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May 2020

Can You Actually Buy a House with No Money Down?

1000 500 Sam Radbil

You’ve seen the ads and commercials touting systems for buying homes with no money down. You may have even read this book:

“No money down” has been the catchphrase for years as people to find a no money down mortgage through loan platforms that range from conventional lending to rent to own and contract for deed. And depending upon your situation, you can buy a home with no money down. First, let’s look at the more conventional ways to get that done, and we’ll follow with some alternative methods.

VA Loan

If you are a military service veteran, you may be eligible for the buyer-friendly VA loan program. According to the VA site:

“VA Home Loans are provided by private lenders, such as banks and mortgage companies. VA guarantees a portion of the loan, enabling the lender to provide you with more favorable terms.” 

It’s really better than that, however, because in addition to a true zero down-payment, some VA lenders will make mortgage loans to those with credit scores of 580 or even less. 

If you or your spouse are a military veteran, you really need to check this program out.

USDA No Money Down Mortgage

The U.S. Department of Agriculture will make you a no money down mortgage loan if you want to buy a home that is deemed rural or suburban. Amazingly, 97 percent of the country is in this category.

Check out this map provided to us by our friends at The Lenders Network:

Then, make sure that you meet these main requirements:

  • Your total household income must be less than 115% of your area’s average.
  • You need a credit score of 620 or better.
  • You must not have any foreclosure or bankruptcy events going back two years.

If you are willing to buy in an approved area and your credit is decent, a USDA loan could be a great way to go. 

FHA First-Time Homebuyer Loan

FHA loans usually require a down-payment of three percent, but that down-payment can be gifted to you by someone else. Also, several states like Minnesota have programs that can assist with down-payments, and it is possible for you to borrow your down-payment or even get a grant to cover it.

Navy Federal Credit Union

This lending institution makes no money down mortgage loans. You may need good credit for this program, but it’s worth checking out even if you don’t.

Rent to Own

If you have no down-payment funds and are willing to work toward true homeownership over a longer period of time, you may be able to find a good rent to own situation. In this scenario, you rent a home and the owner agrees to apply a portion of your monthly rent to a down-payment. When you have accumulated a sufficient amount, the property owner will sell you the property—usually acting as the bank and becoming the mortgage holder. 

A rent to own contract is called an executory contract and is frowned upon in some states like Texas. There are perils and pitfalls for both sides, so make sure that you get competent legal advice before you enter into a rent to own agreement.

Seller Financing

There are situations where you can find a seller that owns their home free and clear. Since they don’t have a mortgage, they can sell the property to you for no money down if they choose.

These situations are very hard to find, but it’s not impossible. If you can find a free and clear property for sale and convince the seller that you are a good credit risk, it is possible that you could purchase a home for no money down.

Contract for Deed

Rocket Lawyer explains:

“Under a Contract for Deed, the buyer makes regular payments to the seller until the amount owed is paid in full or the buyer finds another means to pay off the balance. The seller retains legal title to the property until the balance is paid; the buyer gets legal title to the property once the final payment is made. If the buyer defaults on the payments, the seller can repossess the property.”

We couldn’t explain it any better, and in some states—again, like Minnesota—contract for deed is a traditional method for home financing that is even recognized and recommended in some circumstances by the State.

Contract for Deed companies like C4D specialize in this type of financing, and while they do require a down-payment, they can point you in the right direction for down-payment assistance.

As we mentioned earlier, “no money down” has been a real estate catch-phrase for years, but if you do your research, you’ll find that you can get a no money down mortgage that will allow you to become a genuine homeowner.

Simple and Budget-Friendly Ways to Upgrade Your Home

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How many times have you visited friends and family members only to look around their house in envy and wish you had that same decorating flair? How many times have you also found yourself flipping through home design and décor magazines wishing that you could transform your own space into something more luxurious and stylish? 

If the budget and your lack of DIY experience have been holding you back from making these upgrades in your home, it’s time to think again. In reality, there are a number of easy and cost-effective upgrades you can make that will provide some really incredible results.

