Borrowing Downpayment, closing costs, and earnest money
Darrin CareyPro Member
Lender · Dayton, OH · Member since 2008 · 1k+ posts · 705 votesBorrowing Downpayment, closing costs, and earnest money
Most Popular Reply
Theresa HarrisPro Member
Member since 2019 · 15k+ posts · 11k+ votesI think it is a combination of social media, broke people wanting to get rich quick, and people thinking real estate investing is easy money.
28 Replies
- Realtor · Longmont, CO · Member since 2021 · 577 posts · 631 votes3y
I think the social media focus on creative finance has brought people into the fold that are trying to figure out how to buy property in their situation, as a no money down borrower. I personally think this is bad too as having skin in the game is important. I think it is hard for people to separate pushing the limits of what is possible, and pushing past the limits of what is ethical.
- Member since 2022 · 12 posts · 4 votes3y
As a new investor, I can honestly say that the instagram swindlers sure make it seem so much easier to purchase than it really is. I have 3 SFH (STR/MTR) with the latest just purchased in Dec 2022. I also just went under contract for a 10plex. But it is scary. I am about $40K short of the $175K downpayment....finding private lenders for this is not easy...not sure what next steps to take but determined to figure it out. Any advice you can give in this regard would be welcome.
Thanks.
- Member since 2022 · 12 posts · 4 votes3y
As a new investor, I can honestly say that the instagram swindlers sure make it seem so much easier to purchase than it really is. I have 3 SFH (STR/MTR) with the latest just purchased in Dec 2022. I also just went under contract for a 10plex. But it is scary. I am about $40K short of the $175K downpayment....finding private lenders for this is not easy...not sure what next steps to take but determined to figure it out. Any advice you can give in this regard would be welcome.
Thanks.
- Lender · Dayton, OH · Member since 2008 · 1k+ posts · 705 votes3y
Quote from @Joleen Specht:
As a new investor, I can honestly say that the instagram swindlers sure make it seem so much easier to purchase than it really is. I have 3 SFH (STR/MTR) with the latest just purchased in Dec 2022. I also just went under contract for a 10plex. But it is scary. I am about $40K short of the $175K downpayment....finding private lenders for this is not easy...not sure what next steps to take but determined to figure it out. Any advice you can give in this regard would be welcome.
Thanks.
The people hitting me up lately have been broke. The last one had a total of 67 cents to their name, and wanted a hard money loan over 7 figures.
You're in a much better position, as you have most of the funds needed and 3 properties. If the SFH have some decent equity, bringing in the shortfall could be a reasonable risk for a private lender. The lender may ask for a piece of the equity or cashflow in addition to the interest rate to compensate for the additional risk if the deal is thin.
You could also look for a JV partner to bring in the extra cash, but be careful with that. There's a whole different set of risks with partners.
I'll assume the Instragram swindlers are similar to the one YouTube and FB.
Darrin - Rental Property Investor · Richmond, VA · Member since 2018 · 15 posts · 9 votes3y
@Joleen Specht have you tried looking for equity partners, family friend investors. Raising captial for a good deal is becoming more and more advantageous due to the lack of overall good deals. Let's chat if you need help finding money for an already great deal with potential to earn positive NOI
- Member since 2019 · 7k+ posts · 4k+ votes3y
Quote from @Darrin Carey:
As a private lender, I'm suddenly getting a lot of requests for three things that concern me.
1. Lending the Downpayment (behind another hard money lender)
2. Lending all the borrowers closing costs
3. Lending funds for putting up earnest money
Personally, I think putting up money for those items as a lender is EXTREMELY HIGH RISK. Out of 500+ loans I've done, only a very few have had problems.
Every one that had a problem had one common feature, the borrower had little to none of their own money in the deal. (Early ones, I didn't know better. The couple recent ones, the borrowers lied about it, and I found out later. Those borrowers made the forever banned list. Not because the deal went bad, but because they lied about the source of funds, and ghosted everyone went the rehab got hard)
Is there someone out there teaching this as a strategy to borrowers and potential lenders?
