How and Where to Get Loans to Build Your Real Estate Wealth by Tyler G Hicks: Part IV
How, and Where, to Get Loans to Build Your Real Estate Wealth by Tyler G. Hicks: Part IV
Get Section 8 Tenants for Steady Rental Income
Section 8 of the Federal Government Housing Program pays a portion, or all, of the rent for homeless or low-income families renting homes. In the New York City area, for example, the Emergency Assistance Rehousing Program (EARP) not only pays the Section 8 rent for homeless families, it also pays a one-time rent bonus to the property owner (you) after the family moves in. This bonus is:
Number of People One-time Bonus
$1,000 for each additional family member.
To make the program more attractive to building owners, the City has added Section 8 subsidies, permitting rent payments up to the Fair-Market Rates. Maximum rental fees at the time of this writing were:
1 Bedroom $940
2 Bedrooms $1,069
3 Bedrooms $1,348
4 Bedrooms $1,515
5 Bedrooms $1,753
6 Bedrooms $1,992
Since rents rarely decline, you can expect these subsidies to rise as time passes. Thus, you have a bright future with such housing.
Other features of Section 8 rent subsidies are:
The rent subsidy does not include the gas and electric for the apartment. The tenant pays these charges.
Your bonus is paid in a single payment once the tenant is approved and signs a lease with you, the building owner.
Many areas have waiting lists of Section 8 tenants. So you can rent your apartment as soon as it becomes available.
You choose the tenant from a pool of eligible homeless families approved for Section 8 vouchers.
Buy, and Control Properties in Inner-City Areas
Inner-city areas—often offer the lowest-priced properties anywhere. And they also offer the greatest opportunities for creative financing. Thus, a reader called to say:
You Never Know When Luck Will Appear
“I saw an ad for a free legal two-family partially burned-out home in the Sunday paper. I called the owner and he said he was fed up with the vandalism in the area and would be happy to give me the property free of any charge. When it came to the transfer of the title my attorney told me that the state required that some money be paid before a title could be transferred. So I paid the seller $1 and the house was mine.
I quickly rented the house for $800 a month with an option to buy at a later date. Now, a year later, the person renting the house has repaired it completely and wants to buy it from me for $34,500.My only worry is the capital gain taxes I’ll have to pay because my ‘cost basis’ is just one dollar. But I do know I’ll have the money to pay the taxes because I’ll be getting all cash.” (MD).
Now the $1 this reader paid may not be zero-cash! But it certainly is very, very close to zero-cash. And her willingness to take a chance with a partially burned out property shows her creative spirit at its best.
Inner-city homes have many advantages for the creative real estate BWB. These advantages include:
Low, low prices in many areas.
Plenty of room for really creative negotiation of price and terms.
Lots of local government money help to rehab the property.
Enormous pool of renters ready to snatch up clean, safe apartments.
Local financing often available from both the private and public sectors.
So don’t turn your back on the creative financing attractions of inner-city housing! You may be overlooking the chance to become a real estate millionaire while providing good housing for needy families. And—of course—Section 8 benefits, described above, are fully available to you.
Search for Low, Low Down Payments
There are low, low down-payment properties available. All you have to do is look for them! That’s where most people fail—they just don’t look for long enough. As Ben Franklin said, “Plow deep while sluggards sleep.” Low, low down represents the second best type of creative financing. Look at this letter:
No-Cash Start and Just $1.00 Down
“I had no cash when I started this venture of owning income property 19 months ago but I acted on the advice in one of your real estate books. So far I’ve acquired about $200,000 in income properties and lake-shore raw land. I was able to buy two income properties for $1.00 down on each. I just sold one I didn’t want to deal with for a profit of $2,000 after owning it one year. Not bad for a $1.00 investment! I bought another building with eight apartments for $63,000 for a $1.00 investment. With the improvements I’ve made in it I could sell it for a $10,000 profit. There is no possible way I could put a price on the value your books have been to me during the last 19 months.” (Canada).
Of course, the lowest low, low down is zero-cash down. Here’s a reader who writes:
There’s No Lower Down Than Zero Down
“Your advice helped me acquire eight different apartment buildings last year, all with zero-cash down. In addition, they are producing a good positive cash flow.” (NY).
So how do you find low, low down properties? There’s really just one answer to this question. That answer is:
Look in every possible source for low, low down properties. These sources include: Your large-city Sunday newspapers, your local weekly newspapers, real estate agents, property management magazines, city and state housing agencies, federal housing groups, local real estate investor groups, local building owners associations and For Sale By Owner ads.
Keep looking until you find what you want. Looking costs little. But it can deliver big results! Why? Because there are few people willing to invest the time and energy it takes to look widely and deeply.
Borrow to the Hilt for Income Real Estate
While you were growing up you might have been warned: “Never a borrower be.” While that’s good advice for your personal life, it’s not accurate for business. And income real estate--remember--IS a business!
So for income real estate, the advice often is—Borrow to the hilt to get the income properties you want. Thus, a reader writes:
Fast Growth in Three Years
“For the last three years I have used your methods. I now have four apartment buildings worth $450,000. Three years ago I had only a triplex. By using your wonderful methods of borrowing to the hilt, I have been able to acquire these four larger buildings.” (CA).