Paint Always Gives the Most Bang for Your Buck

When it comes to the ultimate simple and budget-friendly way to upgrade your home, fresh paint will always give you the most bang for your buck. By changing the colors on your walls, the entire house will take on a new feel and look. If you’re on a tight budget, just stick to the common rooms – the ones that get used the most. This could include the kitchen, family room, dining room, and living room.

Change Up Your Décor and Decorative Items

If you’re not willing to put the time and money into a full renovation project, then you can get some pretty impactful results with some simple changes. Why not switch out all those old décor pieces that have been hanging around way past their best before style date?

Things such as throw pillows, vases, decorative bowls, and even old photo frames can be taken away and replaced with new fresh pieces. What’s great about changing the décor is that you can change the atmosphere, look, and feel of the room in a very simple way.

Slipcovers Inject New Life and Style into Pieces

Part of what can make a home feel tired and less than modern is furniture that has dated fabric coverings. It doesn’t even have to be dated; it may just be worn down so it no longer looks its best. There is a very simple and budget-friendly way to get that couch, loveseat, and armchair back to “like new” condition; slipcovers

Slipcovers are meant to fit right over the existing cushions and give a whole new look to the furniture. You can instantly change up the style, fabric, color, texture, and print by using slipcovers. And what’s handy about these is that you can keep them clean by throwing them in the washing machine, or sending them off to the cleaners. Just be sure to read the label on the washing instructions.

Invest in a New Mattress

When you think of “upgrading” your home, your mattress may not be the first thing that comes to mind, but in reality, this can change your entire sleep experience. There is no work, DIY, or construction involved in this project, making it extremely simple. All it takes is some research on your part to figure out what would be the best mattress for your sleep style, budget, and bedframe. For example, if you sleep on your side, you want to use a good mattress for side sleepers that offers the perfect amount of support, alignment, and firmness.

You can take this upgrade one step further and also invest in some brand new high-quality sheets that are soft to the touch, lightweight, and are breathable. These will be the most comfortable option all year-round. 

Time to Start Your Upgrades

This is just a small look at the many upgrades you can make in your home regardless of a tight budget and very little home décor and DIY experience.

how to analyze real estate deals

How To Analyze Real Estate Deals

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How to analyze real estate deals?

That question is asked by millions of Americans every single year.

While investing in real estate is a goal shared by many Americans, it is a stable asset class that has the potential to produce life-changing wealth, provided you know how to analyze real estate deals and take action when the opportunity arises. 

white and brown concrete building under blue sky during daytime

If you harbor ambitions of taking your first steps in real estate investment, you’re in luck. The objective of this post is to provide a high-level overview of what you need to know to analyze fix and flip projects and investment properties. Let’s get started. 

How To Analyze Fix and Flip Deals

You Need To Know the Expected Return On Investment

There are a large number of variables that you need to consider when analyzing a fix and flip deal. Of these variables, Return On Investment (ROI) is arguably the most important.

Here is a simple way to analyze the ROI of a fix and flip property. For every dollar that you spend on the project, how many dollars do you expect to get back? The actual formula for ROI is relatively simple. You take the net profit, divide it by the total amount invested, and multiply that number by 100.

To help solidify the importance of ROI, it’s worth using an example, based on actual property flipping stats. According to Attom Data Solutions, it is common for property flippers to achieve an ROI of 40% (the average ROI from US property flips ranged from 38-42% in each quarter during 2019). 

In other words, if you were to invest $200,000, it is conceivable to make $80,000 dollars in the process, based on the 40% ROI figure taken from Attom. 

In this example, it is worth demonstrating the ROI formula in action. 

  • ROI = Net Profit / Total Amount Invested * 100
  • ROI = $80,000/$200,000*100 
  • ROI = 40%

At this point, it should be clear that flipping properties can be a powerful way to build wealth, whether you pursue it full time or as a secondary income source. However, in order to gain a more concrete understanding of the potential ROI, you need to factor in all the projected expenses.

