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REI - Young Guy Making Moves (Inspirational)
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Dash Offline
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Post: #1
REI - Young Guy Making Moves (Inspirational)
I saw this awhile back and was really impressed with this kids business savvy. As they say they hardest part of RE is taking action. The FHA lending is pretty awesome. Normally one must put down around 25% but with the FHA all you need to do is put down 3.5%.

Anyways, here is the thread.

http://www.thefastlaneforum.com/showthre...ition-Done
11-21-2013, 11:55 AM
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fucksong Offline
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Post: #2
RE: REI - Young Guy Making Moves (Inspirational)
Hey Dash, I haven't closed on an FHA deal (their limits are too low for CA) but some points to keep in mind. Typically those low down payment loans are for owner-occupied loans meaning that you have to live in the property. Now if you wanted to move out later and rent it out, not sure how long would have had to have passed but lenders will check. If you're in Korea/LA/Phils, they're gonna question your employment. If you move back, you're gonna have to be in same line of work for at least two years. Also with FHA at high LTV (loan to value), they're gonna charge you PMI private mortgage insurance which eats into your cash flow.

Dude said he bought the property as an REO at 70% of fair market value. I'm not gonna claim to know his market or how all banks work (if you make friends with the disposition guy, there could be opportunity) but most banks I know will want to sell as close to market value as possible by relying on a local broker. Google BPO, which means broker price opinion or something like that. It's based off of recent comps so there's a bit of his story that isnt fully disclosed there. Not doubting his success but rather to just point out there is some important info not listed. Oh, the guy also works at a high paying job I think, right? That definitely helped him get approved for a loan. You might want to look up "seller financing" as an additional option as sellers are way easier to qualify for a loan than a bank.

Lastly, he mentioned looking to get a HELOC home equity line of credit? Again I dont know his current market but most banks discontinued their heloc programs after the subprime crisis and if wells fargo did offer one, theyd need a much higher value since his o ly equity is 3%.

His main play here was buying it below market value so the question is how did he do it (many REOs are listed on market for near market value) and if he did buy it at firesale price, WHY did wells fargo sell it to him? But like women, its a numbers game and he may have been cold calling/networking with multiple banks to find those cash flowing deals. More power to him
Big difference between 1-4 unit properties and 5 unit + properties is 1-4, they qualify the loan based on YOUR INCOME (tax returns, W-2 forms, etc). 5+ units/office buildings/restaurants/malls/etc they qualify based on BUILDING'S INCOME.

Your income - DTI debt to income ratio

Building income - DSCR debt service coverage ratio

Also start learning CAP RATES of property types in certain areas. Cap rate is basically what you expect to earn from a property if you paid all cash. Ex. Place in downtown manhattan with say google as your tenant is a safe investment so you should expect 3-5% as an example. A place in the hood with drive-by shootings, 10% and up.
Kaizen (Continuous Improvement) My personal journey of improving myself as a man and finding happiness

https://kaizenmanofsteel.wordpress.com
(This post was last modified: 11-21-2013, 11:47 PM by fucksong.)
11-21-2013, 11:39 PM
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Dash Offline
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Post: #3
RE: REI - Young Guy Making Moves (Inspirational)
Yea man, ive been studying REI for many years now. I got hooked / obsessed when I first saw the show FlipThatHouse with Armondo. Read about 3 REI books front to back in that span and spent many hours on BiggerPockets.com (Great Resource btw) You are correct in that to get a FHA loan it must be owner occupied. However as with many things there might be a way to work the system. If not I will just use the conventional down payment on a house in the 40-100 K range. I am a few years away from purchasing my first investment property though. All markets are different, esp California when compared to other places. I will not be tied down to any one market. I will be searching all over the US for the best deals and markets when the time comes.

(This post was last modified: 11-22-2013, 12:05 AM by Dash.)
11-22-2013, 12:04 AM
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worldwidetraveler Offline
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RE: REI - Young Guy Making Moves (Inspirational)
(11-21-2013, 11:39 PM)fucksong Wrote: His main play here was buying it below market value so the question is how did he do it (many REOs are listed on market for near market value) and if he did buy it at firesale price, WHY did wells fargo sell it to him?

It depends on what the original loan was for when the bank took it back over. They won't sit on a house for years to get full value if they can sell it for what the original loan was for.

Banks played it smart not unloading all the foreclosure properties on the market at one time. It helped create some bubbles otherwise it would have killed off their sales.

That doesn't mean they want to cash out at retail value for each foreclosed house.

They normally don't want to deal with bad assets because they make their money making loans, selling those loans and cashing in on fees and loan management. That funnel gets screwed up when they have bad assets. The money is tied up, in that asset, and they can't borrow more.

Foreclosures were a lot of fun. I always targeted homes with multiple loans because the second and third would take payoffs for very little.

(This post was last modified: 11-22-2013, 01:11 AM by worldwidetraveler.)
11-22-2013, 01:04 AM
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fucksong Offline
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Post: #5
RE: REI - Young Guy Making Moves (Inspirational)
Hey whats up worldwide! Lemme first say that I'm not claiming to know every single banks policy or market dynamics so i was just sharing from my personal experience being "in the game" sorta speak in a high priced area so I am not doubting you or this dude's success. I will say that if a bank is "sitting on a property for years", then the price is definitely NOT market value. FMV should take about 30-90 days to find a buyer. Also keep in mind that with a lot of foreclosed properties, the previous owners were probably pissed off at the bank and in many cases caused a lot of damage to the property. In the kid's example, even he had to allocate extra cash for repairs. So that 3% down payment could easily become 10% or more.

Not trying to be negative but just share additional info so that anybody thinking of getting into the game is prepared because with real estate, the devil is truly in the details.

On a positive note, to give the kid credit, he was smart to get the property re-assessed to bring down his property taxes and also to ask the seller to pay for closing costs (although the latter is sometimes agreed to only if you bump up the purchase price to match)

Additional thoughts: I cant remember but did he allocate a property mgmt fee? Not sure about all of you but I want to be traveling around the world (or at least have the freedom to financially and career wise) but this kid's system would not allow for that (yet) First he will have to actively manage the property (I'm sure many of you wanna own real estate but to manage it is a pain in the ass) and if he later decides to hire someone to manage it, cash flow will be hit. plus the loan he got requires him to have a job with a minimum 2 yr same line of work history and live in property.

I mentioned this in the other real estate thread but http://www.realtor.com is the most up to date MLS nationwide site. Also a good website for finding general rental rates is:

http://www.rentometer.com

Peace
@Dash - Oh dude i totally agree there are always ways to work the system but make sure you know EXACTLY HOW to work the system. I cant speak for fha but there is an even more attractive loan program thats 100% financing that uses some of the state bond money for down payment assistance. I'm pretty sure most states have it but for california its called calhfa. The very 2nd deal i ever sold was for some clients who used that loan but who later moved out and the state caught them and found out. They then gave them 90 days to sell or they would "accelerate" the loan.

Here's one more fun one where a top broker has been trying to sell to less suspicious buyers. AITD all inclusive trust deed. Its where the seller who has a bank loan basically offers a blanket seller loan on top of it so that you would make payments to seller and they would make payments to bank. Almost every agent who does these says its no problem and that banks dont care as long as you make the payment. Well guess what, I met a guy a few months back who was under a shitload of stress before because in his case, the bank did find out and called the loan. Imagine one day you get a call/letter, we need you to come up with $800k in 60/90 days. It can be very scary. You risk losing your entire down payment if yo dont have your ass covered.
Kaizen (Continuous Improvement) My personal journey of improving myself as a man and finding happiness

https://kaizenmanofsteel.wordpress.com
(This post was last modified: 11-22-2013, 01:52 PM by fucksong.)
11-22-2013, 01:33 PM
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worldwidetraveler Offline
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Post: #6
RE: REI - Young Guy Making Moves (Inspirational)
(11-22-2013, 01:33 PM)fucksong Wrote: Hey whats up worldwide! Lemme first say that I'm not claiming to know every single banks policy or market dynamics so i was just sharing from my personal experience being "in the game" sorta speak in a high priced area so I am not doubting you or this dude's success. I will say that if a bank is "sitting on a property for years", then the price is definitely NOT market value. FMV should take about 30-90 days to find a buyer. Also keep in mind that with a lot of foreclosed properties, the previous owners were probably pissed off at the bank and in many cases caused a lot of damage to the property. In the kid's example, even he had to allocate extra cash for repairs. So that 3% down payment could easily become 10% or more.

Sales time depends on the market. I have seen some markets take 6 months. If it sell for a particular price at 6 months then is that FMV or is the price selling at 90 days FMV? As you can see, I don't believe FMV is tied to a time period especially when local markets can be vastly different.

Then you add in the time it takes for the foreclosure procedures to get back the house in order to sell it. That can take anywhere from 1 month to a year depending on the state.

Then you add in for how long the loan has been delinquent. Back in the day when I was doing this, it took 90 days of not paying your loan before Loss Mitigation took over and started either trying to collect or starting foreclosure procedures.

So even if the house takes 90 days to sell, that loan has been a pain in their ass for a long, long time.

But the underlying motivation for banks is to get that nonperforming loan off their books. They don't consider owning a house as an asset because the house has a bad loan attached to it and it diminishes their borrowing from the fed when they have too many bad loans.

They are in the business of moving money and charging fees. They still need to justify taking a loss and that is where you come in with a short sale package if it is pre-foreclosure.

Quote:Not trying to be negative but just share additional info so that anybody thinking of getting into the game is prepared because with real estate, the devil is truly in the details.

I didn't take it as negative. I was just commenting that selling at retail isn't necessarily the motivation for the bank.



(This post was last modified: 11-23-2013, 03:21 AM by worldwidetraveler.)
11-23-2013, 02:51 AM
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Max Offline
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Post: #7
RE: REI - Young Guy Making Moves (Inspirational)
Nice exchange .....can you still make money ?
11-23-2013, 01:41 PM
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Dash Offline
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Post: #8
RE: REI - Young Guy Making Moves (Inspirational)
(11-23-2013, 01:41 PM)Gato Wrote: Nice exchange .....can you still make money ?

So long as people need a roof over their heads there will always be money to be made in Real Estate.
11-23-2013, 02:01 PM
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Max Offline
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Post: #9
RE: REI - Young Guy Making Moves (Inspirational)
I guess keeping simple Smile hehehehe
PS: the catch hidden and carrying costs.....dive in deep in our homework before you put your money ...and do not rush ..if you in Gringo Landia
you need to be there ...on the spot to make sure remote folks do not take occupancy and your trusted managers do not steal ..hehehehe


(This post was last modified: 11-23-2013, 02:25 PM by Max.)
11-23-2013, 02:12 PM
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