I started saving for another investment property a little over a month ago, and have committed myself to not tapping into anything other than this account for the purchase. Now one falls into my lap. I'll need $12,000 cash to close the deal. So, for the sake of readers of this column, I'm exploring all of my options:
1) I'll approach the banks where I hold interest-bearing savings accounts: Wachovia, Wells Fargo, Bank of America. I signed up to be contacted by agents at each of these banks today at their respective websites. I should hear back within two days.
2) Anyone who hasn't purchased a home in the past three years is actually eligible for the first-time home buyer mortgage programs as well. So I'll see what I can do to tap into those. [P.S. Bank of America is offering a No Fee Mortgage Plus package right now!]
3) I'll return items that still have tags or are faulty for cash refunds -- that broken-from-the-box dining room chair, the unopened curtains from Ikea, the unused shoes from Nordstrom, the pack of rechargeable camera batteries that won't hold a charge...
4) I've already checked to see if I'm owed on any forgotten bank accounts or refund checks.
5) I'll check to see if I have any un-filed claims with my auto and home insurance companies. That will take a bit to read through the contracts to see if something I wasn't aware of is actually covered, but it will be worth the effort even if nothing comes of it now.
6) I can leverage my life insurance policy as a "collateral assigns" on a loan. The insurance serves as added protection of assuring the lender they'll be paid off in the event of my death. That should help if the property is difficult to finance.
7) Anyone with a whole life insurance policy, which grows in cash value over the years, can take out a loan against their policy. The death benefit decreased by that amount until it's paid back.
8) I could approach the financial institutions where I have accounts and investigate a lower-interest personal loan using my paid-off auto as collateral.
9) If there's construction planned for the property, I may be able to get a no-payment-due-until-sale construction loan.
10) I may be able to request back any unused deposits, such as the deposit I made with the gas company years ago when I first moved to the area (I've maintained a timely payment history, so it's worth it to at least ask about options).
11) If I wanted to, I could bring a self-directed IRA into the deal. I'm looking for cash-flow now though (versus rental income going back into the IRA account tax sheltered until retirement), so this isn't one of my options -- this time. ; ) I could also look at the myriad of options for taking money penalty-free from an IRA for short-term or home purchase purposes.
12) I don't have any bank or credit card overdraft or overlimit fees, but if I did I would definitely see about getting courtesy reversals on those -- netting a credit in my account that could be used as cash. I would also review my statements to see if there are any authorized charges. Most banks will reverse the charges automatically until the issue is resolved.
13) I'll investigate whether I can pre-rent the investment property, requiring first and last and additional deposit that could then be applied to the purchase or, if the purchase doesn't go through, returned to the renter.
14) I could ask some friends with disposable cash if they'd be interested in ownership interest... and draw up the contract as partial owners or tenants in common.
15) If needed, there also are two major "hard money" resources for loans: Prosper.com and LendingClub.com. Interest is 8.5 percent and 7.85 percent (respectively), plus additional fees, but it's funded by pooled funds from regular, ordinary people like you and me -- so hard-to-bank-finance projects (like the manufactured home I'm looking into for use as a vacation rental) could be no problem for these investors just looking for a decent return.
Just a few ways to come up with $12,000 in a week.... I'll let you know how it goes.
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| Jennifer D. Meacham, Gather Money Correspondent | ||||
Jennifer's column, "The Bottom Line," is published every week to the Gather Essentials: Money channel. Jennifer is a business and personal finance columnist who covers money matters for RedwoodAge.com and real estate news for RISMedia, and co-authored the best-selling retirement investing guide "IRA Wealth: Revolutionary IRA Strategies for Real Estate Investment" (Square One Publishers, New York). Keep up on the latest news and analysis into how you can take control of your business and personal financial future by joining Jennifer's "Self-Directed Investing 101" network. | ||||
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Comments: 27
The problem I found in the past with Prosper.com is that: a) there are interest rate caps in certain states (at the time, my state was one with a cap-- haven't checked since). b) it is hard to get financing even through there if you have a low credit score.
Flit....too funny!
I'll bookmark this information in case I'm the next one to need $12000 in a week - JK.
Best of luck to you - hope it turns out to be a winning proposition!
We are starting to look at numbers so that we can figure out how much we really have to spend on a new home. I will check out a few you mentioned.
Good luck!
For sure Mark! If this deal goes through I'll be pocketing an extra $200 per month. Not a huge chunk, but a start. Not to be over-eager (and realizing that some rentals go unrented), I've posted the rental as a scenario on CraigsList.com. I've more than enough qualified interest at that price.
In one year's time that's $2,400 extra in the bank and a number of tax write offs I wouldn't have otherwise (like road trips to and from the town where the rental will be). Plus it affords me a place to stay when it's not rented and when I want to head out of town to wile away my day doing upkeep work.
Over 10 years, with rent increases, that's $24,000 in the bank -- doubling my initial investment. And I'll still have a property I can sell on top of that. Not a bad 10-year return.
David, remember when I said I wanted to do this project without tapping into my other equity? That was my goal. (Worse case scenario, I'd be out $12,000 of what amounts to "found money" and would have a home I could move to the mountains or the ocean to stay for vacation.)
If I could do it, I wanted to... given the rental projects on the unit (it would clear nearly $300 per month as is). However, the community came back with a restriction on rentals. I'll either have to move the home (and I can't find anyone who does that anymore!!!) or give it up.
That's where I'm at now.
Rent it out on land that's already in your portfolio, and you've got a clear profit. (The going rate in the area is around $600 per month; the going sales price for homes on real property in that area is $120,000.) [NOTE: I used a mortgage calculator to figure out my figurative spread.]
Don't rent it out, and all you have to do is move it. You've got a ready-made vacation space and vacation rental at the mountains, off a creek, connected to a dock of a lake....
There are a lot of nuances to figure out in between (like moving and site preparation costs), but perhaps you can see now why it interested me so. $12,000 is a small price to pay for what could amount to a tremendous amount of freedom. But, I'll for sure be to check everything before I sign on the dotted line.
Thank you for your concern.
No luck Warren. I was unable to locate a mover who could move the home from its current location to the new one in time. I thought I'd rent it out in the interim, but the housing covenant for the neighborhood didn't allow rentals. Needless to say, I was very disappointed. But I'm on to a new project now, thanks to the money I was able to cobble together using the strategies above.
sorry to hear about that, but this is a great article, and I've just re-read it and picked up some tips.
We've been buying rentals in Hot Springs Arkansas recently, and have run out of investment capital with more properties to buy, so I'll be checking out the sources that you listed above. Thanks!