Fortunately, a hard money loan calculator can make this reasonably simple to do. The calculator will help you understand the expected loan costs, broker fees and property taxes that will ultimately form part of your final ROI calculation. 

You Must Be Able To Identify, Acquire & Improve Undervalued Properties

Of all the skills that a property flipper needs to possess, the ability to identify undervalued homes sits right at the top of the list. When analyzing a potential flip, you need to have a firm grasp of how you can dramatically improve the selling price. 

For instance, modern homes with premium finishes leave very little room for improvement. While some interior design changes could create a small lift in property value, the reality is that it would be difficult to sell a property of this nature for more than the original purchase price, in a short space of time (naturally the property value could appreciate significantly over a number of years). 

white and brown house during daytime

However, older homes with outdated finishes, ugly exteriors and isolated kitchens can be a dream come true for property flippers. In such cases, there is potential to improve the exterior and the interior components of the property, which can result in a dramatic increase in property value. 

Knowing the After Repair Value Is Super Important

It is common for property flippers to refer to the ‘After Repair Value’ or ARV for short. This represents the expected value of the property after all the renovations have been completed. 

While there are a few ways to calculate the ARV, assessing similar properties in the area is by far the most common. 

Comparable properties are often called ‘comps’ for short and they can make or break a property deal. The basic premise is fairly simple. If a medium size 3 bedroom 3 bathroom house in a particular suburb of Dallas Texas is worth $300,000, there’s a good chance that a house with similar features will be worth roughly the same price. 

To learn more, this guide provides a fairly detailed overview of how to calculate ARV

Remember To Use The 70% Rule To Calculate The Maximum Purchase Price

This is a rule that many property investors use to quickly assess if a property flip is likely to be profitable. Once you have established the expected after repair value of the property, you simply multiply that amount by 70%. This gives you a fairly reliable maximum purchase price to work with.

When you are ready to enter negotiations with the seller, you can approach them with a concrete understanding of what you can afford. Pre-calculating the maximum purchase price is a safety mechanism that you can and should build into the deal. Fortunately, this doesn’t take very long to do, and it is something you will become increasingly familiar with as your experience with property flipping grows. 

How To Analyze Rental Property Deals

Investing in rental properties presents a different set of challenges to a typical fix and flip. Where property flipping requires you to have a discerning eye for a property’s true potential, rental property investing is less demanding in this respect.

man climbing on ladder inside room

For instance, it is entirely possible to buy a turnkey property that requires absolutely no improvements before your first tenant moves in. This increases the pool of potential properties to choose from and it also introduces a series of relatively simple mathematical tools that you can use to analyze the deal.

We will now take a look at 3 very useful tools for analyzing rental properties specifically.  

Tool 1 – Cash Flow: 

A basic estimate of potential cash flow is a good place to start when analyzing a rental property. This basic summary from fool.com sums it up quite nicely:

  • Determine the gross income from the property.
  • Deduct all expenses relating to the property.
  • Subtract any debt service relating to the property (ie the cost of the loan)
  • The difference is the property’s cash flow.

In other words, to work out the cash flow of the property, you simply need to calculate the gross income, subtract all the expenses, and then subtract the mortgage payments. Once you’ve calculated the cash flow, you can turn your attention to the expected cash-on-cash return. 

Tool 2 – Cash on Cash Return: 

The point of calculating the cash-on-cash return is to figure out how much money you are likely to make from the money you have invested into a rental property. It is calculated on a pre-tax basis, which helps reduce the complexity of the calculation, and it relies on a 1-year time horizon. 

The Cash on Cash Formula is straight-forward: Cash-on-cash Return = Annual Pre Tax Cash Flow / Total Cash Invested * 100

Crucially, the ‘Total Cash Invested’ is the total amount that you have invested into property, excluding the mortgage repayments. Usually, this would be the down payment, closing costs and repair costs, plus any other administrative fees that you may incur. 

The main benefit of calculating the Cash-on-cash return is that it allows you to compare the expected return against other investment opportunities, be it another rental property or even stock and bonds. 

Let’s say you’ve identified two similar properties, and the one is expected to produce a cash on cash return of 4%, while the other is likely to produce a cash-on-cash return of 6%. If all else is equal, you now have a solid platform from which to make a decision. 

Tool 3 – Cap Rate: 

This is another relatively simple formula that can help you assess the profitability of two competing properties. 

The actual formula is pretty straightforward: Cap Rate = Net Operating Income/Property Value

It might be worth clarifying that net operating income is simply the annual rental income, minus the annual property expenses. Also, the net operating income excludes the bond costs, so there is no need to factor these into the calculation. 

Like cash-on-cash return, Cap Rate can be very useful for comparing two properties. You are essentially just using the projected rental income, property expenses and property price to gain a basic understanding of the returns you can expect with a rental property. Because it is so quick and simple, you can analyze a large number of properties in a short period of time.

How To Analyze Real Estate Deals in Your Preferred Area

When analyzing any property, ‘Location, Location, Location’ is often touted as the most important consideration, and not without reason. Area analysis plays an important role in any real estate investment deal. For this reason, we are now going to highlight 8 things to consider when analyzing the overarching area. 

  1. Schools – Good schools and universities can be a huge drawcard for investors. It means more families and businesses are likely to settle in the area.
  2. Proximity To Parks – Quick access to parks can increase the desirability of an area.
  3. Scenery – There’s a reason houses with sea views and mountainous backdrops tend to increase in value over time. Stunning scenery can have a huge impact on property price.
  4. Transportation Facilities – Suburbs and cities with good transportation systems help improve the economic output of the area, while increasing the convenience of living there.
  5. Entertainment Features – Exciting entertainment features can be a big drawcard for tourism and residents alike.
  6. Job Opportunities – Assessing unemployment rates is always a good call when analyzing an area. If the unemployment rate is slowly increasing, you may need to extend your property research period before making a long term commitment to the area.
  7. Are Grocery Stores Investing In the area – You might be surprised by just how meaningful this is. If retail stores like Trader Joes, Whole Foods or Aldi have established themselves in the area, it can act as a green flag, indicating potential for an aspiring property investor.
  8. Are Property Prices Going Up or Down – You can easily assess the property prices of an area using Zillow or Trulia. If property prices are stable or increasing. However, if property prices are declining steadily, it might indicate a red flag that you should steer clear of.

Of course, these are not the only factors to consider when analyzing an area, but it should be enough to get you started. 

Final Thoughts 

Although the process of investing in real estate can be complex (keep in mind there are many books you can read to get started), there are ways to filter through all the available options and make a good decision. 

When looking at a fix and flip, place ROI at the forefront of your thought process. If you’re considering a rental property, be sure to use all the mathematical tools at your disposal to help make a good choice. And always remember to conduct a thorough area analysis before you make your final decision. Choosing the right location is a skill that you need to hone in order to become a successful real estate investor

7 Common Mistakes First-Time Home-Buyers Make

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Purchasing your first home can be one of the most memorable moments in your life.

But along with this excitement can come many questions and uncertainties about making sure that the correct decisions are in place. From location to finances (and everything in between), several considerations need to be taken to ensure that buying your first house will be a fond memory to look back on.

white and red wooden house miniature on brown table

We know you’re doing a ton of analysis and home searches, perhaps you’re diving into the Redfin vs. Realtor searches and things like that. But, first, take a look at a few common mistakes that first-time home-buyers make and how you can avoid them.

Neglecting a life insurance policy

Whereas around 85% of homeowners have homeowners insurance in the United States, another type of insurance that homeowners with a mortgage need to consider is life insurance.

While life insurance may be a task that you feel inclined to push off (as it’s harder to think about you or a partner passing during the excitement of shopping around for a new home), securing a policy can help save the financial well-being of your loved ones.

