The full payment technique
So how does the down payment technique work when buying a house with cash? First of all, let me repeat that I didn’t really have cash, but I did have a significant amount of equity from Terry’s house and several houses that he owned together to give me a substantial cash down payment. Both banks and mortgage companies will accept money from a home equity line of credit as cash to buy a home. At least they did it in 1997 under the financial guidelines of the time. The thing to remember about mortgages and loans is that the guidelines are constantly changing, so this technique I used in 1997 may or may not be used in the future. I don’t really care whether or not it can be used again as I believe there will always be a way to buy real estate with a limited down payment sooner or later. There will always be a technique for acquiring real estate, but I am not entirely sure how it will be done in the future.
I started buying houses in the Mayfair section of Philadelphia with prices in the price range of $ 30,000 to $ 40,000 per house. I would buy a house with three bedrooms and a bathroom on the second floor with a kitchen, dining room and living room on the first floor and a basement. What we call a row house in Philadelphia would consist of a front porch and a backyard the width of the house. Most of the townhomes in Philadelphia are less than twenty feet wide. For those of you who are not from Philadelphia and can’t imagine what a row house in Philadelphia looks like, I suggest you watch the movie Rocky. Twenty-two houses on each side of each block will really test your ability to be a neighbor. Things that will generally cause an argument with your Philadelphia neighbors often come from the parking lot, the noise your kids make, where you leave trash cans, the parties, and the appearance of your home.
In 1998 my girlfriend and I moved together to the Philadelphia suburbs called Warminster. After living on a street in Tacony, like Rocky, I really wanted to have space between my house and my next door neighbor. I told Terry not to even think about talking to the people who lived next to us. I told him if one of them comes with a fruitcake, I’ll take it and kick it like a soccer ball right into his backyard. I think he suffered from Philadelphia syndrome. My new neighbors in Warminster turned out to be wonderful people, but it took me eighteen months before I was ready to learn that.
So you just bought your townhome for $ 35,000 in Mayfair, and after $ 2000 in closing costs and $ 5000 in repair costs, you find a good tenant who wants to rent the house. After renting the house with a positive cash flow of $ 200 a month, you now have an outstanding debt of $ 42,000 on your home equity line of credit that you will need to pay off. When buying the house, I did not get a mortgage since I only bought a house for cash, as they say in the business. All the money I spent on this house was spent from the home equity line of credit.
The move now is to pay off your home equity line of credit so you can do it again. Now we go to a bank with your property repaired and we tell the mortgage department that you want to refinance your real estate investment with cash withdrawal. It helps to explain that the neighborhood in which you buy your property should have a wider range of prices, as the Mayfair neighborhood did in the mid-90s. The price of houses in Mayfair is quite unusual in that you would see a difference. $ 3,000 worth of homes from one block to the next. This was important when doing a cash-out refinance because it’s pretty easy for the bank to see that I just bought my property for $ 35,000 regardless of the fact that I did a lot of repairs. I could justify the fact that I spent more money on my house to fix it, and by putting in a tenant, it was now a profitable property from an investment point of view.
If you were lucky enough to have outgrown this Mayfair home buying system many times and the appraiser would use houses a block or two away and come back with an appraisal of $ 45,000. Back then, there were programs that allowed an investor to buy a home 10 percent down or left as equity, doing a 90 percent cash refinance, returning approximately $ 40,500 to me. Using this technique allowed me to get most of the money that I deposited in the property. I basically paid only $ 1,500 for this new house. Why did mortgage companies and appraisers keep giving me the numbers I wanted? I guess because they wanted the business. I would just tell the bank that I need this to come to $ 45,000 or I’ll just keep it funded as is. They always seemed to give me what I wanted within reason.
This whole process took three to four months, during which time you may have saved a few thousand dollars. Between the money I saved from my job and my investments and the cash refinance, I had replenished most or all of my funds from my home equity line of credit which was now near zero to start the process again. And that is exactly what he intended to do. I used this system to buy four to six houses a year using the same money to buy over and over again. In reality, the technique is a no-down or little-down-money technique. At the time, I maybe had $ 60,000 in funds available to use to buy houses with my HELOC, so I would buy a house and then replace the money. It was an excellent technique that was legal, and I could see that my dream of being a full-time real estate investor would come true even though I wasn’t there yet.
