Addicted to Real Estate – Why I Can’t Stop and Why You Should Start

The All-Money-Down Technique

So, how does the all-money-down technique work by purchasing a home with cash? First, let me repeat that I didn’t have any money, but I had a significant amount of equity from Terry’s home and several homes I owned to give me a substantial cash down payment. Banks and mortgage companies will accept money from a home-equity line of credit as cash to purchase a home. At least, they did in 1997 under the financial guidelines of the day. It would help if you remembered that the policies change constantly about mortgages and lending, so this technique I used in 1997 may or may not be used in the future. Whether it is or isn’t able to be used again doesn’t matter to me as I believe that there will always be a way to buy real estate with limited money sooner or later. There will always be a technique to acquire real estate, but I’m not completely sure exactly how that will be done.

Addicted to Real Estate - Why I Can't Stop and Why You Should Start 1

I began purchasing homes in the Mayfair section of Philadelphia with the $30,000 to $40,000 per home price range. I would buy a home with three bedrooms and one bathroom on the second floor, a kitchen, a dining room, a living room on the first floor, and a basement. We call a row home in Philadelphia consisting of a front porch and a backyard the home’s width. Most row homes in Philadelphia are less than twenty-two feet wide. I suggest you watch the movie Rocky for those not from Philadelphia and can’t picture what a Philadelphia row home looks like. Twenty-two homes on each side of every block will test your ability to be a neighbor. Things that will usually cause an argument with your Philadelphia neighbors often stem from parking, the noise your children make, where you leave your trash cans, parties, and the appearance of your home.

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In 1998, my girlfriend and I moved in together and to the suburbs of Philadelphia called Warminster. After living on a street in Tacony like Rocky did, I looked forward to having space between my home and my next-door neighbor. I told Terry not to think about talking with the people who lived next door to us. I told her that if one of them came over with a fruitcake, I would take it and punt it like a football into their backyard. I believe I was suffering from Philadelphia Row Home syndrome. My new neighbors in Warminster were wonderful people, but it took me eighteen months before I was willing to learn that.

So you just bought your row home for $35,000 in Mayfair, and after $ 2,000 in closing costs and $ 5,000 in repair costs, you find yourself a good tenant who wants to rent the home. 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 must be paid off. When purchasing the home, I did not get a mortgage; I just purchased a cash home, as said in the business. All my money on this house was from the home equity line of credit.

The move is to pay off your home equity line of credit so you can do it again. We now go to a bank with your fixed-up property and tell the mortgage department that you want to do a cash-out refinancing of your real estate investment. It helps to explain that the neighborhood you purchase your property in should have a wider range of pricing as the area of Mayfair did in the mid-90s. The pricing of homes in Mayfair is quite unusual, as you would see a $ 3,000 difference in home values from one block to the next. This was important when doing a cash-out refinancing because it’s easy for the bank to see that I bought my property for $35,000, even though I did many repairs. I could justify the fact that I’ve spent more money on my home to fix it up, and by putting a tenant in, it was now a profitable piece of real estate from an investment standpoint.

If I were lucky, like I was overdoing this system of purchasing homes in Mayfair, the appraiser would use homes a block or two away and come back with an appraisal of $45,000. Back then, programs allowed an investor to purchase a home for 10 percent down or leave it in as equity, doing a 90 percent cash-out refinance, giving me back roughly $40,500. Utilizing this technique allowed me to regain most of the money I put on the property. I paid just $1,500 down for this new home. Why did the mortgage companies and the appraisers keep giving me the numbers I wanted? I assume it was because they wanted the business. I would only tell the bank I need this to come in at $45,000, or I am just financing it. They always seemed to give me what I wanted within reason.

This whole process took three to four months, during which I may have saved a few thousand dollars. Between the money I saved from my job and my investments and cashed out refinancing, I had replenished most or all of my funds from my home-equity line of credit that was now almost back to zero to begin the process again. And that is exactly what I intended to do. I used this system to purchase four to six homes a year, utilizing the same money to buy home after house after house over and over again. In reality, the technique is a no-money-down or little-money-down strategy. At the time, maybe I had $60,000 in available funds to buy homes from my HELOC, so I would buy a house and then replenish the money. It was a terrific legal technique, and I could see my dream of being a real estate investor becoming an eventual reality even though I wasn’t there yet.