Thanks Mike for your response. Not being the cash queen either, I will do what I can with good credit and decent income.
Another question, though this may be the wrong forum. I am just getting into REI in TX (Dallas area). Do most of you that are experienced in this game work under an LLC? Want to partner with my son and do this full time. Won’t go further in details, but can if I could get some feedback.
Thanks again for the help.
Betty,
Yes, I would definitely recommend doing your deals with an LLC, especially if you will have a partner. This will help limit your liabiltiy to your investment in the LLC and will help protect your personal assets.
Mike
Yes, you can finance properties 100% and STILL make a comfortable to very good living at REI. Just look for the deals. Just because the property is 100% financed does not mean that you borrowed 100% of it’s value. You borrow 100% of what you need to buy it.
When I started, I bought my first 4 or 5 at 110, 120, 130% financed. I bought properties at 50% or less of FMV. I used the cashout proceeds to live off of and to buy more properties. To keep generating income, I bought some to do quick resells and some to lease.
Raj
Wow now this is a fun post can I play PLEASE I will nice!
100% if we are talking about 100% finance and buying at 100% LTV good luck!!!
Here is a deal I did last week!
In Denver (If you want the address plese send a personal message)
Appraised Value 169,000.00
Repairs needed 0.00
my purcahse price 122,500.00
cash I brought to closing 1,421.56
Check payable R.E.O. Consultants recived at closing
[b]$46,039[/b]
Monthly mortgage $1,125.00
Monthly Rent (already rented) $1,200.00
I pay water and Trash! so I am at a negative of $4.98 per month but I got $46,039.00 back at closing so divide 4.98 by 46,039.00 so that money will cover my negative cash flow for 9,244.77 months or the next 770.39 years after that I will need to raise the rent to cash flow!!LOL
lets run this another way to see how I could of cash flowed off this property
Appraised at 169,000
Purchase price 122,500
Repairs 0
Cash to closing 1,421.56
cash back 12,700.00
Owner carry 20% and dismiss at closing $33,800 (give or take)
80% loan to value no Mortgage insurance mortgage of $135,200 or 899.49 per month! Rent $1,200.00
[b]CASH FLOW $300.51 minus trash and water
so right around $250.00[/b]
Question what is more important CASH FLOW and equity or working capital? It all depends on where you want to be!
TODAYS LESSON WAS BROUGHT TO YOU IN PART BY THE LETTER E AND THE NUMBER 13
Robb,
Sorry if a bit off topic but how did you find that deal?
Thats always the most interesting part to me 
Another investor rehabed it and could not sell it everything is finished roof to furnace!
Wow, REOConsultants…what a nice post! I have always been the “cash flow is king” type but if I could land 4-5 of those deals a year I would be on cloud 9. Very nice!
I am looking for information in real life to get cash back at closing on deals. Any suggestions? ;D
REOConsultants…
Can you elaborate on what type of financing you used to get this cash back? I thought you couldn’t get cash back with a conventional loan? Did you use a creative finacing method?
REO,
I’d have to question the math in your cash back deal. You certainly haven’t considered your true negative cash flow when you’re only considering mortgage payment and water/trash. You also need to consider taxes, insurance, maintenance, management, vacancy allowance, etc. Your actual cash flow is MUCH worse than $5.00 per month.
However, worse than the negative cash flow is that you borrowed away ALL of your equity. In my book that is absolutely taboo. When you have no equity in a property, you have thrown away your ability to sell the property quickly in all but a red hot market. Therefore, if anything goes wrong and you want or need to sell the property, you’re going to take a loss or hold it a very long time.
Like you, I also do a lot of cash back deals, however I would never borrow all of my equity. In fact, my rule is to never borrow more than 70% of the value, so that I have a cushion in case of emergency. Having equity is like having free insurance - it gives you options. So, in my opinion, the key to doing cash back deals is to buy at a BIG discount and borrow no more than 70% of the ARV.
Here’s a deal I’m doing now:
This is a house that I bought at foreclosure auction:
Purchase price: $39,250
Appraised Value: $96,000
Borrowing: $65,000
Cash Back: $25,750
LTV: 68%
My Equity after Loan: $31,000 or 32%
This will give me some cash but also some equity (safety). If prices drop - I’m protected. If an emergency arises - I’m protected (I can still sell quickly).
