Posted by hgw on September 02, 2008 at 07:53:03:
This clears up all the cobwebs…thnx
Starting to investing while unemployed?? Any Help - Posted by Jerry
Posted by Jerry on August 31, 2008 at 18:02:38:
I have been reading an investing book to buy houses in a down market and get a renter to pay for the mortgage. But as an unemployed person now, how or what is best path to find loans or investors to back me?
Re: Starting to investing while - Posted by James - Michigan Investor
Posted by James - Michigan Investor on September 01, 2008 at 16:15:22:
Get a job first.
Or borrow money from family/friends/bank etc and buy in cash-flow areas. Put your tenants in place and have them pay the mortgage.
James
PS - I didn’t read the other responses, just giving you my first impressions.
Gonna need the right niche… - Posted by Bank Negotiator
Posted by Bank Negotiator on August 31, 2008 at 19:11:56:
If you are unemployed now, then I’m guessing that a “Buy-N-Hold” real estate strategy is simply not going to be one that you are going to want to pursue, with the exception of the Sub2 method.
With no job, you’re going to be hard pressed to find financing. There is ZERO chance of you getting financing from a mortgage broker. There simply are not any “no-doc” liar loans for investors anymore…which is what you would have needed.
Also, it seems that you don’t have a large track record to go on, so finding a private investor and saying “Hey, here are 3 of my best deals. I’m looking to borrow money from someeone that wants 10-12% interest on their money and is willing to loan me all the money for purchase, closing costs, and rehab costs…how 'bout it?”
I mean…that’s what you do when approaching private investors, but it’s probably gonna me a little more than “hard” to get them to sign up if you don’t have any examples for them. No “credibility kit” as it were.
You’re gonna need to find a niche that lends itself to Quick-Turn flipping in order to keep your cashflow needs met, esp as you are unemployed. Unless you have a sizeable stash to live off of for the next year…then it’s not a big deal.
My suggestion would be to refocus on a niche that:
- Doesn’t require you to get any traditional financing to buy and hold properties
- Doesn’t require you to have good credit
- Doesn’t require you to have a job in order to secure funds for purching
- Doesn’t require you to actually fix houses
Three niches jump to mind:
- Wholesaling - always a good standby if you know how to do it right. Find KILLER deals (“good” deals won’t do), port them out to a buyer’s list, and collect a finders fee. Wash-rinse-repeat.
This method meets all the aforementioned criteria, but of course is not as simple as all that. A good course that sets you on the straight and narrow on this is very important. Access to the MLS is important as well.
- Sub2 - buying property Subject to the existing financing meets all the above requirements. The only problem that I see with this one is that most homes that are financed are seriously underwater. At least in my area.
Just because you can get someone to hand you the deed to their home doesn’t mean you should take it. I mean…if they owe $150k on a home worth $90k…it still doesn’t make sense. I am still in awe that large sub-2 operations are doing well in the current market. I just don’t come across people with equity these days. As in EVER. I’ve not met ONE in two years. (except investors that bought homes through me cash, fixed, and came back to list through me later…but they don’t count)
- Short Sale Investing - this method of investing is ripe right now because everyone seems to be going into foreclosure and they all owe significantly more than their home is worth.
With the advent of one day “Flash Funding” you can now buy a house on which you negotiated a significant discount for $100k at 10am and resell at 2pm for $140k to an end buyer. No repairs, no credit check, no appraisal, no job check…nothin. 100% financing for purchase AND closing costs. Whatever is left after you buy then insta-sell after closing costs are paid out on two transactions is your profit.
The only downside to this is the long negotiation timeline. Negotiations themselves take an average of 8 weeks. Add on all the leadup and leadout to closing and you’ve got a good 4 months at best (that 1/4 of a year and you only get 70 of those in your lifetime).
The long process not only means that it takes a while to get the check, but it also takes a while for you to work through the inevitable learning process, takes long to get proficient, and takes long to build a team to speed things up, take the workload off you and build a real business.
