Independent Housing Resources
Reading time: 4 – 6 minutes
I decided to piggyback off yesterday’s podcast to make sure you cat’s can get that 40-50K house. First off most of these houses are foreclosures but what the hell do you care as there are so many of them. Second, if you go through Fannie Mae (Homepath link) the down payment is 3.5% aka 3500 per 100K price. Third, if you don’t buy a new house and get some of the old stock you can probably bid way lower than what they offered. Finally, the game is so simple that you might have a house by only coming out of your pocket 5K and having a 300 dollar mortgage.
Here’s the basic calculation for most 50K houses. 40K house financed at 4.375% terms from the bank is about 316 bucks a month. Depending on your property taxes it should be another 150 bucks per month. If you have decent credit and a job or even if you don’t have decent credit you can get these houses. The days of 100% financing are over so you got to get up to at least 5k to 8k to close the deal. Your stash you were holding for the business has that money hopefully. Once you get your low mortgage you’ll get your seed money back in no time. Think of it this way now that you don’t have to worry about where you stay what the hell else do you have to worry about.
Fannie Mae Homes – 3.5% down houses. Just select your state and then put in your city. You’ll see a whole hell of a lot of houses.. —> www.homepath.com
Freddie Mac Homes – The other federal housing arm of the government. Another great list of foreclosed homes. –> http://homesteps.com/
Hud Homes – Hud makes sure the houses are a bit more liveable meaning everything works and usually will give you reimbursement money to get it fixed. —> http://hudhomestore.com/HudHome/Index.aspx
VA Homes - Veterans Homes foreclosures is another level of homes and if you are a veteran you should get a hookup through them but anyone can bid on them.. –> https://va.equator.com/index.cfm?
Remember you will see a lot of homes so keep in mind you are looking for deals. The way I judge a deal is I take the highest point in which the house was sold and I see if it has dropped by 60 to 70%. I also go back to before the housing boom like 2001 or 2002 and see what the price of the house was then as a baseline of what they should be.
The only rule of thumb I want you to keep in mind is to NOT buy a house in a new subdivision as you might be the only one there OR don’t buy a house near some apartments. Too many foreclosures and too many people is what usually messes up a neighborhood. You actually want to look for a old established neighborhood that only has a couple of houses for sale in that area. The old folks already paid off their house and they live there for good so that means you won’t have anything popping up over there to ruin your investment.
After you find your house take the address and plug it into Zillow –> http://www.zillow.com/ to check the house sales history. This will tell you how much it sold for last time for a number of years. Scroll down the page and you’ll see the tables, graphs and sales history. It’ll also show you the property taxes. Finally, you need to drive by this house at least 5 times and definitely at night on friday and saturday to see if people are outside for no reason. I usually get out and talk to the neighbors or if you catch the mailman you can break bread with them as they usually know what’s up.
Hope all that helps you to get your house in order! Literally!
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You said you need to have decent credit and a job what if your living off of your business already? Does that matter?
You’ll just need two years of your taxes as proof for the self employed. Since the houses are so low in price even if they ask for 20% down it’s only like 8k. So they should get you the loan the only thing they may do with poorer credit is raise your interest rate higher. But, even that doesn’t matter as you will pay this house off in 4 years and most likely you’ll get a 30 year mortgage. So the interest you pay extra won’t be that much and it’ll all be gone in 4 years.
Freeman, thank you! I don’t think you know how much your website has helped. I’m 29 now, and have two houses already, one income property and one residential where I run my home business. Reading about this angle, makes me want to kick myself because if I went with this I could have had probably done more by now and be in less debt. Thank you again!
Good information. Easily doable in many markets. I did this back in 2003 when everyone was trying to buy McMansions. Originally planned to flip it after 5 years. Put those plans on hold to form several businesses then the housing bubble burst kicking off the Great Recession and we all know the rest. My mortgage, taxes, and insurance total $500/month. Of course the interest rates in 2003 were much higher than they are today. I also had to invest in minor upgrades during the first 4 years I lived in the house (vinyl siding, doors, flooring, interior painting, light fixtures). The HVAC was only 2 years old. My only regret is not getting a 15 year mortgage and not making as many extra payments on the principle like I had planned.
There are little to no $50K single-family detached houses in the Raleigh-Durham, NC market or at least in neighborhoods that I would want to raise my family or that have the potential to rebound when the housing market recovers. The Charlotte market has many deals throughout the city. I grew up in Boston (impossible to find a $50K 1 Bedroom Condo let alone a house) and went to college in DC (another inflated housing market).
In 2009, my wife and I contemplated purchasing a second property in Metro Atlanta as a potential retirement spot in 15 – 20 years, but I wasn’t sure if the market had bottom out back then. My auntie retired from the federal government, sold her DC house, and bought a foreclosure in Clayton County for $90K in 2008 as a retirement home. Now houses are selling in her subdivision for $50K. Please note that most of these government or quasi government entities have restrictions on investors particularly for FHA financing. Those low downpayments are only available for buyers who will be owner occupants. For investors, conventional lending is the only option and it’s 20% or more down and in some cases cash only.
