What the "Nothing Down" Seminars Don't Tell You
"Free Seminar: How to Buy Real Estate with Nothing Down!"
We have all seen newspaper ads like the one above, most recently sponsored by the Bob Allen organization. Like other free seminars, this one is actually a two-hour promotion for a three-day seminar which costs about $4,000 (Regular cost is $6,000, but there is a $2,000 discount if you sign up and pay immediately; that is, before you have a chance to think about or consult anyone else.)
Q. Can you really buy real estate with nothing down?
It is possible through seller-financing two ways: second mortgage and land -contract.
In the first case, you get a regular bank mortgage for about 80% of the purchase price and the seller holds a second mortgage for the remaining 20%. In a land-contract sale, you sign a contract to pay the Seller a specific amount each month for a certain number of years, afterwhich you pay the entire unpaid balance at once ( balloon payment). If the Seller stills owes money on the property, the consent of the lender is necessary to create a land-contract.
Q. Why would a Seller provide either type of financing?
If the property is so undesirable that no bank will issue a mortgage on it, a Seller may be desperate enough to carry financing. Most sellers want to cash-out, so the properties available with little or nothing down through seller-financing are usually the "dogs" on the market.
Q. What happens if the Buyer fails to pay as agreed?
If the Seller is holding a second mortgage , he can sue for foreclosure in court, in which case the property is auctioned off by the Sheriff. If the successful bid exceeds the unpaid balance on the first mortgage, the holder of the second gets the rest, up to the amount due him. If the proceeds are not enough to pay off the second mortgage, the holder has the right to sue for a "deficiency judgment" for his loss.
If the Seller holds a land-contract, he can ask the Judge to cancel it and return the property to the Seller, but without monetary damages. Since the Seller will have no way to recoup loss of income and legal costs, a Seller would have to be very desperate to agree to a land-contract without a substantial down payment.
Q. Is buying with "Nothing Down" a good idea?
Usually the Seller offsets the risks of financing by demanding a price above market-value. This way the Buyer owes more than the property is worth-----not a good idea.
Q. What is "property-flipping" and can it be profitable?
"Flipping" is a quick re-sale of a property, and it can be profitable. In most cases the flipped property needs substantial repairs before it can be resold at a higher price, so the buyer better be able to fix it himself or prepared to pay carpenters, plumbers, electricians, etc. to do it for him and still come out ahead.
Wisconsin also requires all investors in residential property to satisfy the DILHR (energy conservation) Code before re-selling, so those costs must also be included.
Q. Are estate sales and foreclosures good sources of cheap homes?
Yes, but buyers must be aware of several problems:
1. Estate homes are usually full of old furniture and personal property (junk) that nobody wants. The seminars tell you that sometimes these items can be sold profitably on e-Bay. Maybe so once in a great while, but most of the time it costs time and money just to clean the place out and dispose of the "flotsam and jetsam."
2. If a foreclosed home is vacant, there is a good chance that it has been vandalized and looted of furnace, plumbing, even siding. Worse yet, this can happen after you buy it. You may spend thousands of dollars to rehab a vacant home, only to have it stripped and/or vandalized before you can sell it. This is less likely to occur in a suburb or middle-class urban location, but most foreclosures occur in the slums, where burglary and vandalism are common.
3. Sometimes a foreclosed home is occupied by the former owners or by tenants. In this case, the buyer will bear the trouble and expense of evicting the occupants before the house can be rehabbed and resold. Frequently poeple being evicted deliberately damage the property or steal fixtures on the way out. When you do get them out, you will have a vacant house, as in Par. 2 above.
Q. Are the stories they tell you about ordinary people getting rich after taking the seminar and implementing the strategies taught true?
Maybe they are, but they are gleaned from thousands of seminar-students, many of whom had miserable outcomes. The seminars never tell you about them.
Q. Then what kind of get-rich seminar would be worth the steep tuition charges?
One on how to get rich giving expensive seminars.
