loan Officer and see these programs being used everyday and haven’t figured out why yet.

$100K House
your going to get a 5% “grant”
oh BTW the fee is 5.75%
so you raise the sales price to $105,750
Why didn’t you just get him to take back/or gift directly to you the additional 5% and save yourself $750?

ALL of these programs I have seen cost the seller an additional 3/4% or more on the SALE PRICE compared to if the seller would have gifted you the money directly. Does this make any sense???

You got a $5000 grant, I would estimate that the FEE the seller paid to be part of this program was ~$5750.

Why didn’t you have the seller just take back a bigger second, instead of costing yourself (the fee was built into your cost) an additional $750 to have that convenient grant available at closing???

These grant programs make absolutely no sense to me unless the seller refuses to take back a second/ or can’t gift you the funds directly, but will allow you to use the gift program IF you jack up the sales price to compensate for the FEE.

Re: Finally, Grants for Investors!!! - Posted by Rob (IN)

Posted by Rob (IN) on April 06, 2002 at 09:26:48:

Susan,

This program sounds like it worked out for you. Great!

After looking at the information this company provides, it sounds similar to other programs out there. The one that a lender contact suggested to me was the “Own Program.”
Basically how these work is the seller agrees to pay closing/ part of down payment plus a program fee ($300 for the Own Program). Then the company provides the check, etc at closing to help the buyer out.
I was considering this to move houses I purchase in a buyers market to give me a competitive advantage to the other sellers.
So actually, these really are not ?free grants?, but the seller pays. If you can get the seller to accept and get your price, more power to you.
If anyone wants the contact for this program, e-mail me directly.

Rob

Re: Finally, Grants for Investors!!! - Posted by Tim Fierro (Tacoma, WA)

Posted by Tim Fierro (Tacoma, WA) on April 05, 2002 at 21:19:20:

I tried writing a sentence 3 times and finally wrote this one. :slight_smile:

Is $110 a month cash flow worth it for your area?

If you have a 1 month vacancy, there goes over 7-1/2 months of ‘profit’. I hope a stove or referigerator don’t go out in the same year.

I don’t say this because $100 a month may not be enough, but rather when you combine it with no equity in the property, it looks thin to my eyes. Different investors want different returns, to each his/her own.

My guess here is that this is not the case and there is more to the story. The home is really valued more than the $86k that it is financed at. Maybe the seller got $95k but he was really wanting $120k and you got him down to $95k. If not, you bought a home worth $90k, for $95k?

How much equity did you aquire when you purchased it? IE: How much is it really worth if you sold it?

Help is finally here, well I have heard about them, but have not used them. My real interest here is the deal chosen for it when I don’t see what the real worth is. Getting some free $5k is nice, but was it really free?

Re: Finally, Grants for Investors!!! - Posted by Tim Fierro (Tacoma, WA)

Posted by Tim Fierro (Tacoma, WA) on April 07, 2002 at 21:08:33:

I think it has to do with the loan being used. Meaning the seller can’t pay closing and down payment. Instead, the seller can help with closing costs; and a non-profit group is the one giving the down payment assistance. We all know the seller paid for it all, but on paper, it is 2 different sources for the funds.

Re: Why use grants…? - Posted by Tim Fierro (Tacoma, WA)

Posted by Tim Fierro (Tacoma, WA) on April 06, 2002 at 17:59:14:

That was my point I was trying to make. The sellers can benefit from this by being able to help a buyer get the money needed for closing. The way it is being used is to raise the price upwards to cover this cost of giving the grant. I have told sellers, and those that wanted to know, that you should raise the price up for the grant, the fee for the grant, any extra excise tax, and fees. I tell them this because it will COST you money to ‘grant’ money. By raising the price upwards, the seller comes out just fine because the buyer is paying it; whether they think so or not. The caveat is that the house must appraise for this larger inflated sales price. Seller ends up with exactly what they wanted in the first place and get a tax deduction for charity to boot; sellers win!

Buyers using this grant, who want it to really be a grant, should not raise the sales price up at all and then it would really be a gift since there are no repercussions to the buyer if the price doesn’t change. But too many believe it is a grant of free money, but don’t realize that their deal they made on the house at one price has just went up another 4% to cover this free money. If buyers would realize it is not free money and consider a low interest loan (7%), then it makes sense if it is needed to buy a house. Where else can you borrow 4% of your home price at 7% interest spread out over 30 years and you get to deduct all the interest? That same 4% ($4k in the example $100k house) could not be borrowed @ 7% to give the down payment on this house.

Re: Finally, Grants for Investors!!! - Posted by Susan-FL

Posted by Susan-FL on April 05, 2002 at 22:31:01:

Sure 110/month doesn’t sound like alot but multiply that over 15 homes and you will see how the math will work out. It’s acceptable risk for me. I will have one property paid off in about 4 years; the 2nd paid off 3
years after that; the 3rd paid off 2 years after that and the 4th paid off a year after that. So in 10 years I will have a cash flow of 5010(with perfect conditions of course and without buying any more houses)

The house was appraised at 112,243 The 5k grant was built in to the final asking price. I talked the seller down to 90k, but had to increase the sale price to 95k to cover the dowm payment grant from Alpha Assistance.

