$6,000 out of pocket with Norada

[Aaron Henes]

Hi All,

I was looking at the $6,000 out of pocket deals that I discovered though NORADA real estate investors. Has anyone worked through this program and found success?

Thanks!

[Anton Ivanov]

@Aaron Henes I've bought several turn-key properties through Norada last year and have had a good experience. Marco, who runs Norada, is very knowledgeable about real estate markets in the US and can help you find the one that better fits your investment goals. He can also walk you through the actual acquisition process if you've never bought rental property before.

I would, however, encourage you to do your own due diligence when analyzing the market and the actual property you are looking at. Not all markets where Norada advertises properties may be right for you, and not all properties may be good deals. If you do your own thorough analysis of the metropolitan area, neighborhood and property, you have a much better chance at being satisfied with your investment.

For example, I'm not sure what market/property you are looking for, but given the $6k out of pocket number, it's likely a cheap property in a B/C neighborhood. It may be a great cash flow play, but definitely warrants a thorough analysis.

Feel free to PM me if you got any specific questions.

Anton Ivanov

[Marco Santarelli]

Hi @Aaron Henes,

We can put you in touch with a number of our investors who have purchased these "low down" properties.  They are all stabilized investments with paying tenants.

Once again, the program is rather simple.  There are basically two steps: 

• The first step is to close escrow on the purchase with a hard money lender we use.   This officially puts you on title as the owner.  The hard money loan is only there for about a month so you can refinance it with your new conventional mortgage loan.

• The second step is to refinance the property you just purchased.  The refinance is based on the appraised value, which is usually around 25% more than your purchase price.  You are refinancing it with a new loan that will be 70% to 75% of the appraised value, and that’s the key to making it work the way it does.

Please note that the ~$6,000 out-of-pocket is an average.  It can be a little lower (~$5,000) or a little higher (~$7,000).  The bottom line is it's around $6k total out-of-pocket and around 25% equity on the day you close.

Also note that these properties are not for every investor.  You want to make sure what you invest in aligns with your investment goals and criteria.  Our investment Counselors put a focus on that with every client.

Feel free to contact out office with your specific questions.

Continued success!

[Cherilyn Lewis]

@Marco Santarelli What is the best way to learn more about these low down payment properties? Is the best email address to inquire at the "info" address? Thanks!

[Solomon F.]

Hi Marco will the refinance be at the appraised value right away or does the property first need to be seasoned for the bank to recognize a higher value than the purchase price?

[Marco Santarelli]

Originally posted by @Cherilyn Lewis: 
 

@Marco Santarelli What is the best way to learn more about these low down payment properties? Is the best email address to inquire at the "info" address? Thanks!  

Hi Cherilyn,

The best way to learn more is through the contact form on our website, or simply emailing the "info@" email address.   Either one is fine and one of our investment counselors will probably get back in touch with you to answer all your questions.

Technically speaking, there is no down payment. The out-of-pocket cost is simply the closing costs and lender's fees for the financing involved for your purchase.

Please let me know if you have any other questions.

Continued success!

[Marco Santarelli]

Originally posted by @Solomon F.:
 

Hi Marco will the refinance be at the appraised value right away or does the property first need to be seasoned for the bank to recognize a higher value than the purchase price? 

Hi Solomon --  there is no seasoning requirement. The permanent financing (your fixed-rate long term mortgage) is done right away, about a week after the initial close.

Additionally, there is no waiting for a higher value. There are two appraisals done.  The first one confirms the market value of the property for us.  The second one is your appraisal for your financing.  The equity in the property is almost always around 25% which is why the refinance allows you to purchase without a down payment.

Feel free to contact one of our Investment Counselors for more information.

Continued success!

[Cherilyn Lewis]

@Marco Santarelli Thanks very much!

[Jay Hinrichs]

@Aaron Henes This is how all ( most all ) turn key companies sold their product prior to 08.. HML puts buyer into title .. buyer house gets rehabbed... 442 refi and HML cashed out and owner has their rental. prior to 08 though you would normally get 5 to 8k cash back instead of putting money in. I was one of the largest HML in the space prior to 08 I did about 2,000 of these from 02 to 08 melt down LOL.. Oh boy.. and just watched the big short yesterday... how soon we all forget

@Marco Santarelli  I see this going right back to what got the industry into trouble last go around owners with little or no cash into deals.. especially lower end tough to manage properties.. just because they can get low down they Better Have substantial reserves. 

this model created a lot of failures from owners ... Trashed credit and the new inventory that is being bought rehabbed and resold. 