Anyway…these three are a good place to go if you have no job. Pick one…study up and get to work.
I agree with James… - Posted by Rick, the Probate Guy
Posted by Rick, the Probate Guy on September 01, 2008 at 17:14:30:
Investing without skill or capital (or financial staying power, for that matter) is like wanting to cross a large body of water without sailing skills, provisions or even a boat!
Given that you have a choice in making such a decision, why place yourself in such an unnecessarily risky position?
I suggest that you get a job before pretending that you’re ready to be an investor. However, you may be able to get by with minimal employment with some personal financial sacrifices in order to get from where you are now to where you want to be. Of course, if you have a family, they’d better support any such plan whole-heartedly, too.
First, I’d figure out exactly what your bare-essential monthly living expenses are. Be tough on yourself and decide what items you can’t live without and what items are optional. Make a budget, and be prepared to live on it. Learn to spend less than you make.
Determine what other resources are optional (i.e., is there anything that you could either sell or not use that will reduce your cost of living?).
Marshall all resources and assets that could contribute to your monthly living expenses, like renting out a room, etc.
Now you should know how much you’ll still need to supplement your income and still have time and energy to learn the real estate game, let along have discretionary income to invest in it.
Also, I’d bare in mind that there’s a big difference between making a living in real estate, and investing in real estate. If you’re not sure what the differences are, now you’ve got your first homework assignment.
Hope it works out well for you and you report back here as to your progress.
Re: Gonna need the right niche… - Posted by hgw
Posted by hgw on September 01, 2008 at 22:16:51:
Bank Negotiator…
You stated that "…with the advent of one day ‘Flash Funding…’ what does this term mean, and are two actual closing occurring here and if so what about title seasoning.
Re: Gonna need the right niche… - Posted by Jerry
Posted by Jerry on August 31, 2008 at 21:08:50:
I’ve heard and read about all of those niches except for SUB2 that is a new one for me. I haven’t reached the end of my literature yet, but it seems like it wants or is leading me to buy foreclosures or preforeclosures and somehow refinance them to put cash in my pocket and then get a renter in the house to cover mortgage payment. Does this sound feasible with no income? I was also thinking of looking for investors to do the same thing, but I would do all the leg work and take a smaller commission.
As Rick says… - Posted by SoCalGal
Posted by SoCalGal on September 01, 2008 at 23:38:22:
…some real estate investors are arch-conservative. Some, however,
are swashbuckling, as we see here.
http://www.virtualwholesaling.com/replay/
They trade houses like others trade cars.
As Rick Says… - Posted by SoCalGal
Posted by SoCalGal on September 01, 2008 at 23:04:28:
…there’s the arch-conservative way of investing in real estate, and
then there’s the swashbuckling way of “investing” in real estate.
Trading real estate really isn’t investing, in my opinion, but there are
many out there who buy and sell real estate like they buy and sell cars.
Here’s an example.
Flash Funding & Seasoning - Posted by Bank Negotiator
Posted by Bank Negotiator on September 02, 2008 at 05:42:00:
There are now operational companies that will lend “Dough for a Day” to “wet” fund double-closed short sale quick-turn flip transactions.
The two that I know of are:
Coastal-Funding .com
ShortSaleOlogy .com
They usually charge 2points + a processing fee. Some little differences between them, but mostly they are the same.
The funds come with no credit check, no income verification, no appraisal. They just wire in the funds. They will give closing instructions to the title company that funds are NOT to be distributed until the second B to C transaction where you sell to your end buyer closes.
Seasoning is always a tricky question. Right now conventional (Fannie/Freddie) loans for you end buyers do NOT have seasoning requirements set up by Fannie and Freddie. However, a lender may apply their own “risk overlay” to deals that they lend on, in essence adding to the requirements of Fannie/Freddie.
So while the GSA’s don’t have seasoning guidelines, a lender like CitiMortgage may have their OWN seasoning stuff on top that will kill the deal.