Re: Why use grants…? - Posted by TomG

Posted by TomG on May 20, 2002 at 15:14:45:

Plus on FHA you are not allowed to “borrow” the down payment unless its from family or a non profit organization. I have just become an account executive for the 3rd largest program and we have 2 major items that makes us better than the rest. Email me for info.

Re: Finally, Grants for Investors!!! - Posted by JohnBoy

Posted by JohnBoy on April 06, 2002 at 01:50:19:

Lets say you have 15 homes like this where the rent brings in $950 each.

Then you have the same mortgage payments on each at $839.70

That leaves $110.30 per month in cash flow on each property.

So you will have a total income of $14,250.00 coming in.

Total debt service of $12,595.50 going out.

Leaving $1,654.50 in cash flow.

If you end up with just 2 vacancies you will be at a negative cash flow of $24.90 per month. Then add in the cost of advertising to find new tenants, add in the cost of any clean up and repairs, and if you had to evict add in the cost of getting the tenants out and your cash flow is shot in the toilet for months!

If you end up with 3 vacancies at one time then your negative cash flow shoots up to almost $900 per month before accounting for the other costs involved with advertising, repairs and eviction costs.

With 4 vacancies your down almost $1800 per month out of pocket plus the other costs.

With 15 properties it wouldn’t be unreasonable to expect ending up with 3 - 4 vacancies at times.

I assume where you are coming up with having the first property paid off in about 4 years then another in 3 years, etc., is you plan to take all of the cash flow from the 15 properties and pay down the mortgage each month? Is that correct?

So where do you build reserves to cover the bad times if you take all the cash flow and pay down the mortgages each month? Or do you already have adequate reserves to cover each property for up to 6 months if they were to become vacant during any of this time?

What is killing you on this deal is the short term second at 10% interest. What if you were to get that over 10 years at 0%? Your pmt would only be $83.33 per month increasing your cash flow to $212.23.

With 15 properties like this your cash flow would increase from $1,654.50 per month to $3,183.45 which allow you to whether through 3 vacancies at one time and still leaving you with over $660 per month in cash flow to cover any advertising to fill the vacancies and apply towards any clean up cost and eviction costs if you needed to get a tenant out.

In the future I would work on getting any seconds carried by the seller at 0% interest or at least spread it out over a longer term and still try for a lower rate to keep the pmts low enough to generate at least $200 per month cash flow on a $100k property. Otherwise like Tim point out you will lose over 7 1/2 months profit for each month you have a vacancy on each property. Even though you may have a number of properties to help carry over the loss, you’re still losing the 7 1/2 months no matter how you cut it. You’re just taking profits from the other properties to cover the losses. And if you ended up with 2 - 4 vacancies at once you won’t even be able to cover the losses without coming out of pocket.

Whether I had grant money or not, I would still be looking for better buys to justify my risk getting any loans in my name. Always remember, you are the buyer and you have thousands of properties to choose from. You don’t have to buy any one particular property if it doesn’t meet your minimum requirements. But each seller only has their one property to sell and if they need to sell then they will sell for your price and/or terms just to get it sold. Otherwise move on to the next one until you get the one that fits your requirements.

Re: Finally, Grants for Investors!!! - Posted by JD

Posted by JD on April 06, 2002 at 24:11:24:

Seems to me your just paying $950 (the program fee) in order to increase the LTV by 5%. And evidently you have huge equities in other properties, which makes me wonder why you need to increase the LTV.

Re: Finally, Grants for Investors!!! - Posted by Tim Fierro (Tacoma, WA)

Posted by Tim Fierro (Tacoma, WA) on April 05, 2002 at 23:30:01:

Susan, Maybe I am slow on the up take tonight. :slight_smile:

Isn’t the home you just purchased going to be paid off in 30 years? The home you have that will be paid off in 4 years, did you buy it 26 years ago? I don’t know how your previous purchases with 20% down and your 10 year cash flow projection, works in with this new found way of investing with grant money. You don’t indicate that the $5,010 cash flow per month is going to be coming from the previous homes you purchased, not this extra $110 on this one deal.

In one phrase, you say 15 homes and I can see how the math works out. Then in another phrase, you say you don’t even need to buy any more homes. I am confused.

Grant money is what I like to call; a loan. The money isn’t really free since you have to pay it back. The paying it back comes in the form of raising the purchase price an extra $5k to cover the $5k you got, and it is added to your monthly mortgage payment at the interest rate you got the mortgage for.

The intent of course with the grant is to provide funds and the seller would pay this. With the prevailant usage though, it is added to the price so the seller pays it still, but now the buyer is paying more for the property. If you really want it to be a grant, then you would not have raised the price $5k, to get the $5k; you would have kept the price at $90k.