So, I agree with you that getting money back at closing is an excellent way to generate money, but I wouldn’t give away all of my equity to do it. Don’t be greedy!
Mike
just my 2 cents but if you had 40 propeties and they all cash flowed $150 a month 40*150 = 6000month *12=72000 plus any equity and all not bad i think granted you have to have 40 properties but who says you have to stop at 40…if property values increase above average why not then sell halfe and go from there…mean while if you also flip a few properties and make an additional 20k per deal you would end up making over 100k per year
food for thought
i think granted you have to have 40 properties
You can do it on a lot less properties. I currently have nine properties that have a monthly positive of just over $3K a month.
Raj
did you do 100% finance or put money down I was basing it on 100% finaning(maybe this is why im still trying to get started and you have 9 properties) LOL
Actually, I pulled out between $5-20K on each of six of them, so you can say that I financed them 103-125% or so, and bought the other 3 100% financed.
It doesn’t matter whether you get 100% financing, or put money down. You STILL need to figure it as 100% financing. Putting down 20% just to get positive cashflow isn’t really getting you positive cashflow. You still need to figure paying yourself back the DP.
Raj
I am closing on 5 properties next week that will generate $310/month cash flow (average and the total includes management). All 100% financing…
I think this will be a good place to post this: a little off topic.
mortgage 30 years ammorazation table for 30 years, instead of paying large chunks of cash to lower years in payments look at what goes into your principal every month. and add the exact amount every month.
example.
$1,500 payment
make that extra payment of $13 dollars or whatever it is every month POW your mortgage has been cut in half…
hope this makes sense email me if you dont get it, very powerful info
This is OK, Carlos but towards the end, it all reverses…the $1,500 payment becomes $3,000 a month!
For example, if you borrow $204,500 for 30 years at 8%, your payment is $1,500.55. Your first payment is $137 of principal and $1,363 in interest. Under your plan, you would pay $1,500 plus the 2nd month’s principal of $138 for a total of $1,638. At the end, you are paying the $1,500 payment plus the last month’s prinical of another $1,500 for a payment of $3,000. The amount of principal grows each month and under this plan needs to be paid.
Keith
Propertymanager,
In that case of getting 46k back that also shows the bank that I have enough capital to do more deals! As we all know that equity is not always easy to get to! In your case leaving the equity in the property sure it will lower lower your payment on the other hand look at issues of high monthly cash flow is that or is that not taxable as income? That is right it is! I am at a different point in my life where I have a great monthly cash flow! And really do not care if I win loose or draw on some properties on the other hand I read in another post of yours that you currently own 6 houses or something like that and yes at that point in time I would worry more about cash flow and leave cash in a deal! I own 15 times that amount! let me ask you this if you would have pulled out all your cash you could have owned a property free and clear but then again if I was buying houses at 96k I would own more then one free and clear as my avarage deal is around 210k. So before we can compare our deals I am going to compare a hot dog to a t-bone then compare the shuttle to a bike!
Keith I dont understand how you get the reversal?
I have done this with several clients and it cuts thier mortgage in half!
I pulled up a Excel spreadsheet and work the numbers that Keith and Carlos are talking about.
Originally a 204,500 for 30 years at 8% would be $1,500.55 per month for 360 months.
I took the principal and it comes to $138 month 1; 139 for month 2; 140 for month 3; until month 359 where the principal would be $1,491.
Now going with Carlos’s adding the principal to the payment the payment months go down to 119 months which is 9 years, 11 months and the final monthly payment would only be $831.30. The payment would never get larger then $1,803.10
All this takes in effect that you take the Principal from the original 30 years mark and not adjust for the new payments and interest. Also the principal you pay will only really go from $138 per month to $303 in month 119.
Makes it sound interesting. Alot of people use the “pay the principal” method with Credit card bills or any debts to help pay off much quicker. Paying in 1/3 the time will save roughly $180,000 in Interest payments on the 204,500 example.
David