Don’t forget Freddie Mac foreclosures (www.homesteps.com). Also, look for REO listings with individual banks that do business in your city. Google Maps had a real estate tool that was perfect for finding properties but they shut the feature down last February. HUD is the best bet because they pay 100% of closing costs.
@ Alpo, financing is going to be more difficult for the self-employed tradesman or trucker. Lenders may want more money down (35%) and 5 years of tax payments. They are also going to want detailed bank records and may ask you to obtain payment histories for your utilities, cable, internet, and other bills (alternative credit sources) that are not reported to the credit bureau. There will also be an after-purchase savings threshold. Meaning your downpayment can’t deplete your savings. I encourage everyone to get a 15 year mortgage, particularly for most people 45 and over. Or follow R&G’s advice and pay off the mortgage in 5 years.
Again, good information from R&G.
Great information! Houses don’t really suit me (aside from the potential flip). Do you have any advice on condominiums? Is the game similar?
@Troy – Welcome – Most of the time cats tell you what’s possible without providing the steps. I just wanted to make sure the podcast didn’t leave cats hanging thinking I was making things up. If you already have a income property you are in the game and I’m sure you’ll be back to check on more things now that you know where to find them. It’s just the slow accumulation of independence.
@JH – Welcome – Thanks for the Freddie Mac link as even I didn’t know about that one. I’ll have to revise the post to put the link up for everyone else.
I don’t know the Raleigh market but my personal rule of thumb is no matter the neighborhood if there is a elementary school near it’s a good investment. A lot of people move near schools and who wouldn’t want their kid to go to school across or down the street from their house. There’s two ways to see the investment. 1) Hold and Flip 2) Hold and Rent. I think since so many people messed up their credit the rental market should be doing well. If the houses are dirt cheap to buy that means you can offer lower rent and actually pick and choose your tenants. Keep doing that over a couple of years and next thing you know you are pulling in 20K a month off of small rent and you still own all the houses and you can draw equity from them all to buy your own Reality house outright.
Hey you’re preaching to the choir as in LA you will have to move out into the desert to get a house for cheap. If anyone lives in any place outside of the metropolitan areas there should be houses galore. The first step is just to find one you can deal with and lower your own bills… then start thinking about how you can build a small empire of maybe 5 to 10 rentals and you’ll clear more cash than most cats do who are act like president of someone else’s plantation.
@Grant – Welcome – I don’t like condos except for vacation homes and they have to be in the right place like Hawaii or South Beach. You always have to pay HOA fees so you never really own the place outright. So after you pay off your mortgage you still have a dumbass payment every month and the only way I can offset that is to be in a area where the hotel rates would make the condo fees worth paying. Also you can rent it out to your friends, kin and extended family like a ONE man timeshare. If you pick the right spots cats will give you money to be in a place that makes them feel like home instead of on a hotel floor full of dummies.
Hey Freeman I couldn’t find any in my city and I know my area is cheaper than yours. Do you think I need to search the high desert?
High desert, riverside or you might have to pay a little bit more to stay in your area. Just type in your zip codes and see what comes up as you are in CA so it might cost a bit more to play.
I’ve only been in business for about a year and a half I can show my tax returns and bank transactions with no problem. I kind of feel like I can’t play in this game since I don’t have 2-5 years of tax payments is there a way around this? Without having to pay 35% of asking price on one of these houses?
Oh yea! Also freeman my girls grandma said another thing is buying short sales cuz she buys them
@Alpo – Don’t take another man’s word for anything in this game. If you have been self employed for only one year and had tax returns with your job for the previous years you should be OK. The 35% is not the rule I’m sure he was just warning you what you could possibly have to pay. Get yourself a realtor and find a house you want and see the process to the end. 35% is not the rule as I haven’t had to pay that and I’ve been self employed for a long time.
@JB – Short sales are a bit tougher because you are catching the house before foreclosure. The same house will be in foreclosure sooner or later. Usually the cat is losing the house so he puts it up for sale cheaper and then you have to hope the bank accepts the lower offer. Foreclosures are cleaner as you don’t have to worry about the person losing the house they already lost it.
One thing I learned from the R&G is to never get discouraged when listening to people about money and I should go and check it out myself. When I see all these places to look up foreclosures I’m like damn is it that easy. Thanks for giving us the location of the goods brother freeman and I will do the rest.
All I can do young homie is put you on to the who, what, why and how of this game, BUT you have to do it yourself!
I’m young in the game so please pardon me but what’s the difference between HOA fees and property tax? Do condos get property taxes in addition to the HOA fees?
HOA is homeowners association fees so think of it as all the gardening and the maintenance man and the fixing of elevators. All people in condos and some houses contribute to the maintenance of the whole complex.
Condos get both property taxes and HOA fees. Also, the HOA fees can be raised. So if you look at expensive condo in lets say Beverly Hills they’ll raise the condo fees to 1000 a month. So that means on top of your mortgage you’ll be paying 1000 a month extra. This way they keep out poor folks and people they don’t desire without outright saying it. If you look up Co-ops they even have a board that you have to meet with before they accept you. So you can see it’s way easier just to buy a house and skip all the dumbshit.