[Marco Santarelli]

Originally posted by : 
  
@Marco Santarelli  I see this going right back to what got the industry into trouble last go around owners with little or no cash into deals.. especially lower end tough to manage properties.. just because they can get low down they Better Have substantial reserves. this model created a lot of failures from owners ... Trashed credit and the new inventory that is being bought rehabbed and resold. 

Hi Jay --   I understand the concern as I felt the same way initially.  Two major differences here are:  

(1) most "investors" in the mid 2000s  we're not buying for cash flow.  They were speculators hoping and praying on future appreciation.  When the market turned they had no hope.  They had negative cash-flow and lost equity to the point they were upside down.  Those properties never made sense the day they bought them and debt service could not be covered by the rental income (if any).

(2) this is the flat (linear) Memphis market and in neighborhoods where there is virtually no appreciation or depreciation.  I believe the price fluctuation over the last decade has been 10% +/-.  As long as there is a qualified tenant under good management then there will be cash flow to service expenses and that service. That's the key.

We are very clear and upfront with investors regarding the investment type here.  It's important that we let them know that these are NOT "A" grade neighborhoods, nor are they dealing with a Nordstrom's tenant demographic.  They are typically C+/B- neighborhoods with a "Walmart" tenant  demographic.

Once all those disclosures are made then we discuss specific properties.

This exact product and financing has been around for about eight years in the same neighborhoods and at the same price points.  Very little has changed.

Thanks for the comments Jay.

[Marco Santarelli]

@Jay Hinrichs -- I can't wait to see The Big Short.  Heard it's awesome!

[Michael Mcghee]

@Jay Hinrichs You summed it up perfectly. I can start to see some traction back towards the initial downturn in some areas. 

[Jay Hinrichs]

@Michael Mcghee  yup Deja Vu all over again.

back in the day I do disagree with Marco's comments that the homes were negative cash flow they were not marketed that way by west coast marketing companies.. they were advertised as 100 to 200 a month positive... when things melted down thousands lost these rental homes as they did not have enough reserves.. they would get their house vandalized etc etc.  it was vicious.

what I liked coming out of this was so many that were bought with cash those folks don't lose houses.. and if someone is buying in this model I personally feel they need at least 10 to 15k in reserves on a hand to sustain a bad tenant run. 

the negative cash flow folks were CA  NV  AZ FLA  .. NOT memphis and most of mid west I mean I did probably 400 plus of these in memphis and non of the folks going into those did so with the thought of negative cash flow.  

with no seasoning on this model I suspect its some portfolio type lender.. but who knows maybe wall st is at it again.. now they know they have their bottom feeding hedge funds to  pick up the crumbs when their loans default  :)))

[Michael Mcghee]

@Jay Hinrichs check out Fannie Mae's stock price. It's way down from over 18 months ago. Instead of regular deals they have a lot of these rate/ term refi products on their books. They are also constantly propping up the market by moving more reo's to auction.com and similar online or live sales. Therefore the deeper pocket buyers can buy the best products and the buyers that have to buy on the b-r-r approach with little to no money will get stuck if and only if they can't stomach coming out of pocket on a bad tenant run like you said. After a certain amount of loans it's not feasible for them anymore unless they go portfolio or hard money. Money will be more expensive albeit resulting in an even lower return. 

[Mike D'Arrigo]

@Marco Santarelli how does this work if they've used hard money? The Fannie Mae delayed finance program which allows someone to finance right away is only for properties that were originally purchased for cash. Am I missing something?

[Jerry Padilla]

@Jay Hinrichs

Great posts!

@Mike D'Arrigo

You can get around this a couple of ways. We are a conventional lender backed by Fannie Mae and Freddie Mac. I have clients that go HML for a fixer upper and get 100% financing for the property and rehab and then they can rate and term refinance anytime, even after day 1, As long as the LTV is supported by the appraised value. Also with delayed financing you can pull out your initial investment of purchase price plus closing costs, based again on appraised value as long as the LTV is supported as well.

