BUYING HOMES WITH NOTHING DOWN

[delayjf]

I've been hearing about this on TV since way back in the 80's I remember one small asian who got sued for his "system". Now we have Carlton Sheets showing everybody how to get rich.

A friend of mine is now gung ho about doing something like this.
Is there any validity to buy/selling property this way?

Dick Schmidt, I know you are into real estate, what's your opinion??

[Dick Schmidt]

Delay,

It is possible to buy a home with no money down. I've done it myself. In fact, it is possible to buy a home and get money on closing to fix it up and resell it. However (always a catch!) you need really good credit (FICO over 700, or 720 preferably), it needs to be a special situation and you will pay a LOT for the loan. The last "flipper" I bought I got for $34,000, got a $55,000 loan (no they don't send you the extra, they pay it directly to your contractor) and sold it for $80,000. Sounds really good, but I paid $4,000 in up front loan fees and 12 1/2% interest.

In a hot real estate market, deals like this are almost impossible to do. You might find a loan company that will give you an 80% first and a 20% second, with the second at over 10% interest, but that isn't really a bargain. If you have decent credit, and plan to live in the house for at least two years (they check) the FHA will give you a 3% down loan at a point or so over what DiTech is advertising.

Carlton Sheets advocates starting with a plan where you agree to buy a house, then sell it on to another investor before the close. This is referred to as "bird-dogging." It can be done, but again very difficult in a hot market. Today, sellers can pick and choose between several offers, and they tend to take the "all cash" ones. Also, remember that if you don't hold the property for at least a year, it is income, not capital gains.

Whatever you do, don't spend a lot of money on his, or anyone's "special course" that shows you all the "ins and outs" of this process. There are many books on the market that are just as good and cost a whole lot less. Carlton no longer invests in real estate, by the way, and those ads you see late at night were filmed several years ago. If you must have the course, buy it on E-Bay at 10% of the original cost.

I think you'll find real estate to be a game best played with a little capital. Not a lot, but some. This year I took about $50,000 left over from last year's racing and bought two new houses in Florida, another condo on Maui, a house and a 4 plex in Coeur d’Alene Idaho. My 50 large is about gone, and I never put more than 5% down. The junk fees and unforeseen expenses ate a lot of the rest. Plus they don't always rent the first month or two, and that can raise the costs. You always have to hold a reserve.

When you really get into it, you'll find that nothing in real estate is more important than superb credit. And if your credit is that good, you should have enough money to play the game. Just remember, this is a long term game, the very essence of an investment as opposed to turning a quick buck. Real estate is wonderful once you get going; my cash-on-cash return is over 40% a year and this year I paid less than 10% in income tax on a joint income of well over $100,000. Just be careful you know what you are getting into.

Dick

P.S. For those who are interested in investing in real estate, especially if you live in Southern Calif. I can recommend a good real estate guru who got me started. He's a school teacher who owns over 200 homes around the country and doesn't charge for his services.

[Lefty]

I used to trade for those "nothing down" courses way back and a lot of the premises of nothing down are finding a source of capital other than your own to put dn. One is get a partner. I did that, found a guy with $5000 and we bght 3 houses with it. Made a little profit and wound up with a house of my own. The kicker is when you get into rental property with little money too many things go wrong. Things like air conditioners go bad, roofs leak and people skip out in the middle of the night owing the rent money.

[delayjf]

Lefty, did you mean 50,000 or 5000?

Dick,
Thanks for the indept reply. I talked with my friend more, she's not seeking to buy home via the Charlton Sheets route, but rather to pay cash for houses that are either in foreclosure or pre-foreclosure. She said they'd pay 70-75% of the market value of the house allowing them to escape forclosure and get back at least some of there equity. After reading what you said about hot markets, it seems to me that this approach would be tough to work as well. They could simply sell their home for full market value (assuming they have time and have not waited to long). From what I've heard homes are selling fast.
If they sell the home themselves, they can sell at a reduced price, off setting a portion of the lost market value by not having to pay commissions to a seller. Any opinions on the "cash for foreclosures" market. Who is the real estate guru you mentioned, I may be interested. Thanks

[Lefty]

$5.000. Bght 2 houses from motivated sellers with nothing dn and paid $2000 dn on other one. I'll never own rentals again. I'm not handy, but if I were i'd buy fixer uppers and flip 'em.