Real Estate Forums

afm1 · 05-24-2005, 02:43 PM

True, but I think the foreclosures are going to happen regardless of the loan structure.

I also mentioned in previous posts that it depends on the area. I have a friend that bought a home in northern VA last year for $255K 100% financing. I did an interest only loan for him and he qualified full doc making $42K a year. I just refinanced him last month, his house appraised for $346 and he is saving $175K a month now at 80% ltv. Here is the best part, I did another interest only loan and he will probably sell in a few years.

Bottom line is, depends on the area and depends on the goals of the person. Are people over-extended, yes. But the thing that makes the most sense is doing an interest only loan and take what you would normally apply towards principal and invest it. Why let the bank earn the interest on your principal when you can.

SEOWolf · 05-25-2005, 10:25 AM

Quote:

Originally Posted by afm1

It would work if the numbers work. There comes a point in the equation where an expensive house will not make the numbers work.

Here is a system that one of my investors uses.

Buy a house for $125K, mortgage is $500 a month, he rents it out for $800 per month cash flowing $300.

Buy a house for $250K, mortgage is $1300 a month, he rents it out for $1400 per month cash flowing $100.

Once you hit a certain price, the numbers do not work. You can get more money for a cheaper house than you can for a home that costs more.

Last example, lets say you buy a house for $450K or even $550K. How much can you get for rent to off set the mortgage? Maybe, just maybe, $2500 max. Now buy a house for $250K and charge $2000 a month in rent.

Get it?

Got it.

I just want to be able to invest in the San Diego or Las Vegas market for a future retirement home without a negative cash flow so that I can keep up with the rate of appreciation.

If I borrow money for the investment and it pays for itself then in 5 – 10 years the property in either of those two markets should see a substantial appreciation even though I paid zero on my principal.

The alternative was to save the money for my retirement home and the interest earned simply did not keep up with the rate of appreciation putting a home in these markets out of reach in 5 – 10 years.

Got it?

~VegasMack

afm1 · 05-25-2005, 11:00 AM

Of course. Exactly what you said is correct!

You best bet is to find something that you can get a reasonable cost (if that exists in your markets) and then have someone else pay the mortgage. Meanwhile you do get the appreciation benefits.

If you have some money, and you have sales model, and you have a renter it makes all the sense in the world.

Most of all, you have to have the #$*&@ to actually do it. It is scary.

The investor I was referring to owns approximately 50 properties in Maryland, Virginia and Deleware respectively and he seems to have a great model.

SEOWolf · 05-25-2005, 11:21 AM

I think it really is not a question of rather I have the b#?ls to do it but more along the lines of rather I want to retire in Missouri or out west.

If I want to retire out west I have no choice but to do as you have suggested afm1. The appreciation rates here in rural Missouri are miniscule compared to Las Vegas or San Diego.

My home in Missouri would probably appreciate 20-30k in 5-10 years where a home in San Diego or Las Vegas could easily see 200-300 % property value increases in the same time period.

Now the only real decision IMHO is which one? San Diego or Las Vegas.

Thanks for the input afm1.

~VegasMack

afm1 · 05-25-2005, 11:29 AM

You have bigger b*&$s than i do (lol).

My pay checks are all over the place from month to month.

Good luck with your search. If you need advice, please do not hesitate to ask. I am licensed in CA. But if nothing else, I can point you in the right direction and make sure that you are getting a good deal. I can tell you exactly how much you should be spending on fees etc.

Talk to you soon

SEOWolf · 05-26-2005, 07:22 AM

Thanks afm1!

I may be taking you up on your offer.

BTW – I may have missed your answer to an earlier question of mine, but is an Interest Only mortgage loan available for a second or third home?

~VegasMack

afm1 · 05-26-2005, 10:21 AM

Sounds good. I am always here to help.

I did answer it, but you can ask again.

Yes, you can do interest only on 2nd homes and investment properties.

You can actually do piggyback interest only first trust with a floating HELOC second trust on a second home. Now that is creative, a little risky, but creative.

SEOWolf · 05-27-2005, 07:31 AM

Quote:

Originally Posted by afm1

You can actually do piggyback interest only first trust with a floating HELOC second trust on a second home. Now that is creative, a little risky, but creative.

Ok afm1 you lost me.

Can you explain how that works?

Go slow please, because I am clueless on Mortgages.

Thanks,

~VegasMack

San Diego Real Estate · 05-27-2005, 09:30 AM

HHI...I agree it is something to be aware of! However, all you would need to do is to refinance! With the outrageous prices here in San Diego it is the only way a lot of buyers can get into a home!

afm1 · 05-31-2005, 10:32 AM

Basically, several loan programs exist now for investors and people who want to buy a second home. You can do almost (not everything) but almost anything you could normally do on a primary residence.

You have several options but again, it comes down to your goals. What do you "think" you may want to do with the property in 5-10 years? Do you have a downpayment? Can you verify enough income to pay both mortgages? Will you rent it out to offset your mortgage payments?

What I meant by the piggyback was structure your loan scenario so you don't have to put a ton of money down and you can avoid mortgage insurance. If you do not put 20% down you will have to pay mortgage insurance. So...most people split the loan structure into two mortgages. For example, 80% first mortgage and a 10% second mortgage and put 10% down. Or, an 80% first mortgage and a 20% second mortgage with no money down etc. The mortgage insurance factor can add hundreds to your monthly payment and it is not tax deductible.

Basically, you have to figure out what you are going to do with the property in general and then you can think about how to structure the financing. This is something that most people don't think about when buying a 2nd home or an investment property.

I recently read that in the MD/VA market 30% of homes are purchased by investors...that is a HUGE number!!! I see a ton of foreclosures in the future but that is just my opinion.