I am thinking about refinancing my house and taking out 200k. What should I do with that money to make more money? I’ve thought about buying an 8 unit which rents at $500 per unit. That would bring in $4000, while the loan payment on the 200k would be around $1000. After taxes, fee, etc, the 8 unit might net me cash flow of $2000 per month. Which is nice, but I keep on thinking 200k is very hard to come by and I could somehow do better. What options are out there and what do you guys think? Thank you in advance.
I think you could do better. 25K per unit for 500/month is not that great. If I were you, I would not borrow that money until I had something good to buy or do with it. Another idea would be loan hard money. HM loans often get 12-15% plus a couple points. Heck, I pay some of my private lenders a straight 12%. A credit line against your equity is probably a better deal than a refi. The credit line can be paid down and re-borrowed. And for sure dont borrow 200K and out it into anything that requires even more debt, like a 300K deal with 200K down. That’s a recipe for disaster IMO.
It doesnt sound like you are all that experienced, forgive me if I am wrong. But if that’s the case, I would move very slowly and not jump on the 1st thing that comes along. Read, network and learn. And be careful who you say you have access to 200K to.
I’d kind of have to disagree with ken. I think taking a credit line against your home is bad. A cash out refi is much better. Credit lines tend to have bad terms and sometimes even a balloon payment. After all, many people got into serious problems when lenders allowed them to take out credit lines.
As far as the investment goes, as long as you can get a solid 10% or higher cash on cash return, you would be in a good position. Just make sure you invest in the right market. With your investment goals, you could get a 4-plex (or even two) for under $200K. If anyone tells you that you can get a 40% return on your money, run for the hills. I’ve been seeing solid cash on cash returns anywhere from 10%-20%. And that’s very good. Plus, if you qualify for tax benefits you can also deduct that as well. So it’s not just about the return.
Pro about credit line - you only pay interest when the money is being used.
Con about credit line - the bank can lower your credit limit with zero notice.
–Natalie
Why not go for 1,000% ROI and turn 200k into $1M!!
The title of my reply (above) may sound too good to be true for those new to creative REI, but those are the returns I look for, and you should too!
The return of 10 – 20% is OK, for people who don’t want to be active in this business, but if you’re willing to invest little bit of time into learning it, and about 10-20hrs/week, then you should look for a lot higher ROI, somewhere in 100’s%.
And… if you’re reading this post, on this site, then you should definitely do that!
So let me give you a few examples on how to generate 300-500% ROI on the money you have… you found a deal:
FMV=$250k
Owe=$190k
You found a motivated seller who will not sign it over for $0 down, so you ended up negotiating and showing him the cost of sale thru a conventional way… then he realized that he’ll lose ~15% on commissions, seller’s concessions, closing costs, holding costs, etc… The result is – he agreed to take your offer of $200k with 10k down and take over loan.
So you use your $10k as cash down payment, and take over his 190k “subject to”. Your purchase price is $200k.
You sold it as “no qualifying” seller financing for $250k, and the buyer gave you 30k down. You gave the seller 10k, so your profit is 20k.
> your return on the 10k is 200% within a month or so!! What’s that annually!
> you will have a nice cash flow based on the interest rate spread, and a sizable back-end when the buyer refinances you – the back end of approximately 30k+. This is another 300% return, on the money that you already got paid back with the down payment!!
This deal scenario will get you between $70-80,000 profit in a 3y wrap.
And it only gets better if the buyer defaults and you get to do it all over again!
Another example:
FMV=$250k
Owe=$190k + $70k (overleveraged)
You discount the 2nd from 70k to 3k, and reinstated the first – let’s say reinstatement is 7k. You’re in the deal for 10k. Seller didn’t get any $$, but got his credit saved, and improved.
Since again you have the long term financing in place that you are NOT liable for, you now can sell it the same way as in previous example and get that 500+% ROI.
Another example – let me give you worse scenario than you would actually get, so you can realize that even in that case you have huge ROI:
FMV=$250k
Owe=$0k - free and clear
You negotiated to buy it for $220k, 30k down to seller to cover his i.e. medical bills and move, and seller carries the rest at 0% rate – straight principal reduction (0% IR is very typical in this type of deals once you learn how to present it)
You sell it the same way as above, and you get your money out immediately, and the monthly cash flow will be huge, plus with every monthly payment to the seller your equity grows 100% – this deal will give you again ROI in hundreds…
>> CREATIVE REAL ESTATE INVESTING is the way to go!!