The answer is to just make sure your end buyer is working with a lender that doesn’t have seasoning requirements. Easy enough, right?
FHA is a different story. They have a 90-day set in stone seasoning requirement. There is no workaround to this for investors at this time. I know the questions to the tune of “…but what if we…and then file with the county…and then does that meet the seasoning guidelines?”
The answer is no. Done one-day transactions if your buyer is going FHA is a no-no.
Not a likely option… - Posted by Bank Negotiator
Posted by Bank Negotiator on September 01, 2008 at 06:07:00:
If you have no job, this method of buying, refinancing to extract cash, and then renting will not work well.
Here are a few reasons why:
-
No Income - before the credit crunch there was a whole line of mortgages calle “N.I.N.A” loan. Stood for “No Income, No Assets”, meaning the borrower had such credit he didn’t have to prove income or assets. Also known as “liar loans” because people would lie and say they had income when they did not have any at all (which sounds like what you want to do). These loan programs no longer exist (esp for investment properties) and are now sarcasticaly called “N.I.N.J.A” loans for “No Income, No JOB, No Assets”.
-
Non-Owner Occupied Lending Restrictions - I’m sure you’ve heard of the “credit crunch”. This is NOT a joke. It’s hard to get loans right now. Even people with good credit and a good job have a HARD time getting loans for investment properties.
In my state NOO Properties (Non-Owener Occupied) have refi LTVs being cut back to as low as 70%. This is almost in the “hard money” LTV range.
Let’s say you wanted to suck out $15,000 on a refi and lets assume you could somehow (by an act of God) squeeze by getting an approval with no provable income. Also assume you’ve held the house for a year to cure seasoning issues (there WILL be seasoning issues…you can’t just refi 2 months after buying anymore)
If the home has a now-appraised value of $100k you can get a loan for $70k (70% LTV) Subtract out 5% for closing costs on the refi and you’re down to $66,500. Subtract out the $15,000 you want in your pocket and you’re down to $51,500. You have to be ALL-IN (purchase + closing costs+rehab costs) for $51,500 or less to pull this kinda thing off.
Where are you gonna find this kinda property? Well around me, you’ll find it in Detroit or other type 2 or type 3 neighborhoods. (not good areas) You can buy homes for $20,000, put $30,000 into them and be all in for about $50,000 with an anticipated appraisal value of $100,000
Then you run into another problem. The appraisal. Sure it could come in at $100,000. You’d like it to…but in these SAME AREAS that you can put these deals together…over half of the comps are foreclosures that are being sold right around the price that you bought yours for. Appraisers are running scared right now…and if over HALF of the houses are selling for $20k-30k then they are gonna have a hard time putting down $100,000 for the value, no matter how much repairs you’ve done. When your appraisal comes in $15,000 low, you’ve now erased the $15k you want to put in your pocket. (and it doesn’t take much to come in $15k low these days)
Worse…if the appraisal comes in at $100,000 the underwriting lender can cut it in-house! They’ll say “The appraisal came in at $100k but we’re only going to allow $85k” there goes your $15k again.
- New 10-Property Max - Fannie now has a requirement in place that you can only have 10 Income Mortgages in your name. After that…no more loans for you. If you are going the “Buy,Fix,Refi,Rent” route then even if you got past the job thing and got past the appraisal/LTV thing you’d run into a wall when trying to buy property 11. My guess is that it wouldn’t take more than 2 years to get there…probably sooner.
There is a work-around called a “blanket mortgage”…but that is very much a non-traditional lending product and you will NOT get one of those without proving income.
So you seee…the problem that you are having is that you are reading old educational material that does not apply to today’s tougher/tighter real estate market.
Most course gurus are not going to pull their courses off the shelves and rewrite them. They won’t rewrite the web page copy that sells them. They’ll just keep selling like normal.
You buy the course, read the course and believe that “this is the way it’s suppose to go” but in truth the world has changes behind your back and the reality that the educational material was based on no longer exists!
