How to Buy a Good Deal With Conventional Financing

Question

Hello all,

I'm new to the game, and have been listening to the podcast and doing online research to educate myself enough to get started. I'm very concerned with getting analysis paralysis, so I make sure to at least listen to a podcast every day.

I'm actually posting because I have three questions

1) How do you buy a "great deal" without cash - i.e., with conventional financing? Is that possible? Is it possible but difficult? If it's not possible or highly unlikely, what is the next best option?

I have my eye on a particular neighborhood in Clarkston, MI, an upper middle class suburb of Detroit. It's a lower priced neighborhood for the city, but has nice SFHs and from what I can tell, several houses that could have flip potential. Most of the houses I would be looking at would be in the $100k-$175k range. I have about $45k saved, so I have money for closing costs and repairs, but I'm just wondering if it's even possible to find a really good deal and take advantage of it given the slower speed of conventional financing.

2) One possible plan I have is to start a direct mail campaign to that neighborhood. My thought is that it would be a good way to find a good deal for my first flip, and if it generated more leads than I could handle, I can get into wholesaling as well. I guess I'm just looking for some validation on that one - is that a feasible plan? Also, any resources/articles you can provide with advice on what kind of marketing to send out?

3) Lastly, I'm thinking a good first step in the whole process would be to find and meet with an attorney. If I end up going the marketing and wholesaling route, I want to make sure I'm doing everything the right way.

FYI, my wife is a newer real estate agent which means we have access to the MLS, so if scouring that is a smarter way to go, that's an option as well. I appreciate any input from anyone who knows more than I do! Which is everyone! Thanks everyone for your time!

Deren Huang · Answer

@Tony Gazetti

There are commercial loans available as well as construction loans. Talk to a couple of banks and see what they offer.

I know some flippers here in Tulsa that put 20% down of the purchase price and then 20% of the repair cost then 3 months are interest only then it kicks into a 15 year am.

Of course Hard money is applicable in this situation

I think you have to decide on what your goals are and don't get sidetracked. You mention wholesaling, flipping, buy-hold. You have to decide your method of investing.

Steve Vaughan · Answer

@Tony Gazetti I hear ya about rentals being a slow way to wealth. But it is a good one.  Fast cash usually involves a lot more risk and higher transaction costs and taxes.

If you a looking for a major rehab flip and then need hard money, then a partner, etc it can get hairy pretty quickly, especially if you are new.

I'd research wholetailing.  Finding a deal on a house that basically just needs lipstick - paint and carpet. Maybe need to re-surface counters and cabinets.  Do that, then stick it on the MLS with your wife.  Should still be a bankable property.  Learn a lot that way before going into the rehab deep end!

You should be able to locate owner info on vacants through your county website.  Usually the assessor or treasurer.  Plug in the address and see who is paying the taxes.  May have to go to the courthouse and ask.  Good practice, that.  Get to know your county folks.

Rick Pozos · Answer

There is a marketplace to advertise that you need money.

Kyle Tanner · Answer

@Rick Pozos, i'm not sure if your resposne is meant to be constructive or rude.  I'm simply casting a wider net to expand my network, some people call it hustle.

I agree, people will invest in the deal for noth reasons that they know me and its a good deal.  Thus, this is what they call networking and hustel, to get to know more people and toss the net out.

I'm sorry if you saw it 5 times and still am not asking to get more info on the deal .. .maybe if i post a 6th time (if that count is even accurate) you will recogine a good deal when you see it.  :)

Yes I did post on FB today.

And Yes, I do live in Burbank.  When I signed up here on BP I somehow got the Detroit market as my address and BP told me they could not chage it for some silly reason, not sure how to correc that, because I do want to be consistent.

I'm not sure where you got the Georgia impression, I don't have any investments there.

I hope you have a great weekend.

Rick Pozos · Answer

Hey @Kyle Tanner stop trying so hard to get people to lend you money. I have seen almost the exact post at least 5 times on different subjects. People are going to lend you money when they know you and trust you, not because you posted it a bunch of times. By the way, your facebook says you live in Burbank and Tanner investment group is out of Georgia.

Richard Ball · Answer

@Tony Gazetti follow the money :D The free way is to look it up on the MLS, in RealComp you can go to Realist Tax and look it up in there and hope to see the transactions. Other then that look up Oakland County property taxes, someone is or has been paying the taxes. You could also just knock on the door, its Clarkston not Detroit so it should be pretty safe and this may actually produce the best results, people trust people that they can talk to face to face. You could also call the Clerk and see if they can help you, they will be limited in what they can/will tell you. You will have to figure out the right questions to ask them so that they will be more helpful, it may take a couple times of doing this before they become comfortable with you. If you could go into there office and talk face to face you may have better luck. I assume you didn't see a pile of mail in the mailbox so just mail it to the house, someone is picking it up. Be creative, your only limitation is yourself.

Tony Gazetti · Answer

@Steve Vaughan Thank you for your reply! I will be contracting out the majority of the work - I do have a full time job selling cars, so my free time is pretty limited. Owning a large enough rental portfolio to quit my sales job is the ultimate end goal, and I'm aiming for the 5-10 year mark to make that transition. I figured this would be the best way to get a substantial savings accumulated before transitioning to buy and hold.

That's my main concern - if the house needs repairs and is unbankable, how do I flip it? Is that the point at which I would need other investors? This is the unknown that's kind of stopping me in my tracks. If I were looking at buy and hold now, I could jump in by finding a deal on a decent house and just getting conventional financing on it, but cash accumulates so slowly that way.

@Richard Ball I appreciate the input! I actually did drive through the neighborhood last week and found an EXTREMELY run down house - not sure if it's vacant, but according to Google Street View, it's been in the same condition for at least a couple years. One question I have, though, is that if the house is in fact vacant, how to I find out who/where to mail the letter to?

Richard Ball · Answer

@Tony Gazetti Good deals are to be had even with conventional financing :D. I think there are multiple ways to get a property and I think you should take advantage of all of them. You should be looking on the MLS and studying that neighborhood everyday and every night. Don't just keep your search criteria at SFH search the Multi-Family, Condo, Commercial, Land, etc.. options that are provided. You never know if a listing agent messed up and categorized something wrong or didn't see the value in converting a duplex to a SFH to bring in more cash. Next I would say drive for dollars, find vacant homes that are more beaten down then the others and hand write the owner a letter and mail it to them. I don't know how many homes are in this particular neighborhood but I am guessing you can find a couple. The key to this will be consistently, over time, writing this letter and mailing it to them. If you are just going to write 2 or 3 letters to someone and then stop I would say don't bother starting. Good luck in your search!

Steve Vaughan · Answer

Welcome @Tony Gazetti and congrats on saving $45k!  More than most.

Good idea to continue learning through podcasts while you are in hunting mode.

I would take advantage of the MLS access through your wife as a deal source.  A DM campaign can work (I have read but don't do massive mailings) but takes time to refine and takes multiple touches to work.

It sounds like you have the down payment available for a 25% down MLS deal, but the house needs to be bankable to get financing.  Too many repairs will result in an appraisal 'fail',   so watch out for that.  When running your numbers, count 10% in sales costs and a chunk for IRS taxes at your marginal rate.  Short-term operations are taxed pretty heavily.

Will you be doing most of the work yourself?  Do you already have a full-time job?  Is flipping and wholesaling your end goal, or would you like to own a rental portfolio someday?

How to Buy a Good Deal With Conventional Financing

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