All Forum Posts by: Samuel Chua

You don't make a profit until you recover all the cash you put in.  So a higher DP bringing more cash flow is an illusion.  It will take you longer to recover your initial cash input.

Also, you are not really gaining anything by buying equity.  That "bought" equity is equal to the cash you used to buy it.  It's the same money.  The difference is it was free to use as cash...but when you take a loan out to get it back out of the property, it now costs you money.

You're much better off paying as little out of pocket as possible, and keep your cash as liquid, and in your control, as possible.  The actual returns will/should be much higher.

For clarification, the bank may be able to go after you for the deficient balance. The ability of the bank to do this varies from state to state. There are 12 non-recourse states, Alaska, Arizona, California, Connecticut, Hawaii Idaho, Minnesota, North Carolina, North Dakota, Texas, Utah, and Washington, where the bank cannot go after you for the deficiency. The other 38 states they can and will go after you for the deficiency. 

If you're talking about in the U.S., yes, a bank will eventually foreclose  on a property if the mortgage isn't paid and take it away from whomever the owner is.  Though it can take many months of missed payments before a bank starts the foreclosure process.

I've actually purchased two properties that were bank foreclosures.

One of them was an investment property for the previous owner and there were tenants living there when it was foreclosed on.  According to the neighbors, the previous tenants got quite a few months of free rent until the bank put their own locks on the door.  None of the tenants were home when that happened, so windows were broken in order for them to get their stuff out.

Personally, I think it's usually better to keep a good emergency fund for potential lean times rather than buying a house cash.  That can be a lot of money tied up in a non-liquid asset.  And, just because there isn't a mortgage, doesn't mean you don't have to at least pay property taxes and should pay insurance.  Because cities will take the property also if the taxes aren't paid.  Though usually that's also a long process with many chances to get the property back before it's sold at auction.

Caveat: this is really general info for processes that are very detailed and can vary a lot by bank or city/county. 

Samuel,

You can't get all your money back if you buy the property at market value. It only works when there's a substantial discount.

For example, you need to buy a property at 70% of Market value less repairs. Let's say the market value is $100,000 and repairs is $20,000. So, the maximum you buy the property is for $50,000. You pay cash and invest a total of $70,000. You renovate and rent. After 6 months or 12 months (depending on the "seasoning" requirement of the lender), you can then go to a bank and borrow $75,000 on the property. After closing costs, you'll end up with $70,000 so you get all your money back.

Banks will lend 75% to 80% of the market value of a house. So you got to buy and renovate a property for less than 75% of the market value (or after repair value) of the property.

Market value is not the same as sales price though.

A house can be for sale for $50,000 because it needs a lot of repairs or it needs to be renovated but it's market value after it's repaired is $100,000.

Makes sense?