Are people really making these loans? AND getting paid back?
Am I missing something here?
Darrin Careydont you realize even this lovely biggerpocket forums are enticing that kind of aggresive behavior ?
- 3yTheresa HarrisPro MemberMember since 2019 · 15k+ posts · 11k+ votes
I think it is a combination of social media, broke people wanting to get rich quick, and people thinking real estate investing is easy money.
- Lender · Austin, TX · Member since 2022 · 474 posts · 586 votes3y
Unfortunately, borrowers believe they can have no "skin in the game" and still find good deals and be profitable. While this certainly is possible, more often then not, especially when the plan is to refi out of hard money, they end up needing to bring money to close on the refi and things can get ugly depending on how capitalized they are.
This is especially true in the current market where values are descending. The smarter choice is almost always to save up money and be able to contribute the down payment/closing costs on the front end.
- Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes3y
You should feel good about lending on 100% of costs for repeat business with a good track record, other than that stay away from new investors who want no skin in the game.
- Lender · Dayton, OH · Member since 2008 · 1k+ posts · 705 votes3y
Quote from @Eliott Elias:
You should feel good about lending on 100% of costs for repeat business with a good track record, other than that stay away from new investors who want no skin in the game.
A repeat business with a good track record should have no problem with having some skin in the game. If they don't have that ability, it makes me wonder how good their business really is, and what'll happen at the first hiccup.
- Member since 2022 · 12 posts · 4 votes3y
Quote from @Darrin Carey:
Quote from @Joleen Specht:
As a new investor, I can honestly say that the instagram swindlers sure make it seem so much easier to purchase than it really is. I have 3 SFH (STR/MTR) with the latest just purchased in Dec 2022. I also just went under contract for a 10plex. But it is scary. I am about $40K short of the $175K downpayment....finding private lenders for this is not easy...not sure what next steps to take but determined to figure it out. Any advice you can give in this regard would be welcome.
Thanks.
The people hitting me up lately have been broke. The last one had a total of 67 cents to their name, and wanted a hard money loan over 7 figures.
You're in a much better position, as you have most of the funds needed and 3 properties. If the SFH have some decent equity, bringing in the shortfall could be a reasonable risk for a private lender. The lender may ask for a piece of the equity or cashflow in addition to the interest rate to compensate for the additional risk if the deal is thin.
You could also look for a JV partner to bring in the extra cash, but be careful with that. There's a whole different set of risks with partners.
I'll assume the Instragram swindlers are similar to the one YouTube and FB.
DarrinYes, the swindlers are the same on every platform. I appreciate the feedback.
- Member since 2022 · 12 posts · 4 votes3y
Quote from @Carlos Ptriawan:
Quote from @Darrin Carey:
As a private lender, I'm suddenly getting a lot of requests for three things that concern me.
1. Lending the Downpayment (behind another hard money lender)
2. Lending all the borrowers closing costs
3. Lending funds for putting up earnest money
Personally, I think putting up money for those items as a lender is EXTREMELY HIGH RISK. Out of 500+ loans I've done, only a very few have had problems.
Every one that had a problem had one common feature, the borrower had little to none of their own money in the deal. (Early ones, I didn't know better. The couple recent ones, the borrowers lied about it, and I found out later. Those borrowers made the forever banned list. Not because the deal went bad, but because they lied about the source of funds, and ghosted everyone went the rehab got hard)
Is there someone out there teaching this as a strategy to borrowers and potential lenders?
Are people really making these loans? AND getting paid back?
Am I missing something here?
Darrin Careydont you realize even this lovely biggerpocket forums are enticing that kind of aggresive behavior ?
Carlos, but at least on BP, I can message and talk to people. The only way to communicate with those people is to pay $997 for another video and sales pitch.
Thanks.
- 3yV.G JasonPro MemberInvestor · Member since 2022 · 3k+ posts · 3k+ votes
Quote from @Carlos Ptriawan:
Quote from @Darrin Carey:
As a private lender, I'm suddenly getting a lot of requests for three things that concern me.
