General Real Estate Library Articles on home buying, selling, marketing and 203k Consulting

Where To Get The Money... Even If You Are Bankrupt And Broke

by Ron LeGrand

When I started investing in real estate in 1982, I thought you had to have money. I was working a job and was broke. Since then, I have learned that you don't need money, credit, or a steady job to do this type of investing. Of course, having a little cash wouldn't hurt, but I know some of my readers don't have any I so this article is for you. Mortgage Brokers and Short Term Money.

The best place to get short term money is through a mortgage broker who will know what will work and what won't. They know the terms and the amounts that they can get on the open market today. Some of them will have access to private funds that require no qualifying by the borrower. Equity in the house is the only concern. This is a good first step.

These private money brokers can be a valuable asset. Remember, when I started, I had no credit. I had no choice but to use whatever funds where available, so I found a broker who would loan 50% of the appraised price regardless of my financial condition. The cost was high, but the rewards made it worth it. He charged me 10% of every loan I made, and I paid 18% interest. I know this sounds high, but I soon learned it wasn't the cost of funds that count, but the availability of them.

Because I had access to these funds, I simply bought up junkers with them and made thousands of dollars in profit on each house. Let me ask you a question. Would you rather pay a mortgage broker 10% of your loan or pay a partner 50% of your deal? Tough choice, isn't it?

Mortgage brokers work on a commission. They do not get paid unless you get your mortgage or loan. If you use private money, get used to the idea of paying high points and consider it a cost of doing business. We can get a high interest loan and still make money. Remember, it's not the cost of the money that matters. It's the availability that counts.

When I first started, I borrowed on 76 loans at 18% interest, 50% loan-to-value ratio (L TV), 6 months interest prepayment penalty, 7 year balloon payment and 10 points up front to the broker. And I still made money on every single one of them!

How It Works:

If the house needs repairs, you may not get all the money at once. Some of it may be put in trust for repairs. For example, suppose you get an offer accepted for $15,000 cash on a property whose value after repairs is $45,000, and the "as is" value is $35,000, and the estimated repair costs are $4,000.

We know we can get a loan from a private investor for 50% the fixed up value of the property .

Value After Fix Up . . . . . . . $45,000
As Is Value . . . . . . . . . . $35,000
Repair Estimate . . . . . . . . $ 4,000
Maximum Loan Amount . . . . . . $22,500
Cost of the Loan . . . . . . . . $ 3,000
Net From Loan . . . . . . . . . $19,500

The problem is that the loan is based on the after repaired value. The broker will write the loan for $22,500. You'll pay the cost on $22,500, and you'll start paying interest on $22,500 as of that day. But the broker will put in trust 50% of the difference between the "as is" value ($35,000) and the "repaired" value ($45,000). The trust amount would be 50% of the $10,000 difference because it is a 50% L TV loan.

So $5,000 will be held in trust until the work is completed. After the work is done, the mortgage broker will send an appraiser out to look at the finished house and, if all the work is completed, he will give you the $5,000 held in trust. In the above example, we needed $15,000 cash to buy the house and $4,000 to repair it, for a total of $19,000. But we are only going to get $14,500 from the loan at closing, so we would construct our offer this way:

O. "Mr. Seller, I'm going to give you $151,000 for this house. I'll give you $10,000 at closing and $5,000 within 60 days. Will that be alright?"

A. '.Yes. That would be OK."

To make this work, the seller will hold a second mortgage for 60 days because we obtained the first mortgage from a private investor through the mortgage broker. This Is known as "subordination" and is a useful tool for any investor. This way, we are fully protected.

We would get $14,500 from the loan proceeds, give the seller $10,000 of it, and still have $4,500 left over for repairs. Since we only need $4,000 for the repairs, we get to keep the extra $500.

Generally, the money private lender brokers find comes through private individuals. A private investor is very different from a bank. There is none of the usual verification ordeal. The only verification is the value of the property. You do not need good credit, these loans are not reported on your credit report, and there is usually no qualifying.

They don't care about your personality or personal history. Their only consideration for the loan is the loan-to-value ratio. The length of the loan may vary but, generally, they will amortize the loan for 15 years and call it due in a balloon payment in 5 years or less.

Private short term money like this is very valuable to us as investors. This is the kind of money that can make you rich!

Ron LeGrand
Ron LeGrand had to borrow money to attend his first real estate seminar twenty years ago when he was bankrupt and running a gas station. Today, he is recognized as the nation’s leading authority on buying and selling single-family homes for fast cash with no credit, little or no personal investment or risk. Ron has personally bought over 1500 houses and still invests in real estate.

Author, trainer, lecturer, consultant and entrepreneur extraordinaire, Ron has earned a reputation as the best in his field. His one-day workshops are routinely standing-room-only and his Boot Camps continue to grow in popularity. Ron’s secret is simple: his programs work -- as evidenced by the thousands of successful real estate entrepreneurs all across North America who call him by the affectionate title, “The Guru”. Ron is literally creating millionaires all over North America.

Learn More about Ron LeGrand at www.ronlegrand.com

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