We have all seen newspaper ads like the one above, most recently sponsored by the Bob Allen organization. Like other free seminars, this one is actually a two-hour promotion for a three-day seminar which costs about $4,000 (Regular cost is $6,000, but there is a $2,000 discount if you sign up and pay immediately; that is, before you have a chance to think about or consult anyone else.)
Q. Can you really buy real estate with nothing down?
It is possible through seller-financing two ways: second mortgage and land -contract.
In the first case, you get a regular bank mortgage for about 80% of the purchase price and the seller holds a second mortgage for the remaining 20%. In a land-contract sale, you sign a contract to pay the Seller a specific amount each month for a certain number of years, afterwhich you pay the entire unpaid balance at once ( balloon payment). If the Seller stills owes money on the property, the consent of the lender is necessary to create a land-contract.
Q. Why would a Seller provide either type of financing?
If the property is so undesirable that no bank will issue a mortgage on it, a Seller may be desperate enough to carry financing. Most sellers want to cash-out, so the properties available with little or nothing down through seller-financing are usually the "dogs" on the market.
Q. What happens if the Buyer fails to pay as agreed?
If the Seller is holding a second mortgage , he can sue for foreclosure in court, in which case the property is auctioned off by the Sheriff. If the successful bid exceeds the unpaid balance on the first mortgage, the holder of the second gets the rest, up to the amount due him. If the proceeds are not enough to pay off the second mortgage, the holder has the right to sue for a "deficiency judgment" for his loss.
If the Seller holds a land-contract, he can ask the Judge to cancel it and return the property to the Seller, but without monetary damages. Since the Seller will have no way to recoup loss of income and legal costs, a Seller would have to be very desperate to agree to a land-contract without a substantial down payment.
Q. Is buying with "Nothing Down" a good idea?
Usually the Seller offsets the risks of financing by demanding a price above market-value. This way the Buyer owes more than the property is worth-----not a good idea.
Q. What is "property-flipping" and can it be profitable?
"Flipping" is a quick re-sale of a property, and it can be profitable. In most cases the flipped property needs substantial repairs before it can be resold at a higher price, so the buyer better be able to fix it himself or prepared to pay carpenters, plumbers, electricians, etc. to do it for him and still come out ahead.
Wisconsin also requires all investors in residential property to satisfy the DILHR (energy conservation) Code before re-selling, so those costs must also be included.
Q. Are estate sales and foreclosures good sources of cheap homes?
Yes, but buyers must be aware of several problems:
1. Estate homes are usually full of old furniture and personal property (junk) that nobody wants. The seminars tell you that sometimes these items can be sold profitably on e-Bay. Maybe so once in a great while, but most of the time it costs time and money just to clean the place out and dispose of the "flotsam and jetsam."
2. If a foreclosed home is vacant, there is a good chance that it has been vandalized and looted of furnace, plumbing, even siding. Worse yet, this can happen after you buy it. You may spend thousands of dollars to rehab a vacant home, only to have it stripped and/or vandalized before you can sell it. This is less likely to occur in a suburb or middle-class urban location, but most foreclosures occur in the slums, where burglary and vandalism are common.
3. Sometimes a foreclosed home is occupied by the former owners or by tenants. In this case, the buyer will bear the trouble and expense of evicting the occupants before the house can be rehabbed and resold. Frequently poeple being evicted deliberately damage the property or steal fixtures on the way out. When you do get them out, you will have a vacant house, as in Par. 2 above.
Q. Are the stories they tell you about ordinary people getting rich after taking the seminar and implementing the strategies taught true?
Maybe they are, but they are gleaned from thousands of seminar-students, many of whom had miserable outcomes. The seminars never tell you about them.
Q. Then what kind of get-rich seminar would be worth the steep tuition charges?
One on how to get rich giving expensive seminars.
posted by Gerald S Glazer at 10:13 AM
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