|
US Real Estate
Investors Guide |
|
|
|
Financing - Credit - Income - Assets |
|
|
Investment
Property Loan Programs |
|
|
Real
Estate Investor Resources & Articles |
|
|
CONTACT US
|
Progressive Companies
Tel.888.763.2101 Fax.281.446.4818
|
|
|
|
| |
|
Progressive and
100% Zero Down Investment Property Lending
FREQUENTLY ASKED QUESTIONS:
By
Allan B. Beraquit
|
Question: |
Why is 100%
Financing not available to those with less than perfect credit? |
|
Answer:
|
Investment
Properties are the most risky type of loans issued in Residential
Lending. Couple such with "No Equity" due to no down payment, and
underwriting emphasis shifts to the borrower and his/her ability to pay
and history of meeting financial obligations. Specifically; income,
stability of income, reserves and credit. Institutions who lend to
individuals with less than perfect credit hedge their risk by their
equity position. In this case, there is no equity position because
it is a 100% Loan. |
|
Question:
|
I am a
salaried worker earning $50,000 per year with good credit and would like
to begin investing so I may one day retire early. I only have
$10,000 to invest so I want to make certain I choose the right property
and finance it correctly from the very beginning. I'm considering
buying a 3-unit home with a gross rental income of $600 per unit ($1,800
total). If I put 10% down, my mortgage payment using conventional
financing @ 6.750% is $875.61. Add PMI of $112.50 and taxes &
Insurance of $300 per month and my total payment is $1,288.11 per month,
generating a net monthly return of $511.89 or $6,142.68 over the course
of a year. ROI is a whopping 61.42%!!! If I finance this
acquisition at 100%, my payment @ 9% is $1,206.93. $1,506.93 with
escrows reducing my monthly profit to $293.07 per month or $3,516.84 per
year. I am losing $2,625+ per year in profit. It just
doesn't seem to make sense. |
|
Answer:
|
This is a
question I love answering. If you set out to only purchase one
property, I can almost agree with you, although my financial planning
background disagrees to the fullest extent. If you're like most
and understand that wealth (By cash flow or appreciation or a
combination of both) can only come by developing a multi-property
portfolio than I have to disagree, as the very basic principal of any
type of investing takes into account: Return on investment,
minimization of capital risk and optimization of profit potential.
Place your dollars where it will work the hardest for you. While
injection a 10% investment will generate more dollars at the end of the
year, the ratio between dollars invested and profit generated is far
less than if you were to put no money down. Here are some examples
using your scenario:
- With 100%
lending, you earned $3,516.84 on your holding and still retained your
$10,000 investment. What is your return on investment? a
whopping 1,000,000,000,000+ Percent.
- If you just
purchased one additional property generating the same returns, your
total return is now $7,033.68 per year ($3,516.84 x 2). You still
have your $10,000. Why stop at two?
What if you
purchased a total of 20 properties generating the same returns over the
next couple of years. Your total profit potential is now
$70,036.80 per year, using the same $10,000! Oh wait a
minute....you still have your $10,000 and you are now earning more
passive income than your salary is generating...time to consider early
retirement and becoming a full time real estate investor ! |
|
Question: |
I understand
the benefits of using 100%. I just can't seem to accept the fact
that rates range between 8.5% - 9% for someone with great credit. |
|
Answer:
|
First and
foremost, you are a real estate investor and you are not buying a home
you will live in and raise your kids in. Having said that, your
hold period will be 1-4 years if you are appreciation minded or 5-10
years if you are intent is to extract as much cash flow from the
property before deferred maintenance and repairs say "Sell".
Regardless, interest becomes irrelevant.
Your
monthly cost basis (Principal, interest, taxes & insurance) will be used
to calculate your Net return. Your annual net return will be
divided by your total investment and your return on investment will
always be far greater (Infinite) than if you put any money down (See the
preceding question and answer).
The
question isn't "Is this type of financing the most profitable for
my business?"
The
question is" If I can only effectively manage or juggle 20-proeprties in
my portfolio, how do I select the best top performing 20-proeprties
using Zero Down Financing?
If you want
that lower rate, you can always buy down the rate by paying points.
However, put a calculator to it and that concept will almost always
proves less cost effective in the overall scheme of things. |
|
Question: |
Is this
financing suitable for someone who wants to hold onto the property for a
long term purpose? |
|
Answer:
|
To quickly
answer your question; YES. I'll explain later.
First, let's
try to add clarity to the big picture and possibly even change your
mindset. There is no predefined hold period when you are an
investor. Holding onto a property forever almost never happens.
You're not investing in a family air loom, you are investing in Real
Estate. Properties should be held for a period equivalent to:
Appreciation
Minded Properties: Should be sold when the property reaches it's
maximum growth capacity and/or can be replaced by another property with
the potential to generate far larger and faster growth rates.