1. Lending the Downpayment (behind another hard money lender)
2. Lending all the borrowers closing costs
3. Lending funds for putting up earnest money
Personally, I think putting up money for those items as a lender is EXTREMELY HIGH RISK. Out of 500+ loans I've done, only a very few have had problems.
Every one that had a problem had one common feature, the borrower had little to none of their own money in the deal. (Early ones, I didn't know better. The couple recent ones, the borrowers lied about it, and I found out later. Those borrowers made the forever banned list. Not because the deal went bad, but because they lied about the source of funds, and ghosted everyone went the rehab got hard)
Is there someone out there teaching this as a strategy to borrowers and potential lenders?
Are people really making these loans? AND getting paid back?
Am I missing something here?
Darrin Careydont you realize even this lovely biggerpocket forums are enticing that kind of aggresive behavior ?
This.
i went to plenty of open houses this week. Seeing plenty of buyers fighting with their lender on their phone cause their wife wants this house. People are leveraging like it's 2012-2022 again. It's a new set of rules. Game needs to be played a bit differently.The last 5 months on this board you had ton of popular posters emphasize always leveraging. And when you're SOL, leveraged even more!
- 3yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Quote from @Joleen Specht:
As a new investor, I can honestly say that the instagram swindlers sure make it seem so much easier to purchase than it really is. I have 3 SFH (STR/MTR) with the latest just purchased in Dec 2022. I also just went under contract for a 10plex. But it is scary. I am about $40K short of the $175K downpayment....finding private lenders for this is not easy...not sure what next steps to take but determined to figure it out. Any advice you can give in this regard would be welcome.
Thanks.
Friends and family as JV partner, - 3yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Quote from @V.G Jason:
Quote from @Carlos Ptriawan:
Quote from @Darrin Carey:
As a private lender, I'm suddenly getting a lot of requests for three things that concern me.
1. Lending the Downpayment (behind another hard money lender)
2. Lending all the borrowers closing costs
3. Lending funds for putting up earnest money
Personally, I think putting up money for those items as a lender is EXTREMELY HIGH RISK. Out of 500+ loans I've done, only a very few have had problems.
Every one that had a problem had one common feature, the borrower had little to none of their own money in the deal. (Early ones, I didn't know better. The couple recent ones, the borrowers lied about it, and I found out later. Those borrowers made the forever banned list. Not because the deal went bad, but because they lied about the source of funds, and ghosted everyone went the rehab got hard)
Is there someone out there teaching this as a strategy to borrowers and potential lenders?
Are people really making these loans? AND getting paid back?
Am I missing something here?
Darrin Careydont you realize even this lovely biggerpocket forums are enticing that kind of aggresive behavior ?
This.
i went to plenty of open houses this week. Seeing plenty of buyers fighting with their lender on their phone cause their wife wants this house. People are leveraging like it's 2012-2022 again. It's a new set of rules. Game needs to be played a bit differently.The last 5 months on this board you had ton of popular posters emphasize always leveraging. And when you're SOL, leveraged even more!
I was at an investor conference wiht a pretty well known RE guru type who has a sales company and a very popular pod cast. And He was talking about leverage and then out popped the REFI till YOU DIE put the risk on the bank.. I about fell out of my chair.. People were very receptive to it in the Audience I mean there is a place for that kind of activity . But for me being old school my goals are paid for real estate not real estate that has very little TRUE equity .. I mean 80% LTV there is no real equity maybe a few bucks if your lucky.. - 3yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Quote from @Darrin Carey:
As a private lender, I'm suddenly getting a lot of requests for three things that concern me.
1. Lending the Downpayment (behind another hard money lender)
2. Lending all the borrowers closing costs
3. Lending funds for putting up earnest money
Personally, I think putting up money for those items as a lender is EXTREMELY HIGH RISK. Out of 500+ loans I've done, only a very few have had problems.
Every one that had a problem had one common feature, the borrower had little to none of their own money in the deal. (Early ones, I didn't know better. The couple recent ones, the borrowers lied about it, and I found out later. Those borrowers made the forever banned list. Not because the deal went bad, but because they lied about the source of funds, and ghosted everyone went the rehab got hard)
Is there someone out there teaching this as a strategy to borrowers and potential lenders?
Are people really making these loans? AND getting paid back?
Am I missing something here?
Darrin CareyDarrin I do or have done all 3 of the things you mention. And transactional funding on top of it.
Out here on the west coast GAP funding thats the cash behind the first. ( which is not a loan its equity secured by a second many times) happens a lot because the dollar amounts of the flips especially in the SF Bay Area were your talking 1 to 5 million dollar flips.. and lenders wont go more than 70 to 75% so if your working on your average Palo Alto 3.5 million dollar 2k sq ft rancher you need a million down.. thats were us gap funders come into play and we take not only interest but an equity position but its highly risky of course thats why the returns are so hi. However the person we are funding will have skin in the game 100 to 500k of their own money as well.
For my high volume flippers who have done over 50 deals with me they get 100% and sometimes we have to work through one but these are pros generally speaking but you run into a bummer occasionally and you know who I am speaking of.. But for that risk again we make a premium.
And again for my very good long time clients I will put up EM for them again its a very handsome return for us and allows them to wheel and deal in volume without tying up a bunch of their cash.. so make some money or passing on a deal they are just fine giving us a return and equity.
Again though these are top tier players doing volume.. I wont do a deal for a first timer or someone that cant scale I have helped a few folks scale but we prefer those who are already doing well and know their market like the back of their hand.
What I absolutely will not do is all the out of STATE BRRR folks that is a nightmare waiting to happen.. If I was to do those they would have to put so much down and pay a super high rate that they would never use me.. I leave those folks to the larger national buys who are more interest rate driven or the few crowdfunders that are left. - Lender · Dayton, OH · Member since 2008 · 1k+ posts · 705 votes3y
Quote from @Jay Hinrichs:
Jay,
We do transactional funding too, no problems there.
One thing I had not considered was the much higher transaction price on the coasts; that certainly changes the dollar amounts involved.In our area,
- a down payment for 25% of the purchase price is often only 20-50k, 100k at most.
- Earnest money is often only $500-$1,000, and the seller has to agree to release the earnest money if the deal doesn't close for any reason.
- Closing costs are pretty low too, just due to transaction size.At least you're sophisticated enough to know it's high risk and you're taking the majority of it if something goes wrong. I'm starting to hear stories like the newbie lender who put up 250k+ for the down payment for a newbies LA deal, and now they're SOL.
- 3yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Quote from @Darrin Carey:
Quote from @Jay Hinrichs:
Jay,
We do transactional funding too, no problems there.
One thing I had not considered was the much higher transaction price on the coasts; that certainly changes the dollar amounts involved.In our area,
- a down payment for 25% of the purchase price is often only 20-50k, 100k at most.
- Earnest money is often only $500-$1,000, and the seller has to agree to release the earnest money if the deal doesn't close for any reason.
- Closing costs are pretty low too, just due to transaction size.At least you're sophisticated enough to know it's high risk and you're taking the majority of it if something goes wrong. I'm starting to hear stories like the newbie lender who put up 250k+ for the down payment for a newbies LA deal, and now they're SOL.
Yes and we are seeing on BP a lot of newer note investors who made seconds as well small ones but to them of course its a major deal.. No question the first money wiped out when the market turns is either the owners equity or who ever put it up. - Member since 2019 · 69 posts · 62 votes3y
Quote from @Darrin Carey:
As a private lender, I'm suddenly getting a lot of requests for three things that concern me.
1. Lending the Downpayment (behind another hard money lender)
2. Lending all the borrowers closing costs
3. Lending funds for putting up earnest money
Personally, I think putting up money for those items as a lender is EXTREMELY HIGH RISK. Out of 500+ loans I've done, only a very few have had problems.
