Prosper Newsletter: January 2008 > Real Estate
You understand that the following information is educational in nature and is not intended to be legal, accounting, or tax advice. You are responsible for your own financial decisions and should consult your own legal, accounting, and tax advisors before making your financial decisions.
Piggyback Tactics
Now that lending has become harder to find, are you wondering about purchasing options as you set your new year's resolutions? One option is the piggyback tactic. Piggyback tactics are becoming an increasingly popular way to affordably and flexibly finance homes. Simply put, a piggyback loan is an option for home financing that allows the property to be purchased utilizing more than one mortgage from more than one lender.
There are three major types of piggyback loans; There's the 80-10-10 loan, the 80-15-5 loan, and the 80-20 loan. The basic premise of these types of loans is that a primary lender will finance 80% of the total cost of the home, while other mortgage lenders will finance the second percentage. The third number usually refers to the percentage of down payment that the homebuyer must provide. With the 80-10-10 and the 80-15-5 loans, the homebuyer provides a substantial percentage of the total cost of the home. However, the 80-20 loan (also referred to as an 80-20-0 loan) does not require a down payment. Still, there are pros and cons to financing with piggyback tactics.
One advantage is that a piggyback loan can help the home purchaser qualify for more than one type of loan. When a buyer spreads the financial risk over more than one lender, lenders are more likely to qualify a homebuyer for a loan, even if they have little or no down payment for the purchase. Using a piggyback loan also ensures a greater rate of success when trying to obtain a loan and completing the loan approval process. Additionally, piggyback loans can be a very important help to first-time homeowners or potential buyers with less than stellar credit, especially if the homebuyer is unable to provide a large amount for a down payment. As an investor, you may also be able to use this tactic to secure other financing.
One disadvantage of piggyback loans is that the combined interest rates tend to be higher than if the buyer were choosing a single lender loan. Often the lender who finances the smallest percentage of your mortgage is only willing to do so in exchange for a higher interest rate. The primary lender may be willing to cut you a deal on the rates, but often the smaller lender will only feel the loan is worth it if a larger percentage of interest can be gained on repayment. Many piggyback loan tactics also involve hidden fees, such as balloon payments at the end of the term. If you plan to use a piggyback loan, discover the fees and/or payments you will owe BEFORE you enter into any kind of agreement. Investors are sometimes unprepared for the large payment at the end of the term. Another disadvantage is that piggyback loans involve dual mortgages; therefore, obtaining another mortgage or home equity loan (for emergency use) may be very difficult.
Whatever you chose, piggyback tactics could help you reach your real estate goals set for the coming year. However, use the tactic wisely and remember that this option has its advantages and disadvantages. Set your new year's resolutions high and good luck in the coming year!
I Closed On My First Deal with a Profit of $40K!!!
I was looking to start a new career and build a better financial portfolio, so I contacted Prosper. I was screened to make sure I was a serious investor and then we got started. I started by looking for distressed properties and motivated sellers so I would find the best deals. After finding three prospects, I contacted the owners to access the properties so I could make offers. I quickly found out that making offers is fun, but takes skill. I asked my coach to break down the process and off I went.
I made three offers but one property stuck out. It was a foreclosure bank owned property worth $200,000, but it was listed for $162,900. I made an offer of $155K and 6% closing cost. They countered with $160K and 3% closing cost. I evaluated the numbers and because it made sense, I accepted the offer.
My coach made all the difference in my quick success. He made sure we discussed each step I took every week. If I encountered an obstacle or road block, he would guide me through it. He offered simple solutions and resources to make the process easy.
For example, this property was bank owned and very different than dealing directly with the owners. I was a bit intimidated, but Proper taught me how to evaluate the property for repairs & profit, make the offer and negotiate confidently with the realtor who was not very cooperative. We didn't close on time and I had fallen out of contract. I didn't know what to do so I contacted my coach. Due to his advice, the realtor realized I was not alone and someone very experienced must be helping me because I was on top of my game. She granted an extension on the contract and saved my first deal.
I did exactly what my coach told me to do step by step and I closed on my first investment property with a PROFIT of $40,000. This course is well worth it. THANKS PROPER.
Lafrance G.
Looking Ahead and Moving Forward
The beginning of a new year is a great time to reevaluate your business and plan for a more successful future. It is often a good time to get back to the basics. And with real estate investing, the basics are quite simple: you need strategies for finding deals, evaluating and analyzing deals, and funding deals. If you can do those three things well, you will undoubtedly have a successful year. As you begin 2008, brainstorm and strategize how you can improve in these three areas.
Additionally, marketing and advertising your business is an area you may need to improve. Are you letting the world know you are a real estate investor and that you buy distressed properties? Do you have a marketing plan that includes direct mail, signs, business cards, flyers, etc.? Do you have a marketing budget set up to pay for these strategies? If you don't, you are not maximizing your efforts that lead to deals and paydays. Make sure you have an accurate way of evaluating deals and all of the expenses that you incur. Lastly, you must have financing sources. Don't stop with mortgage brokers and banks. Approach hard-money lenders, establish financial and/or credit partners, and ask sellers to assist with funding through seller carry backs. Don't give up because a lender tells you that you don't qualify. Be aggressive when approaching many people and organizations to secure funding. Keep these tips in mind as you forge your success in the coming year.
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