The gurus will keep going on as if nothing has changed and justify it to themselves on the level that “somewhere, over the rainbow, there is someone that is finding a way to get it done this way…one out of 10,000…and if that guy can do it…so can YOU”
But the truth is, without Private Money or a partner, it’s easier to win the lottery these days than to go the “Buy, Fix, Refi, Rent” method of real estate in todays mortgage market without a job.
Believe me, I’m the poster child for the “Pursue your dreams, fail forward faster, success starts on the inside and is realized on the outside, don’t let anyone tell you that you can’t do it” style of living…but I’m a realist to.
I don’t believe that if I stare at an apple long enough and believe hard enough that the apple is really an orange that I’ll wake up one day and find that the apple has transformed itself because of the “power of positive thinking”.
I believe in work-arounds. Personal example: due to the current real estate market and my failure to find a way to adapt to it quick enough in 2006 (not for lack of trying mind you) my credit has taken a SEROUS beating. This has NOT caused me to “give up”. In fact I’ll make more money this year than ever before in my life. But I do NOT invest using methods that require me to fill out a credit application…I’ve found a workaround.
I am going to suggest that you put aside the idea of any type of buy and hold investing unless you get a partner or get private money if you don’t have a job. Or you can walk that path anyway and learn by experience which is what we all need to do some times. The problem for you is that this early in the game, a significant out-of-the-gate failure could take you out of the game for good. I guess it would depend on the strength of your inner character.
Either way, I wish you the best of luck.
Re: Flash Funding & Seasoning - Posted by hgw
Posted by hgw on September 02, 2008 at 07:11:15:
Thank you for the clarification on flash funding. Now this raises yet another question re title seasoning. If I close on the first part of the transaction using these funds am I not actually taking title (albeit briefly) or is it just to facilitate the second part, B to C?
Wholesaling Options? - Posted by Jerry
Posted by Jerry on September 01, 2008 at 09:31:45:
How about wholesaling? I have some literature for that too, with one big problem. I don’t have the money they want me to spend to advertise for sellers and buyers. I have been frantically searching the web and this site to find any hint to build a buyers list in my area. I might have found the cheapest path with direct mailing current buyers. I have a few resources to find distressed properties in my area. But any guidance to find the buyers and even the properties too would be good. I wasn’t optimistic with the first idea to buy, fix, refi, and rent with my no income status now. Wholesaling looks like a better opportunity with the right info.
Re: Not a likely option… - Posted by Max-Va
Posted by Max-Va on September 01, 2008 at 09:00:16:
Very good post.
A lesson for all
You are… - Posted by Bank Negotiator
Posted by Bank Negotiator on September 02, 2008 at 07:32:34:
You are taking title. For a few hours. Or a few minutes…depending on how quickly the second transaction takes place.
This is why you can’t do these deals FHA.
You CAN do them Conventional because conventional guidelines do not have any seasoning requirements. If you are going to a “conventional” lender that tells you that there WILL be seasoning requirements for the end buyer, then those are extra, added requirements which that particular lender has “bolted on” to the underlying Fannie/Freddie guidelines.
Wholesaling Should work… - Posted by Bank Negotiator
Posted by Bank Negotiator on September 01, 2008 at 18:26:09:
Wholesaling is a good approach. There are a number of courses out there. I’ve got a few of them.
My suggestion right now would be stuff by Preston Ely.
Why? Because the guy eat’s sleeps, and breaths wholesaling. He’s rabid about it. He’s always sending out emails with quick tips, tricks, and tactics. He’s funny too. A bit over the top, but you get used to it.
Wholesaling is NOT rocket science, and most courses have 90% similar content. Preston is far, far more involved than others with courses on the subject. His dedication to the niche puts him at the head of the pack in my book.
You can find his beginners ebook at Learn To Wholesale .com
Oh…and it IS possible to wholesale bank-owened REO properties regardless of what others will tell you. I’ve put those deals together. You just gotta be “creative”.