Cash Flow
Properties: Should be sold when profitability dwindles dues to
excessive deferred maintenance and repair costs, which occurs as the
property ages; or when the property can be replaced by another
generating higher returns.
To use an
analogy; your cash flow properties are like Bank CD's. They are
never kept forever. You purchase a CD because of a favorable
return. When you can replace your CD with another CD yielding a
higher return, it's time to cash in your CD and transfer funds to
another CD with a higher yield.
Your speculative appreciation
oriented properties are like stocks. You want to buy low and sell
high; or buy at par anticipating growth and sell high. Why hold
onto a stock once after it has become a "Blue Chip" stock....when
that occurs, it's time to sell and
locate other stocks that will one day become another Google or
Microsoft? Fortunately, real Estate Investing is far easier and
less risky than investing in securities.
Explanation of
my "Yes" answer above. if you are still dead set on holding on to
the property forever, the goal will be to refinance the note into a
permanent long term conventional FNMA/FHLMC mortgage once you have
developed 10-20% equity in the property. if you are buying the
right properties, this should occur within the first 2-4 years.
Much sooner if you are a speculative investor. While you will lose
a little bit of equity be refinancing the note, the interest savings
will be well worth the cause. In the end, you would have retained
a self sufficient property with no investment (down payment). |
|
Question: |
My broker says
he can offer me 100% Financing as long as the property is at least 50
miles away from my primary residence? |
|
Answer:
|
LOL.....So why
haven't you called him/her? If you're broker said that, then it's
quite clear your transaction is being "Dressed up". If your
primary residence is 50+ miles away, it is a prudent proposition that
the home in mind can be classified at a 2nd or vacation home. If
your credit is strong enough, than 100% financing may be available.
Keep in mind however, you will sign an affidavit stating the property
being purchased as a 2nd/Vacation home and not as an investment property
or rental. The regulatory agencies that investigate bank, fcc and
wire fraud can have quite large and sharp teeth. If you qualify
for legitimate 100% Investment Property Loan, I would suggest driving
down the path of righteousness as the few hundred dollars a year in
interest you may save by dressing up your transaction, will not be
nearly enough to pay your attorney a retainer fee. If your intent
is to create a Real Estate Investment Business, follow the path of
righteousness from the very start. |
|
Question: |
Why do you
only market this product to established Real Estate Investors? |
|
Answer:
|
Not true.
This product is available to all. However, we prefer to target
those Real Estate Investors (Established or new) who's long term goal is
generating enough passive income to one day retire should they choose
to. Almost anyone with good credit and a little money can qualify
for our 100% loan. The loan process is very intensive for my
staff. The education process for each investor is even more
intensive. We don't feel conformable given our money to those with
only a hope and an idea. We take the time to educate each and
every investor to the fullest degree in sound investing, market & cash
flow analysis, risk analysis and mortgage basics. This is the only
way to help insure ongoing lending continuity and that our investors are
making sound investment decisions. We invest 10 to 100 times more
time in coaching and educating each client than ANY other mortgage
lender or broker, and with our reduced compensation requirements, it
only makes sense for us to target those who have the goal of and are
willing to commit to becoming a successful Real Estate Investor.
Success
will only come with volume. We'll teach good clients how to make
money, how to avoid mistakes and in return we, establish a friendship
with a lifelong client generating endless transactions for our firm.
Since we invest so much time into the education process, each and every
successive transaction is processed in funded in less time than the
previous transaction. In the end, those types of clients equate to
profitability for us. And why not, we've just taught them how to
make more money in 24-36 months than the average investor without a
mentor, can make over a lifetime of investing.
The one
time investor initially generates revenue for our firm, however, it
stops there. The ratio between total time invested and long-term
profit potential is less than favorable. Similar in concept to
"Return on Investment" or "ROI". |
|
Question: |
Is your
product available for use by Mortgage Brokers, Loan Officers and/or Real
Estate Agents? |
|
Answer: |
Yes, however,
Mortgage Brokers and Loan Officers can only qualify by documenting their
income. |
|
Question: |
I've never
heard of 100% Investment Property Financing. I'm not so sure I
believe it exists? |
|
Answer:
|
It's been
around in one form or another for several years. There are only
two Investors on Wall Street that buy this type of paper. These
loans are originated for those investors by a small select handful of
National Lenders. We offer our own product (To be sold on
secondary) as well, correspond lend with the three other Tier II and
Tier III Lending Products available on the market. In other words,
we have ALL OF THE only available 100% Investment Property Lending
Programs on the market. As for it's legitimacy; we have no problem
releasing references, or better yet; how about a HUD 1 settlement
statement? |
|
|
|
| |
|
