financing secrets of a millionaire real estate investor.pdf

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1 / Introduction to Real Estate Financing 9 The challenge is that loans for investors are treated as high-risk by lenders when compared to noninvestor (owner-occupied properties) loans. Lenders often look at leveraged investments as risky and are less willing to loan money to investors. Lenders assume (often correctly) that the less of your own money you have invested, the more likely you will be to walk away from a bad property. In addition, fewer investor loan programs mean less competition in the industry, which leads to higher loan costs for the investor. The goal of the investor thus is to put forth as little cash as possible, pay the least amount in loan costs and interest, while keeping personal risk at a minimum. This is quite a challenge, and this book will reveal some of the secrets for accomplishing this task. When Is Cash Better Than Financing Using all cash to purchase a property may be better than financing in two particular situations. The first situation is a short-term deal, that is, you intend to sell the house shortly after you buy it (known as “flipping”). When you have the cash to close quickly, you can generally get a tremendous discount on the price of a house. In this case, financing may delay the transaction long enough to lose an opportunity. Cash also allows you to purchase properties at a larger discount. You’ve heard the expression, “money talks, BS walks.” This is particularly true when making an offer to purchase a property through a real estate agent. The real estate agent is more likely to recommend to his or her client a purchase offer that is not contingent on the buyer obtaining bank financing. The second case is one in which you can use your retirement account. You can use the cash in your IRA or SEP to purchase real estate, and the income from the property is tax-deferred. In order to do this, you need an aggressive self-directed IRA custodian (oddly enough, most IRA custodians view real estate as “risky” and the stock market as “safe”). Two such custodians are Mid Ohio Securities, , or Entrust Administration, .
10 FINANCING SECRETS OF A MILLIONAIRE REAL ESTATE INVESTOR Understanding a Cash Offer versus Paying All Cash If you make a “cash offer” on a property, it does not necessarily mean you are using all of your own cash. It means the seller is receiving all cash, as opposed to the seller financing some part of the purchase price (discussed more fully in Chapter 9). What to Expect from This Book This book will show you how to finance properties with as little cash as possible, while maintaining minimum risk and maximum profit. The first few chapters describe the mortgage loan process, legal details, and the banking industry. Chapter 4 covers different types of lenders and loans, and the benefits of each. Chapter 5 covers how to creatively use institutional loan programs as an investor. Chapters 6, 7, 8, and 9 cover creative, noninstitutional financing. As with any technique on real estate acquisition or finance, you should review the process with a local professional, including an attorney. Also, keep in mind that while most of these ideas are applicable nationwide, local practices, laws, rules, customs, and market conditions may require variations or adaptations for your particular use. Key Points • Interest rates affect property values. • Financing affects the value of a property to an investor. • Investors use financing to leverage their investments.
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CHAPTER8 The Lease Option The road
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CHAPTER9 Owner Financing If you’d
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9 / Owner Financing 115 FIGURE 9.1
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APPENDIXA Interest Payments Chart 1
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APPENDIXB State-by-State Foreclosur
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APPENDIXC Sample Forms Uniform Resi
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GL OSSARY abstract of title A compi
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GLOSSARY 181 improvements. Also use
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GLOSSARY 185 security instrument A
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RE SOURCES Suggested Reading Altern
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IN DEX A Acceleration clause, 118 A
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INDEX 191 blended, 73 Federal Reser
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INDEX 193 W Washington Mutual, 22 W
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