Did I Find A Red Flag?
As a newbie I have been thinking about which area of REI I wanted to work in.....I thought maybe buying from wholesalers was the way to go, they would do most of the work that I am not yet experienced enough to do. I would buy for cash and not worry about holding costs or any profit eating problems - BUT now I am concerned that perhaps one of the reasons the wholesalers want all cash and fast - is that you don't have the protection you get from financing the property - meaning when you apply for a mortgage you have the bank there helping you with all kinds of help - like existing liens, code violations, termite inspections etc. etc. - but when you are buying cash - fast, how do you get this protection - and some of the wholesaler's sites I have looked at have non refundable initial deposits -
am I just looking at this the wrong way
Also for you experienced REI is this a smart idea to use cash (if you have it) to purchase good value properties and then finance based on appraised value so that you are pulling out some cash (for current earnings) and then rent and build equity (for future earnings) and then repeating the cycle over and over -which is my intention ( I just don't know if buying from a wholesaler is the way to go - or maybe just go a step down and make offers that would fit my criteria on REO's <IMG SRC="images/forum/smilies/icon_confused.gif"> [ Edited by fire580 on Date 02/29/2004 ]
First - I wouldn't buy a property without title ins. this covers the liens, back taxes, mechanics liens and anything else that might be owed on the property.
Code Violations - if you have a good relationship with the code enforcement officer of loc. municipality most time all that is required is a phone call to the officer and he will normally know if there are any code violations at least in small municipalities.
Nonrefundable Depoist - Ummm I don't think I would go there unless I was sure that I wanted the property. I think I would look for another property.
Using own money – The only property that you want to payoff in cash or have no mortgage on is your own residence. If you have no mortgage there is no mortgage interest deduction and a lot of other tax deductions that are out there. Not to mention the investments you can do with the other money. ie. – say that you have $100,000.00 sitting in the bank and you want to start investing. You could go and buy one $100,000.00 home (you now have control of $100,000.00 in real estate) or you could buy 10 home and put $10,000.00 down (now you would have control of $1,000,000.00 in real estate). Just think if you used only $1,000.00 to buy each $100,000.00 homes. WOW.
Terry
thanks for the reply TLHynicker -It was not my intention to buy with cash and leave it that way - it was to buy with cash to get in fast and have no carrying cost and then get a mortgage hopefully based on appraised value 80 - 95% LTV and have a situation where I would get some money back and still have the payment resonable so that the rental would cover it - I'm just not sure using cash is the best - I could get the financing to purchase but would then have to finance again (presuming there is fix - up work to accomplish) consider all the associated costs -including closing costs, carrying cost - I thought that is where buying for cash (initially and temporary) would save money?