All Forum Posts by: John Worley

While we do have tons of great investment deals in Georgia, you're right the fraud is a problem. If you are an out of state investor, than you need to be working with someone on the ground here in Georgia who can go out to see these potential deals and give you an honest assestment of whether or not the deal is all it's crack up to be. It's not simply a matter of finding good recent comps. Around metro Atlanta especially there are houses where the comps and sales may very well be vaild but at the same time the surrounding neighborhood is half abandoned, trashed, etc. The market value may be there but if the neighborhood is so bad off that you can't sale or rent the property then the market value is a rather dead point.

No problem. :D

No. I pull comp and property detail reports from there all the time and it runs me about $4.00 for both reports. Now they offer some reports such as AVM, doc images, foreclosure history, etc that can get pretty high per report ($10, $12, $14), but the property detail and comp reports are only a couple of bucks a piece.

Check out RealQuest.com. Very good resource for comps without having to go to the MLS. You can open an account and pay piece mail per report pulled without a monthly commitment. Comp reports run about $2.00 per report.

Combine that with Josh's comments about knowing your market and you've got an excellent starting point for comps without having to try to get on the MLS.

Well Dealman, it sounds like you've got all of the angles figured out and us "ignorant people" just need to shut up. However I don't believe just shutting up and let you tell people what they think they want to hear is really helping anyone out.

Now you may very well have yourself an investing techique that allows you to buy up properties without going to a lender and without coming out of pocket with your own cash. If so, then as someone who deals with investors from all backgrounds on a daily basis, let me be the first to say that you are one of the lucky ones. It's been my experience that proably 7 or 8 out of every ten of these "creative financing" techiques are nothing more than scams at best or alright fraud at worst. The ones I see that do work and are legit are usually only good for investing in one certain arena, be it fix 'n flip, short sales, subject to, etc.

Now as for the idea that you need no money or credit to invest in real estate, let me add this thought.

Investing in real estate is a business. If you are going to be a successful businessman then you need two things among others:
1) the ability to plan out how you are going to conduct your business
2) the financial discipline to manage and grow your assets while limiting your liabilities.

In this particular business (real estate investing) our two biggest assets are our credit and our cash on hand (followed very closely by our own personal education/knowledge). If you, as a businessman, cannot or will not maintain and grow these assets, then you are not going to last. If you want to put all of your investing energies into one arena of investing only (instead of investing in multiple types of real estate), then in the long run, again you are not going to last.

Real estate has been called the "best way to get rich slowly" and if you think about it, it is the literal truth. The guys who are truely successful in this business are the ones who are flexible enough to adjust to whatever situation is needed and the ones who can make constant small gains over and over again.

brit2nyc, the bottomline is this. You're going to get a lot of people telling you how to go about working in this business, but if you really want the best chance at success than I would stress to learn as much as you can BEFORE commiting your money to a particular deal. Don't let a lack of patience push you into diving into the latest "no cash/no credit" gimmick. While there are some deals like this that are perfectly legit, a great number of them simply are not. If you are looking at a deal where you don't have bring anything to the deal and are going to reap all of these great and wonderful benefits, then research it further because chances are something is not right.

Learn all you can about everything you can and most importantly, just use your head.

My $.02 for what it's worth.

As a general rule, I would recommend having at the very least enough reserve money on hand to cover 6 to 12 months worth of mortgage payments. Many lenders won't make a loan to you if you can't show at least 6 months reserves. And even if you find a private/HML that won't care about what kind of reserves you have, it's still a very good idea to have the extra money at hand. You just never know when something may go wrong with a deal and you have to fall back on that reserve money.

jwilson32,

The thing to remember when pulling comps is the compare apples to apples. Don't just automatically look for the house next door as it may be a completely different type of house. You want to be looking for houses that have the same sq. footage, the same style, the same age, same condition, etc. Try to stay within the same neighborhood or 1/2 mile radius and look for sales that are no more than 12 months old (no more than 6 months even better).

Even if there is house right next door that sold some high amount, if it isn't the same size, style, age, etc as the house you are looking at, than it isn't a good comp.

I'm not trying rebuke you here Ryan. I agree with what you are saying. A borrower can get into trouble using the Pay Option Arm. Just ask any of the millions of primary home owners in this country who are finding out the hard way. My contention is that the reason a borrower gets into trouble is not so much the product, but a lack of understand of how the product works, a lack of understanding about the financial process or even basic econmics, and a lack of financial discipline.

