buying real estate no money, bad credit true/false - Posted by stanley miller

Posted by Eddie on August 19, 2001 at 19:51:10:

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buying real estate no money, bad credit true/false - Posted by stanley miller

Posted by stanley miller on August 18, 2001 at 17:13:07:

I hear alot about buying real estate with no money down and
with bad or no credit, alot of people are selling courses
on this subject, what’s the true story ??? someone please give the real answer.

TRUE!!! - Posted by JohnBoy

Posted by JohnBoy on August 18, 2001 at 20:59:03:

That is the true story!

Real answer: Well let’s take the short answer and turn into the long answer so you can get a better picture of things that will hopefully allow you to see some light at the end of the tunnel.

Let’s assume that YOU own a home. Your home is worth $100k. You only purchased this home a year or two ago and you put little down on it to buy. So your loan pay off is about $95k, leaving you with only $5k in equity.

YOU now have a problem and YOU absolutely NEED to get rid of this home and you NEED to get rid of it YESTERDAY!!!

To list it with a realtor you would have to pay 6% commission plus any closing costs. That means you will need to pay $6k to the realtor and lets say only $1k towards your closing costs, for a total of $7k just to get YOUR house SOLD!

Well, you only have $5k in equity! This means just to get YOUR house SOLD you will HAVE to find a buyer that will come in and offer you FULL MARKET VALUE just so you will only have to COME OUT OF POCKET $2k just to sell YOUR house!

Real world, you probably won’t find someone willing to pay full market value, so will end up having to take $97k from a RETAIL BUYER, which could take up to 6 months just to find someone!

The other problem is you NEED to sell by YESTERDAY because YOU can no longer afford to make YOUR payments any longer. Your payments are $704.41 principal & interest plus taxes & insurance. That means, for each month it takes YOU to find a QUALIFIED BUYER that is willing to pay RETAIL for your house, YOU will fall a month behind on YOUR payments! That means YOU will either HAVE to sell for more money than the house is worth (not gonna happen), OR, YOU will have to come out of pocket for that much more money just so YOU can get YOUR house SOLD!!!

But YOU don’t HAVE the money to cover this! YOU have a PROBLEM! So WHAT are YOU going to do now???

HEY! I got an idea! I just might be willing to HELP YOU out of YOUR problem! Would you like that? Remember, this is YOUR PROBLEM and it’s YOU that needs help to get YOUR PROBLEM SOLVED!!!

So HOW can I help YOU out of YOUR problem? Well, what about this? What if “I” were to just come in and offer to take over YOUR payments for YOU so YOU don’t have to worry about anything any longer??? If “I” were to do that, how would that benefit YOU?

Well, for one, “I” will save YOUR credit from being ruined since YOU can’t make the payments any longer. “I” will SAVE YOU from having to come out of pocket and having to PAY several THOUSAND BUCKS, just so YOU can get YOUR house SOLD! No matter what YOU do, YOU will NOT be getting any money from this because YOU don’t have enough equity in YOUR house just to cover the cost in getting it sold! So if “I” were to come in offer to just take over YOUR payments on a loan that YOU are responsible for and “I” would be saving YOU from damaging YOUR credit, losing the home to foreclosure if YOU didn’t get it sold in time, saving YOU from LOSING thousands of dollars out of pocket, which YOU don’t have…would THAT be something that YOU might be interested in??? Of course it is! That is, if YOU are MOTIVATED and want to save your credit and keep from losing thousands more just to get the house sold and off your back! Right?

Following along so far?

Now what just happened here? “I” just purchased YOUR house for NO MONEY down, NO credit check, NO job verification, NO nothing! YOU were just to HAPPY that “I” came along and bailed YOU out of YOUR problem! YOU didn’t have much of a choice and really didn’t care about me, YOU just wanted SOMEONE to come along and SOLVE YOUR PROBLEM! Didn’t I just do that by taking over YOUR payments on YOUR house that YOU can no longer afford??? Didn’t I just SAVE YOU from LOSING more money that YOU would have had to come out of pocket just to get YOUR house SOLD??? Heck, you’re so glad you’re jumping up and down for joy!!! Dang, your so HAPPY right now that you feel like hugging and kissing me just for coming along and being such a nice guy for solving YOUR problem!