There are several different types of policies, so research which kind of plan is the most affordable option for ensuring that mortgage payments go through if there was a sudden loss of income.

Because mortgages typically extend through many years, a life insurance policy prevents passing along this debt to your partner or family. There are online life insurance resources that can help navigate how long you should plan on securing a plan for your circumstances and new homeownership, which factors will influence your rates, and which type of coverage is available.

Overlooking the importance of location

You may have found your dream home, including all the features you were looking for in your new place, along with the right price tag. But something that is just as important to remember when saying ‘yes’ to the house is also where your new home is located. Several factors make up what is considered a ‘good location,’ so spend time analyzing what can be dealbreakers or what you are willing to settle one.

For those with jobs farther from their home, make sure to factor in your daily commute and how much time you are willing to spend transporting to and from work.

blue earth globe on table

Furthermore, consider those living around you. If you are seeking a quieter neighborhood, or prefer something more lively, make sure that your choice takes into account how the people around you and your surroundings will impact the satisfaction in your first home experience. Be sure not to sacrifice on location, even if it means waiting to find a better fit.    

Forgetting a back-up entry plan

As mundane of a task as it may seem, many first-time home-buyers neglect to have a spare set of keys cut in case of emergency or alternative entry options after settling into their new place.

Preparing for unforeseen circumstances, in the beginning, will ensure that you will be ready for these situations before they arise. In addition to getting spare keys made, it is also a good idea to have a secure place to hide them outside of your home to avoid burglary. 

If you prefer more modern or alternative technology, consider investing in a keyless door lock. Write the password information down somewhere safe and have extra batteries on hand if needed. Focusing on the security of your new home will allow you peace of mind knowing it is taken care of even when you aren’t around.

Packing unnecessary clutter

In the moving process, new homeowners should reflect on their belongings and what is actually essential to bring with them to the new house. Along with the other stresses that come along with moving into a new home, bringing unnecessary clutter can add to all the other pressures you may be dealing with. 

In fact, studies have shown that the average American home consists of 300,000 items. Before committing to your moving company or making arrangements, go through your belongings and get rid of unnecessary items.

assorted-color apparels

Not only can this reduce moving expenses and save you time in your unpacking process, but having less clutter can create a smoother transition and more polished home. Additionally, having a garage sale or selling unwanted items online can help diminish a few of your moving expenses.

Focusing on multiple projects

The chances are that you will want to make to your new home either after or before your move-in date—like renovations, repairs, remodels, or re-decorating. While you may feel inclined to jump into several projects at once, remember that tackling one project at a time can actually benefit how fast and efficiently you complete all your plans.

If you are looking to hire a professional for a job, search around for trusted and local people who can get the job done. Planning this out in advance will also help you gauge the amount of time needed to finish your projects— and can even be helpful to compare to which home improvement ideas you can do on your own

Reflect on home maintenance

When selecting a new place to call home, don’t forget about the maintenance on the outside of your house. If you are looking to secure a large back yard or the property has several plants or trees that will need maintenance, consider if this is something you are willing to upkeep actively.

Examining your new home’s maintenance will also include tasks such as cleaning gutters, pest control, and roof preservation. Establishing a plan and determining how much time you are willing to spend on these responsibilities will help you set aside the necessary budget and time you will need to maintain the beauty of your new home. 

Disregarding organization with finances

While you may have a vision of what you want your dream house to look like, remember when buying your first home that purchasing within your means will help your financial stability in the long run. Shifting from renters to homeownership can be an adjustment, and often time new homeowners tend to underestimate the way this lifestyle change can have an impact on the revisions you must make in dealing with your finances.

Luckily, there are professionals, like the C4D crew, that can help you navigate these tougher decisions and organization of your finances.

To gain the most of your first home-buying experience, avoid these common mistakes, and actively set yourself up for the most enjoyment in making the big move. Find confidence that you will make the right decisions, and above all, congratulations on becoming a new homeowner.