Every one that had a problem had one common feature, the borrower had little to none of their own money in the deal. (Early ones, I didn't know better. The couple recent ones, the borrowers lied about it, and I found out later. Those borrowers made the forever banned list. Not because the deal went bad, but because they lied about the source of funds, and ghosted everyone went the rehab got hard)
Is there someone out there teaching this as a strategy to borrowers and potential lenders?
Are people really making these loans? AND getting paid back?
Am I missing something here?
Darrin CareyThis has been why I've been bussing my *** in wholesaling to have anywhere between 30-100k liquid to have skin in the game, got tired of being told that lol. Because I do watch and listen to those IG videos telling you how you can invest with 0 money, it's very enticing for someone without the experience of structuring deals and buying real estate. When I tried to do this by calling multiple lenders, they told me I needed to have skin in the game.
For the person who says people are broke and trying to get rich quickly, that's pretty broad because being broke is perspective. I want to do my first flip and acquire my first Multi this year; if the deal makes sense and everybody makes their money, and it's a win-win situation, why does having skin in the game matter? I'm ignorant and biased, but don't hard money lenders run numbers to ensure it's a good deal anyways; if the rehab, purchase, closing cost of purchase, and closing cost of the sell; fit within the numbers and we all win and we all take into account anything that might go wrong, ultimately why does it really matter?
Should it not be case by case, we make the rules at the end of the day; who says you do have to have skin in the game, I truly find it silly, but again I have no experience, so I could be speaking out of emotion and not truly understand what goes into structuring deals.
I get that one person out of the whole thing has no risk at all by having 0 money but what if they can use their house as collateral or something of great value, they are also making the least and want their first property to get started. I understand both sides, to be honest. I wouldn't care to fund someone's deals if I made my money and they would get their first rental or their first flip. That being said it has to be an amazing deal.
The person who says you have to have skin in the game is almost like the type of person that made it to the top by grinding and figuring it out, so now they are not going to help you out and make it easy for you. Not to name-drop, but Social media gurus like Pace Morby make it sound super easy and teach you to go after deals that will have you have 0 to nothing in the agreement. So if there's a bone to pick, it's with him lol from what I can understand, he is the driver behind sub to deals, 0 finance deals, Allegator method, and a whole bunch more.
By the way @Darrin Carey my goal is to work with you on my first deal when I have skin in the game because I do know it's important to have for many private and hard money lenders. Hopefully I can learn from you as well
- Investor · Austin TX · Member since 2016 · 1k+ posts · 2k+ votes3y
I think some of the issue is that no one explains why skin in the game is important to newbies and then on the other hand they are being bombarded on social media with videos from gurus who are saying things that get them views its easy to see how a newbie could be indoctrinated with a completely skewed set of views and misguided beliefs. No doc, nothing down loans are what resulted in the 2008 crash. My mom was a real estate agent during that time and I remember she had a married couple that called her because they wanted to buy a $400,000 house. They had an approval letter from the bank. They both worked in food service and made about $45,000 a year. Combined. My mom refused to help them buy a house that was so far beyond what they could actually afford. Just because you can doesnt mean you should. And of course these people lost their jobs and their home in the aftermath.
The reason lenders want skin in the game is because unexpected things come up. Thats just comes with the territory. Im rehabbing a house right now where the rehab budget went from 50K to 80K (septic system was the big ticket budget breaker) and theres nothing I can do but suck it up. Lenders want to feel confident in your ability to handle this because what happens if I didnt have the 30K to cover the gap? Contractors and subs arent working for free. So then your job just sits there. And its costing you money every month. Lenders want to know you can handle these types of hiccups. If you had no money in the deal at all then its easier to walk away when things get hard. We, as humans, tend to value things less when they cost us nothing. There are exceptions of course but a lender can't look into your eyes and know that you are different. So they say you need to put some money into this deal so that if you mess this up, we all lose together. Lenders want you to be incentivized to not lose their money and what better incentive than to put some of your own money at risk also. Now to your point about putting up some other types of collateral like a house, to me that makes sense. But Im not a lender so I dont know if that's something they would accept in lieu of actual cash.