OK, so now what? That sounds great, I just purchased a home with NO MONEY DOWN, but there isn’t any equity in it and all I did was just take over the seller’s payments for him. Now what am I going to do with it? Doesn’t that just put me in the same boat as the seller? I mean, all you did was basically step into the seller’s shoes and made HIS problem your own problem! So how is that any good? Ahhhhh! Questions! That’s good!

Well let me tell you what I’m going to do with it!

I’m going to sell this thing! OK, but how am I going to sell it and make any money off this when the seller couldn’t do that??? Ahhhh! More questions! That’s good, that means you’re paying attention!!! Good! Well, let me finish and tell you how!

This time around we will change shoes and YOU will be a buyer looking to buy a home that YOU can live in.

YOU have bad credit, but you do have about $5k that you could put down on a house IF you could get a loan. The problem is YOU can’t get loan because of YOUR credit problem! Dang! How in the heck are YOU ever going to be able to BUY a house if YOU can’t get a loan???

Then one day you’re looking through the paper and you notice this ad:

NO BANK QUALIFYING!
SELLER WILL FINANCE!
NICE 3 bed / 2 bath House!
Call xxx - xxxx

You think, hey! That looks interesting! I think I’ll call on this one and see what this is about. That would be GREAT if I could find someone willing to finance me to buy a house! Heck, I’m MOTIVATED to buy one! No bank is going to give me any loan! Heck, I’m calling this. All they can do is say no! What do I have to lose?

Ring, ring, ring! Hello? Yes, this is Stanley calling. I’m calling on your ad in the paper, no bank qualifying? Yes, Stanley, what can I do for you? Well, I’m interested in this house you have for sale, is it still available? Yes, Stanley, it’s still available. Oh, good, can you tell me about it? Sure Stanley, it’s a 3 bedroom with 2 baths, has a family room and 2 car garage, it’s in very nice neighborhood with good schools, and what was it that you were looking for Stanley? Well, that sounds exactly like something I was looking for! What do I need to do? Well, Stanley, hows your credit look? Ug! Well, not to good I’m afraid, I’ve had some problems in the past, but I’m working on getting that cleaned up now. Well that’s OK Stanley, we work with credit problems all the time. (Stanley is now grinning from ear to ear and getting REAL excited that he might actually be able to buy a home)

Stanley. Yes? What kind of a down payment would you be able to come with? Well, I could put down $5k! Hmmm? Well, I was looking for closer to $10k, (Stanley’s heart stops for second), but I might be able to work with that! (Stanley’s heart recovers and is pounding 3 times the normal beat), what can you afford to pay each month stanley? Well, I can pay up to $1200 per month right now! That seems to be in the ballpark where the payments might be. When would you like to come look at the property Stanley? Ah, um, well, could I come over within the next hour or so??? Sure Stanley, come on over in about an hour an I’ll meet you at the house. Ok, great! See you there!

Stanley is really excited now because he never dreamed it would be possible to own a home of his own! He’s running around pacing back and forth saying to himself, I hope I get this, I hope I get this, I hope I get this. Ok Stanley, get a grip on yourself. Act natural. Don’t let on to much or you might blow this! Blah, blah, blah…

Stanley shows up and looks at the house. This is it! I want this house! What do I need to do next Mr. Seller to buy the house? It looks just like what I was looking for! How much are you selling the house for? Well, Stanley, I was asking $120k, but I just reduced it to $110k. With your $5k down payment your monthly payments would about $999.94 per month plus the taxes and insurance which would put you right at about $1215.00 per month. Is that something you can afford Stanley? Well, yes, that’s right where I was hoping to be. Well, all I need from you now Stanley, is to fill out this credit app. and put up a deposit to hold the house for you while I check things out and I’ll let you know within a day or two. Once I check everything out and everything looks OK I’ll just need to collect the rest of the down payment and you can move in anytime after that. Ok, that sounds good, but like I told you before on the phone, my credit isn’t very good. That’s OK, Stanley, we work with credit problems all the time. We just need to check everything out and once we verify everything we can move forward from there. Your credit isn’t a big deal to us since we are the one’s financing this deal.

