Hey ya’ll
can anyone give me an example of a cash out at closing…Not equity, but cold hard cash at closing. ???
Sure,
Purchase price = $60K, Appraisal = $100K
Find lender that will loan 80% of appraised value.
Loan = $80K, Cash out at closing = $20K (minus closing costs)
Just one way of many.
Raj
Howdy Strted @22:
Here is another I did for $10K. Seller needed $25K to pay Uncle Sam. I bought house for $50K and borrowed $35K from 1st mortgage lender and seller seller carried a second for $25K. Piece of cake and I got $10K at closing and all parties knew what was going on.
…
Sorry, I think you are asking about closing costs. Figure $1000 for bank charges, escrow is about $2/1000 plus 200, Title is $500, plus a mortgage payment plus points.
If you are really asking about cash out, you can get 80 to 90% cash out. Good luck. Oh yeah! Thanks.
I do purcahse deals all day everyday and get cash back you just have to know what you are doing and do it legal! It is simple!
Swirlaze,
Read the number again.
The Fair Market Value (FMV) of the property is $100K (the APPRAISED VALUE).
The loan is for $80K, the purchase is for $60K.
Nothing illegal, as the lender is FULLY aware of what is going on and lends against the APPRAISED VALUE and NOT the purchase price. At closing, you get cold hard cash of $20K (again, minus closing costs) in your hand.
Yes, it’s borrowed funds. If you’re looking to get cashout at closing, then it’s ALWAYS going to be borrowed funds. A good thing about borrowed funds. They cannot be taxed as income.
Yes, you’re going to have to pay it back. However, the FMV is $100K, so you have options. You can choose to sell the property at FMV, which nets you a gross profit of $40K ($100K-$60K = $40K). $20K of that goes toward paying back your cashout loan, $20K goes into your pocket as net income (again, minus any closing costs and yearend taxes).
You can also rent/lease lease/option the property to someone. Your monthly cost should run somewhere in the neighborhood of $700/month for everything (and that’s the high side). The property should be able to rent/lease for $800-1000/month. So, using the low $800/month, your $80K loan is getting paid, in full, and you get a $100 positive cashflow from the property for as long as you own it.
Step out of the box.
Raj
Swirlaze,
NO, it is not against the law to get cash back at closing. I do it all the time working with small, local banks. I do it exactly like Roger said except that I never go over 70% LTV. Yes, the $80K must be paid back, but the tenants are indirectly making the mortgage payments through their rent plus paying me a profit each month.
You can absolutely keep that $20K in the bank, spend it on another investment, buy a boat, or keep it under the mattress. It’s your money and you can do what you want with it. Even better is the fact that the money isn’t income since it came from a loan - so you don’t owe taxes on that $20K. Best of all, the tenants are making the loan payments!!! It doesn’t get any better than that!
Mike
Seems like all the good posts start out with simple pressing questions…
As a newbie…the question of “how to appraise” has been on my mind.
Let me give you a typical scenario:
You get word of a potential investment property, (let’s say it’s a duplex), and you’re told that it has an asking price of $125,000.
My biggest question is how that $125,000 figure stands. Is it above or below what a certified appraisor would appraise the property at?
Because you have to pay for the services of an appraiser…I’m wondering when you make the decision to employ their services. If you’re looking at (20) different potential properties…it’s not like you’d want to shell out an appraisal for each of them.
Do you call in an appraisor only when you’re getting pretty darn sure that “this” is one of those properties that’s on your short list.
Or do you maybe have the seller himself pay for the appraisal?
But then you wouldn’t know the fair market value before you made an offer.
Guess that’s enough of a hijack of this thread for now…but really…doesn’t this whole negotiating aspect…offer vs. appraisal amount…tie in closely with cashing out at closing?
Thanks for the rant…any feedback is greatly appreciated.
-Mike
Ted…you must have gray hair like Anderson Cooper or Albert Einstein. Seems like I’m always reading about these creative dealings of yours. More power to you.
Could you please clarify this one above…
When you say seller carried a second for $25,000…what did he carry the 2nd on? He was selling the house…so his 2nd wasn’t on the house?
Thanks Ted,
-Mike
Hey,
Ted’s hair isn’t gray, it’s SILVER (think silver coin) and comes from wisdom that has been gained from experience. Tedjr is a resource to be mined, aka “national treasure.”
Peace,
Richard
Allagash,
The question shouldn’t be “how to appraise,” but rather “how to value” property. If you want to be an appraiser, then you need to go to school for that. If you want to be an investor, then you need to learn your market area.
You learn your market by reviewing past sale data, current listings, and actually looking at as many properties as you can. It’s also very helpful to have a good RE agent on your team, so that they can help you learn your market, and to help you verify your numbers.
As you gain experience/knowledge, you’ll be able to roughly determine what a property’s ARV should be, at least within a tight range. A RE agent can help you with that as well.
If you do all that, then you actually do know the FMV of the property (or at least a good, educated guess). As to the appraisal; no you don’t want to get an appraisal until you have a contract on the property. IF you’re still worried about value (a newbie problem that will fade over time), you can always put in an appraisal contingency. Basically, house has to appraise at X dollars, or buyer can void contract. Of course, the easiest contingency is a finance clause because if it doesn’t appraise, you can’t get financing.
As to Ted’s post, yes the seller held 2nd loan IS on the purchased property.
The seller has a loan for $25K against the property. It is in a 2nd position behind the $35K first position loan. All that really means is if there is a foreclosure, the first position lender will get any/all funds from the sell to pay off their loan BEFORE the 2nd position gets any.
Hope it helps,
Raj