My biggest beef is with the gurus who spout untruths to get more likes. What a lot of people don't realize is that these gurus dont make money in real estate, they make money with their Youtube Channels, bootcamps, affiliate programs (anytime they say click on this link, you can bet they are getting paid), lender referrals, merch, speaking events, books etc. There is a lot of money to be made in selling desperate people a dream. So there is no fact checking. Why do you think everyone targets newbies? Especially those with low paying jobs? Because those are the people who are most likely to be dazzled by flashy cars and expensive watches. So dazzled that when someone says you can do this with no cash and no credit, they believe it. No one thinks about looking behind the curtain. Of course these guys make it look easy. If they told the truth, hey this is hard, some of you are going to absolutely fail at this and it definitely costs money, no one would watch that video. Take J Norton for example. I have talked to so many newbie wholesalers who fell for his 10K club. How much sense does it make to pay $1000 to try to find deals in the most overcrowded marketplace (MLS) and then submit them to one single buyer? Who can (and most often does) say no to the deal, leaving you under contract to buy a property you cant afford and that no one else wants? If a buyer told me to pay THEM to find THEM deals I would laugh. But this dude is a millionaire many times over. Every 1,000 people he gets to fall for this is $1,000,000 in his pocket.
Keep doing what you're doing. Wholesaling is a great way to get started if you dont have the money for a downpayment on a rental property or a flip. Think of the buyers on your list as potential future mentors or even JV partners. I used to discount my fee for an investor if they would let me come to the rehab and learn how it all worked. Offer to put in some sweat equity. Scrape some popcorn, paint, do some demo. Get some hands on experience for what goes into a rehab. How to find subs and how to pay them. These are the real tips that the gurus wont give you. But the next deal you wholesale, ask the buyer if they want some free labor.
Keep up the hard work and you'll get where you're trying to go. Ive been in your shoes, so if you have any questions Im happy to answer them for you.
- Lender · Dayton, OH · Member since 2008 · 1k+ posts · 705 votes3y
Quote from @Marc
@Marc Maitre
Glad to hear you're out there busting your A**. Ten years ago I was flat broke and had to have a garage sale to get enough cash for bandit signs and gas money to get the wholesaling rolling. We did that until we had enough cash for a down payment on a flip, and then did both non-stop for the next five years. We added in rentals once we had enough cash to do that. Over 200 deals, maybe 5 of them I was able to do with little cash out of my pocket. A couple of those only after I had developed a track record with that private lender.From a lender perspective, adding in a different property you already own with equity can count for skin in game. I'll consider other things too. One person was going to put up a classic car, at least until his property inspection killed the deal.
As a lender, we look for skin in the game and cash reserves for a couple reasons. First, it motivates the borrower to do well and solve problems when they happen instead of walking away. Second if something goes wrong, and we have to take the property back, there are costs to pay for, and then the cost of dealing with the property when it comes back. If there's no skin in the game, that all goes to the loss column. It's not just the final ARV ratios that matter. We're also considering what happens if you get run over by a dump truck the first day of rehab, and the property has to be foreclosed on in its purchased condition.
And you're right, a lot of us ground it out day-by-day to get where we are. The lessons learned, experiences, deals done, and more shape our expectations of potential borrowers.
Marc, I'll be happy to work with you when you are ready. Chat with me at the COREE meeting.
- Lender · Dayton, OH · Member since 2008 · 1k+ posts · 705 votes3y
@Lydia R.
Well said overall.
On a side note J Norton is my personal sh** list. He took a blog post I wrote, then read it almost verbatim and recorded it as a video and posted it as his own content. - Investor · Austin TX · Member since 2016 · 1k+ posts · 2k+ votes3y
Are you serious!? I knew he was a fraud but I had no idea he resorted to outright stealing other people's work. I guess I shouldn't be surprised. I have not heard anything good about him from anyone that has actually interacted with him or bought into any of his programs. Im sorry that happened to you!
- Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes3y
Quote from @Darrin Carey:
As a private lender, I'm suddenly getting a lot of requests for three things that concern me.
1. Lending the Downpayment (behind another hard money lender)
2. Lending all the borrowers closing costs
3. Lending funds for putting up earnest money
Darrin CareyHi Darrin,
It's possible that, rather than a shift in the overall market, there has been a shift in your business - perhaps one that you aren't aware of.
I'll use myself as an example:
A while back I got a sudden influx of calls from people with horrible credit.
Turns out that someone had done an instagram video about something I'd put out there over a year prior about credit repair tips.So what I initially might have read as some sort of overall market shift, actually wasn't. It was just that person with that instagram video pushing folks with bruised credit my way based on something I'd done over a year prior, that at the time got no traction.
In your case (I'm making this up), there might be some "get rich quick in real estate with 0% down" guru out there, pitching to broke people, with a power point presentation listing "3 resources," and you're one of those three.
Are you talking to these folks, and asking them where specifically they heard about you or got your info from?
- 3yV.G JasonPro MemberInvestor · Member since 2022 · 3k+ posts · 3k+ votesAgreed.
Quote from @Jay Hinrichs:
Quote from @V.G Jason:
Quote from @Carlos Ptriawan:
Quote from @Darrin Carey:
As a private lender, I'm suddenly getting a lot of requests for three things that concern me.
1. Lending the Downpayment (behind another hard money lender)
2. Lending all the borrowers closing costs
3. Lending funds for putting up earnest money
Personally, I think putting up money for those items as a lender is EXTREMELY HIGH RISK. Out of 500+ loans I've done, only a very few have had problems.
Every one that had a problem had one common feature, the borrower had little to none of their own money in the deal. (Early ones, I didn't know better. The couple recent ones, the borrowers lied about it, and I found out later. Those borrowers made the forever banned list. Not because the deal went bad, but because they lied about the source of funds, and ghosted everyone went the rehab got hard)
Is there someone out there teaching this as a strategy to borrowers and potential lenders?
Are people really making these loans? AND getting paid back?
Am I missing something here?
Darrin Careydont you realize even this lovely biggerpocket forums are enticing that kind of aggresive behavior ?
This.
i went to plenty of open houses this week. Seeing plenty of buyers fighting with their lender on their phone cause their wife wants this house. People are leveraging like it's 2012-2022 again. It's a new set of rules. Game needs to be played a bit differently.The last 5 months on this board you had ton of popular posters emphasize always leveraging. And when you're SOL, leveraged even more!
I was at an investor conference wiht a pretty well known RE guru type who has a sales company and a very popular pod cast. And He was talking about leverage and then out popped the REFI till YOU DIE put the risk on the bank.. I about fell out of my chair.. People were very receptive to it in the Audience I mean there is a place for that kind of activity . But for me being old school my goals are paid for real estate not real estate that has very little TRUE equity .. I mean 80% LTV there is no real equity maybe a few bucks if your lucky..
Is the goal to say you partially own assets or to truly own it? If you're wanting generational wealth, some strategic leverage plays into it make sense. But this house of cards will leave you floored. It makes sense to own probably 50% less houses, and 25% better quality neighborhood houses than some of these guys on here prop up. At the appropriate time, sell 25-33% of your houses & wipe out your debt on the others. Live great with 67-75% of your original portfolio and no debt.
People love to run up the numbers, say I own 20 houses. If we did a profile check, we'd notice 12-15 are trash houses. Who cares about $100/mo cash flow? The stress isn't worth it.
Quality over quantity. Always keep cash reserves. If you have capital, buy then wait. Don't wait to buy. This is assuming you're watching your market daily. Keep yourself protected with entity structures, regardless of 1 or 20 houses. Saving pennies to cost yourself dollars is foolish.
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