After checking everything out we call up Stanley and say, Stanley, we got good news, we’re all set and the house is yours as soon as you come over and sign off on the paper work and pay the rest of the down payment money! Ahh, that’s just great! When would be a good time for me to stop by? Can you come by in, oh, say an hour??? Sure thing, I’ll see you in an hour!

Stanley shows up, signs off on the deal and puts the rest of his down payment up and we hand him the keys!!! Stanley is one HAPPY camper now because he FINALLY was able to buy a house!!!

Now how did this deal pencil out for everyone?

The seller was able to get his problem solved by getting out from under his house payments, so he’s happy.

Stanley was able to finally buy his own home so he’s happy.

So what about the investor? How did he make out on this thing?

What did the investor pay for the property? $95k

Well, what did the investor have invested in this deal out of his pocket? $0.

What were the payments the investor had to take over from the seller? $704.41 plus taxes and insurance.

How much did the investor just sell the property for? $110k

What did the investor get from his buyer as a down payment? $5,000

What are the buyer’s payments to the investor going to be? $999.94 plus taxes and insurance. That’s $105k financed at 11% interest over 30 years amortization with the balance due in two years when Stanley can refinance and pay me off.

So what will Stanley’s pay off be in two years when he goes to finance? $104,000.03

What will the investors pay off be on the loan he took over in two years? $93,346.83

So what did the investor make on this no money down deal of his?

$5k down up front.
$999.94 - $704.41 = $295.53 cash flow per month x 24 months = $7,092.72
$104,000.03 - $93,346.83 = $10,653.20 at closing in two years.

$5000.00 + $7,092.72 + $10,653.20 = $22,745.92 Total profit over 2 years!

How much did I put down? $0

What’s my return on my investment? INFINITE!!!

So HOW do you buy property with NO MONEY DOWN???

You find MOTIVATED SELLERS!!!

This is only ONE example of buying with no money and no credit.

Read the “How To”, “Success Stories”, “Money Making Ideas” sections on this site and all 6 news groups here, search the archives and you will get a good understanding on many ways how this works. Then pick out the way that appeals to you the most and buy a course that pertains to that way of investing and then get started buying property!

If you think you can, or if you think you can’t, your right!

Re: buying real estate no money, bad credit - Posted by Ken Jacoby

Posted by Ken Jacoby on August 18, 2001 at 19:23:37:

No Money Down - It’s possible, in cases where seller is motivated and flexible. The trick is to find those sellers - they make up less than 5% of the seller population, but they are out there.

Bad Credit – good credit will present you more opportunities - Bad Credit is an obstacle - but can be overcome with determination and desire to improve your situation - there are lenders willing to work with you if you have solid current history and the bad stuff is a ways back in your history. You have to prove your ability to pay.

Re: TRUE!!! - Posted by willy

Posted by willy on September 04, 2001 at 16:19:23:

JohnBoy,
I am not too sure if my message went through. I accidentally pressed enter instead of the backspace to correct my typing error. Let me remind you that I am a newbee and just getting some info. Here is my question again. Do have the right to sell that is not yours in the first place? Wouldn’t you need the original buyer’s OK. And who would agree to pay that much in 2 years? Isn’t that there is max you can apply for a second? Thank you for your patience.

Re: TRUE!!! - Posted by karen

Posted by karen on August 21, 2001 at 17:32:23:

This is a great scenario. It makes sense and really tells the value story behind being a problem solver. The one part I just don’t get yet: once you offer to take over the payments for the first seller who needs to get out yesterday, do you actually go to settlement and take ownership with deed and all? What do the settlement sheets look like without a mortgage or seller financing? Maybe it is seller financing??

Re: TRUE!!! - Posted by modartist

Posted by modartist on August 21, 2001 at 13:03:22:

RE: JBoy’s “TRUE!!!”
Hmmmm…haven’t even got my Sheets course yet, and alREADY I’m [a teeny bit] ahead of the game!!!
Thanks alot for all that typing and teaching! Bravo!

Johnboy, 1 more question - Posted by MattH

Posted by MattH on August 21, 2001 at 11:23:33:

Johnboy, just one more question, which I believe you answered in an earlier post but I can’t find it. How can you be sure that the borrower will have sufficient credit to buy the house in 2 years?