[Marco Santarelli]

Originally posted by @Jerry Padilla:  
 

@Mike D'Arrigo

You can get around this a couple of ways. We are a conventional lender backed by Fannie Mae and Freddie Mac. I have clients that go HML for a fixer upper and get 100% financing for the property and rehab and then they can rate and term refinance anytime, even after day 1, As long as the LTV is supported by the appraised value. Also with delayed financing you can pull out your initial investment of purchase price plus closing costs, based again on appraised value as long as the LTV is supported as well.

Jerry -- you are spot on. That's exactly how it works. There are portfolio loans that are backed by Fannie or Freddie. As long as the appraisal and LTV are there to cover the difference between purchase price and appraised value then you can effectively purchase the property with no down payment. Only closing costs.

[Jerry Padilla]

@Marco Santarelli 

If they portfolio and can do the same as conventional, why not go conventional? It was always my understanding that Portfolio lenders had higher fees and interest rates? I know everyone pushes local lenders, but at least here locally, fees and interest rates are higher when compared to conventional lenders. 

[Marco Santarelli]

 @Jerry Padilla -- I just checked and was told that they are conventional loans.

[Jay Hinrichs]

@Michael Mcghee  fine minds think alike  LOL

[Michael Mcghee]

@Marco Santarelli @Jay Hinrichs Marco what I hate is that I understand that you guys do the right due diligence with your investors but it's unfair to someone like you when these products are offered to everyone. This can result in someone abusing the system and overfunding loans that should not have been funded in the first place. This will eventually drag the market down as a whole. Resulting in an oversupply and then that's when I buy on the rebound. Ok back to the script, no matter how much hard work you do on the front end that buyer has to be mentally prepared to weather any downturn. I suggest an aggressive principal pay down so they can have skin in the game. That 25% equity will get eroded fast. 

[Marco Santarelli]

Hi @Michael Mcghee -- Interesting comments.

Those properties are not really offered to everyone; more specifically there is a limited supply of them so there is no potential of it "dragging the market down".  There are only about 100 to maybe 150 of these properties produced per year.  With a household count of 250,000 to 300,000 in Memphis, that represents only 0.05% of the overall market (and maybe half of that when looking at single-family detached).

To your other point, starting off with a 25% equity position is a decent position to be in with any market downturn.  Markets fluctuate up and down, some markets more than others.  That is one of the reasons we stress and focus on positive cash-flow from day one.  If the market cycles down you'll be able to weather it while still generating a return.

Continued success!

[Michael Mcghee]

@Marco Santarelli  @Jay HinrichsI apologize let me clarify by what I mean. That Fannie Mae product is offered to anyone that qualify. With that being said some other providers out there will not be willing to do what you're doing in vetting your clients. Therefore the bad apples will bring values down as a whole. With the credit default swaps it only took about 10 percent to be bad before the reinsurers had to pay. Think about it this way remember the 80/20 loans? Well they figured that 80% would be great and that left 20% equity. They knew the 20% would default at higher rates that's why those interest rates on the 20's were high. Well if they wasn't paying the 20 they also wasn't paying the 80. Instead of a loan I see the 20 in the form of equity. But like I said it's the bad ones that will abuse the guidelines. 

[Trey Williams]

Fly on the wall just reading this discussion. I have learned a lot from you all. Thank you

[Trey Williams]

@Marco Santarelli I'm very interested in this program and your company but my question is what property management companies are you working with in these various states. (I'm very interested in Kansas) .Am I able to fly out and see the operation and city, talk with the personel about how they handle rent, tenant placement, maintenance issues and other various property management task? 

[Marco Santarelli]

@Trey Williams: 

We typically have two to four professional full-service property management companies in every market we serve.  Every property is already tied to a management company, however, you are free to use any company you like.  After all, it is your property.  We would introduce you with those property manager(s) early on so you can learn more about them and ask them questions.

We always encourage all clients to come out and visit with out teams, see our properties, learn about the neighborhoods, etc, etc.  The reality is that only about 5% actually do go out to "kick the dirt", so we help them do all their due-diligence remotely through our systems and tools.

Good questions.  Please post any others you have, or simply PM me.

Continued success!