With 200k, you could literarily make 1M in the next 2 years - just get one deal a month as I explained above.
Yes, you will have some marketing/operating expenses, but you will also have deals that you will get $0 down and thus have “infinite” ROI. Or deals where seller pays you to buy!!!
>> so go ahead and learn from huge resources this site offers, and participate in the forum, browse forum archives, etc. The more you learn the more you earn!
>> and to finalize, I agree with Ken’s reply to this post – do NOT use your money too soon – take the time to learn this biz. Please read his post – the 2nd paragraph, he wrote it with good intention and I agree to it.
Take care,
Marko
Question about 0% notes
Hi Marko. How are you presenting 0% interest notes. Not in terms of getting the seller to sell with installments, but the consequences of 0% interest. The seller will have problems on his taxes with that. My escrow officers won’t prepare notes/DOTS where there is no interest. I got them to overlook their policy one time, on a short term balloon note (6 months). Are you doing your own docs/escrow?
As much as I like wraps, the cash down thing is just not happening in my market. It’s either FHA first time buyers with little downs, or move up buyers. The move up buyers have equity and credit, so don’t seem to need a seller financed deal. And, they can have any house they want…plenty to choose from. Who are these people who have cash for downs and no credit? Have you recently gotten 30K down on a 250K house in your market?
$25,000 per Unit?
jjman, where are these $25,000 units located. Where I am from, if you hear $25,000 per unit, people are talking about parking units not apartments. It sounds like interesting. What are the expenses other than the mortgage payment?
0% Notes
Hi Kristine,
Nice to hear from you!
The way we present 0% interest is by not even talking about any interest - it’s that simple. If you mention interest, then you will be asked for it. Motivated sellers are not thinking in terms on interest, they are thinking in terms of the solution to their problem - so if the deal solves their problem and they need to wait little bit for the rest of their equity they are fine.
Sometimes with longer term (a few years) notes you would need to pay interest, but it all depends how you approached the seller and your negotiation skills.
As far as closing/title company - it is your right to negotiate any kind of interest rate, so them not wanting to do it is unbelievable to me. Not only did I close those with different title companies, but my students are doing it all over the country. All I can tell you, don’t take no for an answer - find another closing company.
As far as down payments – there are more no-qualifying buyers w down payments now then ever before!!! I see this in FL, TX, CA and anywhere in between. Again, it comes down to advertising - keep in mind that there are a lot more people with “any” credit, than people with “perfect” credit.
hope this helps,
Marko
Let me clarify.
Marko: thanks for your reply. I know how to get people to do installments with no interest. Done that. I was more interested in the IRS consequences for the seller with a longer term note, say over 1 year. I’m guessing from your lack of answer that you don’t think this is an issue?
As for down payments in this market in CA, I’ll ask directly this time: have YOU done a 250K house with a 30K down in CA in the last year…like seen it with your own eyes? 
I’ve got a 250K house for sale (I optioned it and planned to wrap it) and there are PLENTY of interested buyers. The house is perfect in a perfect neighborhood and priced perfectly. All applicants have 10K or maybe 15K. Putting their credit aside, and it should be put aside 'cause most of it is bad, their income/cash/assets available for housing payments are shaky. Some have enough income but bad debt ratios. Others have solid income but not enough for a $250K house. Not to mention the majority of interest comes from people who bailed on their last loan. The only applicant that really “qualifies” for any housing purchase, IMO, has 10K down, good credit and minimal income. They qualify for a $125K house.
It makes sense to me that there are lots of buyers out there that don’t qualify for bank loans, because they are the millions the banks already loaned to with less than stellar results. And imperfect credit isn’t a problem. But the the lack of a real cash down is a deal killer for me.
Kristine,
I’d love to actually hear from people that have SEEN or DONE something like this as well. I’ve had two different properties that I’ve marketed “textbook creative”…and I have found the exact thing as you, though being in Indiana people have even less cash they are willing/capable to put down.
IMO this perfect “non-qualifying” buyer is almost as mythical as the tooth fairy. In real life, in dealing with people of wide and varied socio-economic status, people have bad credit MOST of the time because they are broke. Sure there is the occasional random circumstance of someone that has crappy credit or a complete lack of document-able income, but has a pile of money…but that is the exception, not the rule.
This to me has always seemed good advice for 10+ years ago. Up until a few years ago, everyone ‘qualified’ not matter what, and the past 3 years, nobody has cash whatsoever. JMO and my PERSONAL experience.
I have had success with lease options, and getting MAYBE 3% down…but even that is not easy.