Johnboy, a question please - Posted by AzBob

Posted by AzBob on August 18, 2001 at 23:13:27:

Johnboy,
Great story, filled with great ideas, but couple quick questions. . .
Do you get a seperate fire insurance policy to protect your interest and leave the old insurance policy with the Seller’s name in force?
How do you handle the name change with the lender. I picture having statements sent to: Old Seller c/o investor at Box xxxx. Will this trigger the due on sale?
Do you use and escrow company for all of the paper work?
Thanks for the advise,
Bob

Re: TRUE!!! - Posted by JohnBoy

Posted by JohnBoy on September 04, 2001 at 16:58:47:

If I take over someone’s loan subject to then I get the deed to the property. I OWN it! The loan remains in place. The seller remains liable for the loan, but I legally OWN the property. Since I own it, I can sell it anyway I choose.

Agree to pay what to much in two years? I’m selling it for about 10% above it’s current fair market value and I would be financing everything. The buyer would have a balloon due in two years where they would just refinance the balance owed to pay me off. The money I get from my buyer’s loan proceeds would go to pay off the underlying loan that I took over subject to and anything above that would be my back end profit.

Who would be applying for a second? The buyer applies for new first mortgage which instead of being treated as new purchase, the lender will treat as a refi since they have already purchased the property under a contract for deed. Since it is being treated as a refi they can usually qualify for a higher loan to value. Depending on how well they cleaned up their credit over the two years they might even qualify for 100% financing based on the appraised value when they go to refi. They wouldn’t be applying for any second.

In some cases the buyer may not qualify for a high enough LTV where I as the seller may have to carry back a small second mortgage to help them qualify. My second can be for any amount and even exceed the appraised value. As long as the buyer qualify’s by having enough income to afford the payments on their new first and my second they can get financed. Their lender doesn’t care how much my second is. That’s my problem, not theirs. As long as the buyer qualify’s to cover both payments then they’re OK. I can even play with the terms and interest rate on my second to keep their payments lower to help them qualify. I’m the lender on the second so I get to make the rules as far as what the interest rate and terms are going to be. But I only need to mess with that if the buyer isn’t able to qualify for enough LTV on a new first when it’s time for them to refinance.

Re: TRUE!!! - Posted by JohnBoy

Posted by JohnBoy on August 21, 2001 at 18:28:02:

You first enter into a purchase agreement describing the purchase on the property. You make that subject to verifying title on the property. You want to do a title search to make sure their are no other liens against the property that you don’t know about.

You have the seller sign a deed over to a land trust, naming the trust as owner of the property.

You have the seller enter into a land trust agreement naming himself as the beneficiary and you or your corp. as the trustee.

You have the seller sign an assignment form assigning his beneficial interest of the trust over to you or your company.

You have the seller sign a POA (power of attorney)

You have the seller sign a CYA document (cover you a$$) that informs them of the risk involved with the DOS clause.

You have the seller sign a form telling the lender they have placed the property into a trust and to forward all future documents to the trustee (you) at the stated address.

These are the basic forms. You do all this at the seller’s kitchen table and have a notary present to notarize everything.

Then you take the deed to the county courthouse and have it recorded.

This type of transaction isn’t something you should just do on your own without getting a course that goes into detail on how to do “subject to” deals.

For detailed information get a copy of Bill Bronchick’s “Alternative Real Estate Financing” course. It comes with all the forms you will need and step by step instructions on how to fill them out and close the deal.

You can read about it at this link:

http://www.creonline.com/c-181.html

Re: Johnboy, 1 more question - Posted by JohnBoy

Posted by JohnBoy on August 21, 2001 at 11:34:15:

You can’t be positively sure. The only thing you can do is to hook up with a GOOD mortgage broker to work with. Then run your potential buyers through the broker and see what they will need to do over the next year or two to be able to get financing. If there is nothing they could do then I don’t sell to them. If there are things they could do to clean up their credit then it’s up to them to make sure they DO the things required. If they don’t then they won’t be able to buy the property. At that point we either start over with them by giving them a new contract or we find someone else and start the whole process over again. Which means we only make more money on the deal because we collect more down payment money, increase the purchase price to adjust for inflation if property values have increased and collect more cash flow every month because the payments would be higher.