When you borrow to the hilt you use the value of the properties you own to collateralize (back up) your loans. So:
The property you’ve bought on borrowed money backs up new loans for more property—which you buy using borrowed money!
While the property you bought with borrowed money pays off the debt you incurred to buy the property.
Leading to the famous: Money Makes Money; and the Money Money Makes Makes Money!
So don’t be afraid to borrow money for income real estate. Just be sure you have a positive cash flow from every property—after paying on all loans associated with that property!
Use Home Equity and Personal Loans to Build Your Wealth
If you own real estate now you can borrow against your equity in it and use the money to buy income real estate. This technique of creative financing is used again and again by real estate BWBs. Here’s a letter from a reader showing this method at work:
100% Financing with a Home Equity Loan
“I currently own a 4-unit apartment building bought with 100% financing using a home equity loan for the down payment and settlement costs. I am using your principles which you give in ‘How to Make Big Money in Real Estate.’” (DE).
Yet another reader is using a personal loan, thus:
Getting Started With a Personal Loan
“I just wanted to let you know I bought an income condo with zero cash down by borrowing from my pension, using a personal loan. I got a good interest rate because its in a new condo development. Since its a first mortgage I don’t have a balloon payment to worry about later. It may not be the biggest deal ever reported to you. But I did get started. I put thought into action! I feel your newsletter helped me with an article you had on condos that sparked me to do something ASAP to get the ball rolling.” (IL).
There is good news for you about home equity loans and creative financing. When you apply for a home equity loan you never need tell the lender what you plan to use the loan money for. So you can buy as many properties as you can afford using a home equity loan.
With a personal loan you must tell what you intend to use the money for. Acceptable uses include: Education, Vacation, Home Improvement, Debt Consolidation, Medical, Dental, Miscellaneous, etc. Unacceptable uses include—for certain lenders—Home or Real Estate Down Payment. Other lenders make personal loans for these uses. You are not allowed to borrow personal funds to buy stocks or bonds, unless you’re using a stock broker’s margin account.
Places where you can get personal and home equity loans include:
To get a loan from any of these lenders, be sure you type your application throughout. And if your FICO score is less than 600, or your Debt to Income is more than 35 percent, have a cosigner handy to help you get your loan. And be certain to use some of your loan for the stated purpose given on your loan application!
Mortgage Out to Get Paid for Creative Financing
Earlier (see above) we said that low, low down payments were the second best type of creative financing. So what, you ask, is the BEST type of creative financing? It is Mortgaging Out where you:
Are paid to take out a loan to buy income-producing property.
Pay off your loan with income from the property you bought with the loan money.
Receive tax-free cash at the closing to use for whatever purpose you choose. If would be wise to use your mortgaging-out cash to buy more income property!)
So you really can’t beat Mortgaging Out as a way to real estate wealth. Just take a look at this letter from a reader:
Mortgaging Out in Country Property
“I bought 30 acres of land plus house, barn, equipment shed, cattle shed, silos and smokehouse at auction for $60,000 and got a loan from the bank for $65,000. The assessed value at the courthouse at the time of the purchase was $114,000. So I mortgaged out with $5,000 cash plus the property!” (VA).
Mortgaging Out with Development Land
“I opened a company and bought—with 107 percent financing—my first investment real estate. It is a piece of land zoned for apartment buildings.” (Canada).
Yes, mortgaging out can be your way to real estate riches. But to mortgage out you must plan each step of the way. You must:
1.Pick property that has a market value higher than the purchase price.
2.Arrange for secondary financing that’s based on the market value, not the selling price.
3.Have good legal advice from a competent attorney every step of your way.
4.Be completely honest in all your dealings with lenders.
5.Give accurate, checkable facts on every loan application you fill out.
6. Work your numbers on every property. If you’re not good at numbers, I’ll work them for you, if you’re a two-year, or longer, subscriber to my International Wealth Success newsletter, or to my Money Watch Bulletin newsletter.
Other Ways to Creative Financing
Real estate—the world’s best business—has hundreds—if not thousands—of ways to use creative financing to acquire income property. We’ve touched on just a few in this chapter. Later in this book you’ll find many more creative approaches to financing income property.
To get some of this creative financing for your deals, keep alert to the many opportunities that come your way. And if you ever have any questions, give me a call. You’ll find my business phone and fax numbers at the end of this book.
Your Keys to Real Estate Riches
Creative financing can get you started in real estate on little—or no—money sooner than you think.
When you use creative financing you capitalize on your financial lacks or drawbacks to build strength into your borrowing skills.
Your first step to creative financing is to analyze your financial lacks and shortcomings.
Creative financing can give you Assets, Income and a Base on which to build a solid future.
Options allow you to get real estate, in many cases, with no credit check.
Look for assumable mortgages; they can be your key to creative financing.
Government loan guarantees can mean the difference between approval and rejection.
Flipping real estate can give you an income with little credit investigation.
Section 8 tenants can keep you income property 100 percent filled.
Always try to mortgage out—it’s the premier creative financing technique.