Posted by Tim Fierro (Tacoma, WA) on May 25, 2003 at 11:25:52:
>> Step 1 would be to market for buyers with at least $13K down and bad credit.
Before starting any plan that has this as the #1 step, make sure you know your market area. Some areas do not have low credit people with $13k sitting in the bank. If you researched this out for your area, and it is loaded with low credit folks with money sitting ready to be spent on housing, then go for it.
How is this business plan? (kind of long) - Posted by Igor(IL)
Posted by Igor(IL) on May 25, 2003 at 07:33:05:
I have been thinking lately of purchasing SFH’s at a small discount (like 5-8% below the FMV) at low interest rates (they are about 7%, 0pts for investment loan with 5% down) and then selling on a land contract at 10% above market value with 6-7% down.
I probably can do tons of these if/when I find the buyers first.
Step 1 would be to market for buyers with at least $13K down and bad credit. Usually, the purchase price for them would be at around $210K in HOT selling areas.
Step 2 would be to look at the houses with them.
Step 3 purchase the properties at a discount but using their money. I realize that to do this legit, I would have to have my down payment coming from MY bank account, and this will be done so, as I have some personal funds I can use. However, I would also like to make sure that my buyers won’t back out at the last minute, so I would have them deposit THEIR money into some kind of escrow account… (other ideas?)
Step 4 I realize that a potential snag in my plan is that if do too many of these, I may be considered as a ‘lender’ and would have to comply with the fair lending rules for my state (Illinois). I won’t let that bother me now, since I have not done any of these yet. May be after the first one I’ll consult with a Creative Atterney.
Step 5 would be to collect the positive cashflow
Anyone sees potential snags in this? Is there a way to buy these homes with 100% ltv using investor loan? My credit score is near 730.
Re: How is this business plan? (kind of long) - Posted by Brent_IL
Posted by Brent_IL on May 25, 2003 at 19:43:38:
The plan I follow is similar in that I mark-up the contract price to 110% of FMV. It might be helpful to run a blind ad (I know it’s illegal) just to see what kind of response you get.
I’m suggesting this because folks who can’t buy, but have a debt/income ratio high enough to be a good tenant might not have six or seven percent to put down.
In the best of times, we averaged between 5% and 6% as a buyer’s contribution toward closing costs. The top end L/Oer’s are taking advantage of current rates and lax standards to buy.
Look at doing double closes. In Illinois, use trusts. It is a much cleaner deal.
Re: Snags ? Sure. - Posted by Ed Copp (OH)
Posted by Ed Copp (OH) on May 25, 2003 at 11:35:15:
This does not mean that some of what you propose can’t be done. It does mean that it is easier to write than to do.
5% down, or 0% down transactions are usually intended for owner occupants, which you do not propose to be. So sooner or later the lenders will catch on to this.
Once you get four or so loans in your name the lenders will get harder to deal with especially on 5% down financing.
In some states (mine, but I don’t think yours) land contracts must be recorded. This will trigger the Due On Sale Clause in your mortgage. This may raise possible problems.
Extreme care needs to be in place when using the money that is actually not yours but belongs to the suspected purchaser. You do risk being labeled a lender, or a real estate broker in some cases.
I personally think that your proposed discount is too small @ 5 to 8%. There are too many hidden risks involved. As a Real Estate Broker I get 6%, with little risk.
Finding a deadbeat with bad credit is easy, finding one with $13,000 in cash is quite a bit more difficult.