Make no mistake about it, the Pay Option Arm is not for the average homebuyer. Not by a long shot. This product requires that you have:

-an understanding of how the product and the finacial process works.
-a particular financial goal. (If your goal is to simply own a house, then go get a nice safe 15 or 30 year fixed loan)
-a sense of strong financial planning
-good financial discipline

The majority of homeowners in this country don't have these things (especially the last two).

All homeowners, but investors in particular, have to start educating themselves as to as many aspects of the real estate business as possible. For investors, the ablity to accuratly read market data and sales comps or to understand the ends and outs of several different loan programs (and how they can work for the different investment situations) are absolutely necessary for surviving in this business.

Investors need to always remember that this is a business. You have to treat it as such. If you are into real estate investing then you need to spend at least 50% of your time teaching and training yourself; continuing to learn on a daily basis the ends and outs of this business. And I'm not talking about just going out and buying into some guru's mircle system. I mean go down to your local real estate school and take some of the same courses that appraisers, mortgage brokers, and real estate agents take. Find active people in each of these three professions and ask questions. If you are unwilling to do that then you simply need to get out and go find something else to do because you will not last and in most cases will end up losing everything you have.

No successful businessman walks blindly into his business and relys on other people to make him a success.

Ok, let's expand on this. To simply say that this is a dangerous loan product is not fair. The danger is not the product itself, it's in the lack of understanding of how the product works. Lack of understanding and a lack of financial planning for the future (and the natural decline of the housing markets) is what has led to the current level of foreclosures around the country today.

The Pay Option Arm, like Ryan stated, is an adjustable rate mortgage with a variety of payment options (in most case 3).

Option #1 is the full principal and interest payment (same as a 15 or 30 year fixed).

Option #2 is the fully indexed Interest only payment, where you are simply paying the interest generated that month for the loan (same as an Interest only Mortgage).

Option #3 is the minmal Interest payment (at a rate of around 1% to 3%).

For many home owners, how this third option works was either never explained to them or they chose to ignore it. The minmal interest payment option works like this:

EXAMPLE

Let's take the $250,000 mortgage that Steve brought up earlier. Let's say he's using a Pay Option Arm at 7.5% interest. His payment choices would look like this:

Choice #1 (full 30yr. P&I) = $1.748
Choice #2 (Interest Only) = $1,563
Choice #3 (minmal Interest at rate of 2.5%) = $521

Now here's the catch. Regardless of whether you pay the interest only of 7.5% or the minmal interest of 2.5%, the loan is still generating interest every month at the fully indexed rate (in this case 7.5%) Choice #3, the minmal interest payment, does not cover the interest generated for the month.

So in this example, where does the additional $1,042 in interest go? You guessed it, right back into the principal. This is why this payment option is referred to as negative amortization. The lender will allow this increase in pricipal to continue until you reach a cap of anywhere from 115% to 125% of the original loan amount. So on this $250,000 mortgage, the minmal payment option could be used for 35 to 59 months before the lender will stop allowing it to be used. The risk you run when using this option month after month is that sooner or later you are going to outpace to the market value of the property and become upside down in your loan.

Ryan is correct in that if you are purchasing a house at market value and you can't cash flow with an interest only payment, then yeah you're proabley better finding a new deal and not using the Pay Option Arm. However let's say that our $250,000 mortgage is 90% LTV and the house is actually worth $275,000. Assuming that your housing market isn't in a decline, then you can rent the house for 12 months, pay the minmal interest payment and have the increased cash flow and then sale the house after the 12 months and still clear about $12,000 (minus your cost to sale). I know investors here around Atlanta that have using this stragety for years. They use the increased cash flow to increase their reserves, make other investments, etc.

So yes this is one of the best tools you can use for positive cash flow, as long as you understand it and know how to use it. For rental properties, how much you can use the minmal monthly payment option without hurting yourself is directly linked to how much equity you have in the property when you buy it. The better your equity position, the longer you can rent it and make the minmal interest payment without outpacing the market value of the home.

mitzi1,

I can't speak for all areas of the country, but I know here in Georgia, the foreclosure rate is getting ready to sky rocket, thanks to the idiots we have running this state. A new provision in GAFLA (the Georgia Fair Lending Act) has effectivly shut down ALL owner occupied hard money lending here. This means that foreclosure bailout loans here no longer allowed in Georgia, so now the only options homeowners have if there get into financial trouble are either to try to work out something with their current lender and to sell the home. Get ready to see a lot of home owners lose their homes here. :protest: