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Can you really purchase an Investment property with Zero Down and Positive Cash Flow?

By Ron Yarbrough

Mortgage and Lending with PrimeLending NMLS# 263379

November 12, 2008 04:32 PM

I have a Real Estate Broker contacting me about end loan financing for her clients. The clients have purchased a home with a hard money loan less than 60 days ago with zero money down. She wants me to rate term the short term money into a long term loan. Does anyone have any thoughts. Seems like if you purchase a property for 50K it is worth 50K not 75K unless you can document some improvements.

These properties come complete with Section 8 tenants with a minimum 400.00 a month positive cash flow. The Rehabber says he has a list of 30 buyers. Who wouldn't??? Get a free 400.00 a month check...

http://www.RonYarbrough.com

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Lawrence Roberts

Port City Real Estate Investors Assoc. - Mobile, AL

My initial thoughts would be to go to a small local bank (portfolio lender) and try to see if they will lend off of appraised value rather than purchase price. If they will not maybe then they can loan 50k with 20% down payment from a third party or if the seller is willing to hold a second maybe they will do that. I find that small local banks that do not have to make loans to confom to Freddie Mac or Fannie Mae can sometimes do these loans because they are not selling them on the secondary market. just my 2 cents

Nov 12, 2008 04:39 PM

Michael A. Caruso

Surterre Properties - Laguna Niguel, CA

I wouldn't touch it. Looks like an underwriter review would blow it out of the water. And it's this kind of stuff that got us into the mess we're in.

Nov 12, 2008 05:09 PM

Endre Barath, Jr.

Berkshire Hathaway HomeServices California Properties - Beverly Hills, CA

Realtor - Los Angeles Home Sales 310.486.1002

My understanding is anytime it is an investment you need 25% down. THen the next thought is why even get into such a mess? Sounds like shades of Lender Fraud

Nov 12, 2008 06:20 PM

Ron Yarbrough

PrimeLending - Camdenton, MO

I don't think it is Fraud but I do believe an investor would need some skin in the game. I am an investor and I have a lot of skin in the game. You don't need 25% in but you should put something in.

Nov 12, 2008 10:46 PM

Eric McGowan

Moody, AL

Ron, seasoning is definitely an issue. Locally, almost everyone has eliminated the "no seasoning" clause to refi. I think they are going to have hold on or either try another perhaps "sub prime" lender. There are a very few sub prime companies around that handle self employed borrowers now.

Nov 13, 2008 01:11 AM

Otherwise they may want to try the local bank route.

Nov 13, 2008 01:12 AM

As a mortgage planner I really don't feel anyone is doing anything wrong except for estimating value. I have to agree with Fannie/Freddie on seasoning in today's market. I also understand why the investor that is selling these properties feels he is selling at below market so the value is there. What I cannot seem to get across to him is the fact that selling at a discounted price is establishing a market and before resale's occur within the market after the date of his sale, there is no way to determine what the actual equity is.

I also purchase investment properties and use bank leverage. I typically have very little into the down payment but I do put cash in to get to a 75% LTV. The financing I use is a commercial note through a local bank.

Thanks for your comment. No one involved wants to do anything illegal but this does definitely warrant a closer look. This is the same type of scenario that flipping scams have used except they are real people and everything is arms length.

Ron Yarbrough
CMPS (r) Certified Mortgage Planning Specialist

913-884-3199
913-254-4034 fax
http://www.RonYarbrough.com

Nov 13, 2008 03:03 AM

Can you really purchase an Investment property with Zero Down and Positive Cash Flow?

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