Re: Johnboy, a question please - Posted by JohnBoy

Posted by JohnBoy on August 19, 2001 at 13:42:28:

You have the seller deed the property into a trust naming himself as the beneficiary and you or your company as trustee. No DOS trigger there.

Then you have the seller assign his beneficial interest over to you naming you or your entity ( like an LLC ) as the new beneficiary. This DOES trigger the DOS, but this is kept silent since this form does not get recorded, only notarized. Only the deed naming the trust is recorded. So unless you or the seller TELL the bank about it, it would be very difficult for them to find out.

As trustee of the trust you notify the bank that the property has been deeded to a trust and to send all future corespondence to the address of the trustee.

As trustee you have power of attorney to change insurance companys. You then use your agent to put a new policy on the trust and instead of naming the beneficiaries to be insured, you just have them name the beneficial interests as they may appear as additional insureds.

I haven’t used an escrow company for any paper work. I have all the paper work. Once the property is deeded to me it’s a done deal and their is no paper work that would be needed to be held with an escrow company at that point. If I wasn’t getting the deed then I would use an escrow service to hold the paper work to insure I get the deed when the time comes to take title to the property. This would be good when buying on a L/O.

Using an esrow service for collecting payments would be a good idea. Set it up where your buyer sends their check to a 3rd party escrow, the escrow service then sends the bank their payment, any payment to the origional seller (if any), and then the rest to you.

Re: Johnboy, 1 more question - Posted by MattH

Posted by MattH on August 21, 2001 at 11:50:40:

Thanks Johnboy. So that’s why you get the credit app and get back to them in a couple of days, so you can run them by your mortgage broker.

Johnboy 1 question - Posted by Eddie

Posted by Eddie on August 19, 2001 at 17:56:37:

Most loans arent assumable. How are u gonna just “take over payments” of a house?

Re: Johnboy 1 question - Posted by JohnBoy

Posted by JohnBoy on August 19, 2001 at 19:38:17:

By the way I just described above. By having the seller deed the property into a trust a hiding the transfer from the lender. You can assume any loan. The lender only has the “option” of calling the loan due “IF” they were to find out about it. They don’t have an obligation to call it due. If they don’t KNOW about it, then how would they even determine their option to call it due? There is NO law that makes it illegal for assuming non-assumable loans, it only gives the lender the OPTION to call it due.

Now if the loan is current and the payments are being made on time, then WHY would a lender call the loan due IF they even found out about it???

One reason would be if the current interest rate was low and rates went way up. Then they “might” elect to call the loan just so they can relend that money out at the higher rate. Other than that, it would be pretty stupid for them to call a perfectly good performing loan due.

If they DID call the loan due then unless you complied with them, they would still HAVE to foreclose on the property in order to get it back and resell it to get their money out of it. Depending on the state you live in that could take up to year to foreclose. That means the lender runs the risk of a good paying loan to go bad because if they call it due, the payor could just stop paying on it while they go through the foreclosure process. That means once their loan goes bad they can’t loan out $800k in money for every $100k they have sitting as a non-performing loan! How much would that cost the lender in lost profits having a good loan turn bad because of their actions and lose the profits they could be making on the other $800k they could have loaned out during the time it takes them to foreclose and liqudate the property???

Meanwhile, what are YOUR options while this is happening?

  1. You pay off the loan
  2. You get a new loan to pay them off
  3. You refinance through them to make them happy
  4. You get your buyer refinanced to pay off the loan
  5. You put the property on the market and sell it out right to pay them off

If foreclosing will take the lender up to a year to get the property back, do you think you can get something done with it within a year to pay them off before they can foreclose on it???

The LEAST of my worry is the big bad DOS Clause!

Go to the main news group and search the archives on “subject to” and you will get thousands of posts made pertaining to this subject.

Re: Johnboy 1 question - Posted by alex rayford

Posted by alex rayford on July 12, 2011 at 24:21:22:

Just wanted to thank you for all your information and comments regarding the due on sale clause.They have been very helpful for a newbie like me.