During the years 1995 to 2002, the real estate market in Philadelphia saw gradual increases of perhaps 6 percent as it progressed each year. I started to keep track of my net worth which was 100 percent equity, which means that I had no other forms of investment to consider when calculating my net worth. Generally speaking, the first five years of my real estate career did not go well due to poor decisions I made when buying buildings and the market decline. Also, my lack of repair knowledge and experience made it difficult. The second five years of my real estate career that I just finished explaining didn’t make much money either. I mainly supported myself through my career as a salesperson, but I could definitely see the writing on the wall that in the future real estate was going to be my full-time job.
America’s Real Estate Professionals
I own an office building that has a real estate company as a tenant called Realty Professionals of America. The company has a great plan in which a new agent receives 75 percent of the commission and the broker only 25 percent. If you don’t know, this is a good deal, especially for a new real estate agent. The company also offers a 5 percent sponsorship fee to the agent who sponsors them on every deal they make. If you bring a person who is a real estate agent to the business you have sponsored, the broker will pay you a 5 percent endorsement of the broker end so that the new real estate broker you sponsored can still earn 75 percent of commissions. In addition to the above, Realty Professionals of America offers to increase the realtor’s commission by 5 percent after achieving cumulative commission benchmarks, up to a maximum of 90 percent. Once a commission benchmark is reached, an agent’s commission rate is only reduced if the following year’s commissions do not reach a lower benchmark amount. I currently keep 85 percent of the commissions from all my deals; In addition, I receive sponsorship checks for 5 percent of the commissions earned by the agents I sponsored. If you would like more information on how to get sponsored in Realty Professionals of America’s wonderful plan, please call me directly at 267-988-2000.
Get my real estate license
One of the things I did in the summer of 2005 after quitting my full-time job was making plans to get my real estate license. Getting my real estate license was something I always wanted to do, but never seemed to have the time to do it. Surely you’ve heard that excuse a thousand times. People always say that they are going to do something as soon as they find the time to do it, but they never seem to find the time, do they? I try not to allow myself to make excuses for anything. So, before I left my full-time job, I decided that one of the first things I would do would be to get my real estate license. I enrolled in a school called the American Real Estate Institute for a two-week full-time program to obtain my license to sell real estate in the state of Pennsylvania. Two fantastic guys with a world of experience taught the class and I enjoyed my time there. Immediately after completing the course at the American Real Estate Institute, I reserved the next available day offered by the state to take the state exam. My teachers’ advice to take the test immediately after class turned out to be an excellent suggestion. I passed the exam with flying colors and have used my license many times since then to buy real estate and reduce expenses. If you are going to be a full-time real estate investor or a commercial real estate investor, then you almost have to get licensed. While I know some people who do not believe in this, I am convinced that it is the only way.
I worked on a $ 3 million deal where the commission for the buyer’s real estate agent was $ 75,000. By the time my broker took an action, I was walking on a commission of $ 63,000 on that deal alone. With the average cost per year of being a real estate agent around $ 1200 per year, this deal would only have paid for my real estate license for fifty-three years. Not to mention all the other perks, like having access to the multiple listing service that you offer to far too many real estate agents in this country. While there are other ways to get access to multiple listing services or another similar program, a real estate license is a great way to go.
Some of the negatives that I hear over and over about having your real estate license is the fact that you must disclose that you are a real estate agent when buying a home if you are representing yourself. Maybe I’m missing something, but I don’t see this as a negative at all. If you are an expert in the art of negotiation, it is just another hurdle you have to deal with. I suppose it could end in a lawsuit where a court of law could assume that because you are a real estate agent, you must know all of these things. I don’t spend my life worrying about the millions of ways I can be sued, nor do I worry about being hit by a car every time I cross the street.