@Alpo – My statement should have read tax returns not tax payments. 20% down is the general rule of thumb for conventional financing which is basically any mortgage that is not government guaranteed like FHA, VA, and USDA Rural Housing. I said that banks may require 35% or up to that percentage. This is particularly common for investors or buyers who will not be owner occupants but landlords or flippers. Sorry for the confusion. Also, for conventional loans banks will hit you up with fees upwards of 10%. But up to half of these costs may be rolled into the mortgage. The financing terms and approval all depends on your income, debt-income ratio, savings, credit score, credit history. Documentation is key. If you are a first time homebuyer, you are pretty much set and can get a 3.5% down FHA loan if everything else is in order. For the last 3 years, 50% of mortgages have been FHA. Lenders want that government guarantee just like they do with student loans.
HUD, Fannie Mae, and Freddie Mac properties are all bank foreclosures. The bank forecloses on the FHA loan and then returns the house to whichever of the those 3 entities guaranteed the financing in order to get their money back. Fannie and Freddie tend to operated more like banks and will hold onto their REOs a lot longer (6 months to even a year) to try to get market value because they don’t want to hurt property values in those neighborhoods. HUD wants to get properties off the books ASAP and will quickly discount them in as little as 1 month on the market. VA foreclosures are very tricky and have higher fees but more relaxed lending policies regarding credit. VA works exclusively with Bank of America for the bid and purchase process.
@ R&G – Yeah, short sales tend to be messy and time consuming. In this market, a buyer is better off getting the house after foreclosure. 9.9 times out of 10 if the bank agrees to a short sale that means a loan modification was not an option and the bank is going to foreclose on the owner in 3 to 6 months if it doesn’t sale. The discounts are not as great either. You may get a property for 10% to 20% less than the value. No short sale is an FHA back mortgage for obvious reasons.
Before and during the bubble, one of my colleagues would actually bid on homes that were in foreclosure and sometimes out bid the bank holding the mortgage. His strategy was to target out of state lenders who did relatively limited business in North Carolina. Catch them slipping. He got one house for $60K, put $5K in cosmetic upgrades using jack legs, and held it for less than 30 days before he sold it for $150K. He has a lot of experience (you have to make sure the deed is free and clear, etc) and deeper pockets than myself. But, I sort of used his strategy on the foreclosure that I bought.
I would encourage anyone to check with their state housing finance agency at http://www.ncsha.org/housing-help . They have first time buyers program that offer lenders even greater guarantees. You may even qualify for downpayment assistance particularly if you had an off year with reduced income from your business. Work all the angles. If you don’t qualify for those programs because your income is too high, next stop should be your banker. Realtors are all thirsty right now and may try to up sell you into a bigger house for a bigger commission. When purchasing a house, car, boat, etc., I’ve found that you are more empowered when you already have pre-qualification or pre-approval before talking to a salesperson or real estate agent.
If you want to find non-government foreclosures or REO listings, do a simple google search with REO and the bank’s name, example: “REO Wells Fargo” or “REO Bank of America.” You get the direct link to a bank’s REO listings. Don’t ever pay to use those REO listings websites.
Okay got you. I wish I would have noticed this a long time ago I could have been saving even earlier, but I’m just glad that I have my bundle now and that I can use it on this opportunity before something else.
Okay I am seeing how houses can be a great option. I was just talking to my uncle who is a realtor and investor and he was saying that in my are and in his (las vegas) there are houses in that range. That can pull in a rent of up to 1.5k a month from a renter giving you a nice 1k positive cash flow.
Another thing that was pointed out was that since I am younger I could get some room mates and charge them 300 a month each for living with me and basically have them paying off the mortgage. Plus on top of that when the market does turn around and you’re sitting on 10 of these houses you’ll be in a good spot. Thanks for the heads up Freeman!
@JH – Bruh you are like the encyclopedia of housing as you have put me on to things I didn’t know. I’m glad you contributed to this post as you are giving us first class first hand information on getting that independence house so it’s greatly appreciated. I might have to do a follow up with more detail on what’s out there so cats can get that house with as little money down as possible.
@JB – Man you are young homie in 2 years you can be a billionaire. Also, the recession is not ending til damn near 2014 so all these opportunities are ripe for the taking for a while. You can forget about everything I have been writing for the past two years and come back to them 2 years from now and still take advantage. Right now is time for stacking and accumulating as the turnaround will be much later. It’ll be better for you to have 10 to 20 houses all rented out while you run your low end businesses. You will have so much money when this turns around you’ll wonder if you even want to build a empire anymore.
Yup I been accumulating my chips now it’s time to start accumulating properties. Hopefully I can get two by this time next year. I’m glad I was smart enough when I was younger to place value in the right things. I never bought an expensive car or toys cuz I know they hold no value unlike real-estate.
Good feeling to know I can have more than most people ever get to have their whole life by the time I’m through with college.