[QUOTE=jjman;881517]I am thinking about refinancing my house and taking out 200k. What should I do with that money to make more money? I’ve thought about buying an 8 unit which rents at $500 per unit. That would bring in $4000, while the loan payment on the 200k would be around $1000. After taxes, fee, etc, the 8 unit might net me cash flow of $2000 per month. Which is nice, but I keep on thinking 200k is very hard to come by and I could somehow do better. What options are out there and what do you guys think? Thank you in advance.[/QUOTE]
I don’t know what your market is like. In my area, we can get SFH 2 or 3 bedroom for $25-30k, and IMO they are much easier to keep occupied than an 8 unit property. Of course, it doesn’t have the convenience factor. Cleaned up, we could get $600-$700 for them.
No Qual Buyers
Hi Kristine,
I think you should be doing what you find works for you - if something is working why fix it, right!
But, I definitely have to disagree on “mythical as tooth fairy” — it’s the matter of advertising.
As I stated in my previous post, not only that I’ve gotten 10% down or more from a buyer with bad or any credit in the last year (or years), but my students all over the country are getting it.
This is not from theory, but from out there in the field.
Investors selling on owner financing are getting 3-5% down on LO, and 8-12% on Owner Fin, all over the country.
The key is the proper advertising!!
You need to use everything from bandit signs to MLS, track and see which one works the best, then it becomes easier.
I am not saying that it’s easy to find someone with 10% down, nothing is easy! But it’s a lot easier and more profitable than selling to people who have to qualify for the loan.
>> this is the TIME for Owner Financing! No doubt about it!
There is NOTHING that has a better “product to market match” than No Qual Owner Financing does in today’s economy.
Take care,
marko
straight answers
Marko: agreed that doing what works one should do more of. I’m on that program already. That wasn’t my question. My question, repeated above for clarity, and now for a third time, was: Have you gotten a 30K down on a 250K house in the CA market recently. I didn’t ask about 10% downs or lease options or all over the country or anything else.
I agree that plenty of people these days have “any credit” and 10% down. But 10% down in Dayton Ohio isn’t 10% down in Orange County, CA. This not answering questions directly by the moderator is killing my interest in this site. I agree this is a good time to be selling with owner financing. But it’s valuable to talk about whether or not people have $30K in cash, as opposed to 5-10K. If you have direct experience or details of large downs in this market, please share.
Motivational posts are great, but I think some things are better directly answered with experience or facts.
I’ve been able to sell properties to investors for around $8,000 down. And the property still cash flows!
[QUOTE=jjman;881517]I am thinking about refinancing my house and taking out 200k. What should I do with that money to make more money? I’ve thought about buying an 8 unit which rents at $500 per unit. That would bring in $4000, while the loan payment on the 200k would be around $1000. After taxes, fee, etc, the 8 unit might net me cash flow of $2000 per month. Which is nice, but I keep on thinking 200k is very hard to come by and I could somehow do better. What options are out there and what do you guys think? Thank you in advance.[/QUOTE]
Heres some real world advice that at least one person learned the HARD way.
Dont use your primary residence as a source of risk capital, especially if you live in a state where you can exempt the majority (or all) of your equity in bankruptcy.
Find a different way.
[QUOTE=Unregistered;882052]Heres some real world advice that at least one person learned the HARD way.
Dont use your primary residence as a source of risk capital, especially if you live in a state where you can exempt the majority (or all) of your equity in bankruptcy.
Find a different way.[/QUOTE]
This is the best advice in this entire thread…
[QUOTE=jjman;881517]I am thinking about refinancing my house and taking out 200k. What should I do with that money to make more money? I’ve thought about buying an 8 unit which rents at $500 per unit. That would bring in $4000, while the loan payment on the 200k would be around $1000. After taxes, fee, etc, the 8 unit might net me cash flow of $2000 per month. Which is nice, but I keep on thinking 200k is very hard to come by and I could somehow do better. What options are out there and what do you guys think? Thank you in advance.[/QUOTE]
my advice become a hard money lender for a good investor and let them do all the work for you.
i myself am a wholesaler who uses private money to fund inspections and Ernest moneys.
i usually borrow around 1-2k from my investors and give them a 100% return on there small investment
or on bigger deals where i am going to flip the home i offer anywhere between 25%-50% roi and or 50% of the overall profit whichever is agreed upon. how many of these deals could you do a year??? with different investors?? how quickly could you double or even triple your money?
Paul Ruiz
DPRSunlimited
"the little guy helping the little guy"