What Does 100% Financing On A House Mean? - YouTube

What does 100% financing on the house mean?

Welcome back. Real estate investing is loaded  with acronyms and jargon and challenges for  

new investors. On top of that, there's dozens of  books, manuals, articles written about real estate  

and doing it with no money. So let's talk  a little bit about no money. What does 100%

financing on a house mean? Well some people will  sell with 100% financing. Why would they do that?

Well maybe there's a problem with the property  so if you're one of those people that's an  

entrepreneur and you're dreaming about getting  rich like you start on late night television  

or you've been to one of those hotel seminar  deals, I'm going to encourage you to listen very  

carefully. At some point, entrepreneurs dream about  getting rich as shown on late night television.

Sometimes they go to hotel seminars in your city  and they're encouraged to listen to get rich quick

deals. All right no money down. Well TV shows  and seminars aren't really the reality of life.

So my name is Ted Thomas and I've been involved  in real estate for decades, past 30 years and I've  

been involved in the category of real estate  that always works. So let's call that category  

an arena or a part of the real estate. I mean I'm  involved in tax lien certificates and tax deeds.

So I've been doing real estate my whole life but  when I found out 30 years ago about tax liens and  

tax deeds, I never looked back because I saw the  margins. I saw how you could make big money.

All right so what am I going to answer on this  particular question? What does 100% financing on a  

house mean? Okay now I'll be right back and I'll  give you the answer. Okay so it might maybe in

your life it sounds amazing that you could get  a property and not have to put any money in it.

Well you better be able to put a lot of brain  power into it if you're not putting money into it  

because a lot of properties will  actually be sold with nothing down

and there must be a reason for that. So that should  be the first question in your mind. Why are these  

people selling a property zero down? More than  likely it's because it's got high maintenance  

or it's got height. It definitely has high payments  or maybe there's some government deal going on  

but the point is the people aren't going to be  able to make those high payments. So, this property  

is probably going to go to foreclosure  and so someone's trying to get rid of it  

in most cases. So zero down simply means you're  going to have to take the burden of whatever that  

loan on that property. So more than likely it's over  mortgage. What's over mortgage? It's got mortgage  

in excess of the value. Mortgage in excess of the  value. So you want to give that a lot of thought.  

So they're happy to sell their over mortgage  property because they can't rent it for that price,

they can't make the payments. They'll do anything  to get rid of it. Now if you're going to buy that  

property, you're not going to put any money down  so you think oh you could just walk away from it.

Well you could but that's going to end up in  your record somehow and you don't want to do that.

So you really want to think about these zero down  payment deals. Now if you're an AA credit buyer,

but that would mean you're an insurance company or  your or a fund or you have a lot of cash, well then  

that's a whole different ball game because you  might see a good deal zero down and you can handle  

all this negative for a while. But most of the  people that look at these things are saying wait  

a minute, it's overpriced. Do I really want to get  an over-mortgaged property? Do I really want to buy  

new down? Okay, now over mortgage properties many  times have too much maintenance, they certainly  

have too much in payments. Okay so I don't know the  condition of any property that I'm buying until  

we inspect it and check it out. Now at tax sales  we can't do that. In the regular market, you can  

buy property and you can have contingencies and  look it over and make sure it's what you want but  

if you're buying zero down. You need to be very,  very cautious. Why? Because the seller has a reason  

for dumping that property into the market.  They're giving you zero down. Why are they  

doing that? That doesn't mean every deal is bad  but you better understand the math of the deal  

before you get into it. If it's over mortgaged  and overpriced, you aren't going to do any better  

than they are in selling it unless you have some  waiting buyer and some waiting buyer might find  

out that it's overpriced and you can't get rid of  it. So unfortunately sometimes the market changes  

so we have times in the country when the whole  economy takes a dive and what it does it brings  

all the real estate down. It's like the tide goes  out, all the water goes up, same situation all of  

the properties drop. Well if they are financed 100%,  I can tell you they're all over mortgage. What do  

people do if they're living in an over mortgage  property? If they're mortgage is owed on the property

than it's worth, the people are going to walk away  from it. They're just going to walk away and leave  

you with the property so you got a major  problem on you. So we've had times in the country  

where there's millions of these properties. So  sometimes people just over bid. They go to an  

auction and they bid too much money. If you bid too  much money, you pay too much, you're not gonna be  

able to sell the property. You just know it's not  gonna happen. So you have to know what you're gonna  

sell a property for before you buy it. So let me  say that again. You have to know what you're going  

to sell it for before you buy it, that's just a  strategy that will always work and keep you out  

of trouble. Now, the banks put mortgages on these  properties and sometimes the bank lends too much  

money. Well what if the bank does lend too much  money? They're in jeopardy just like you are. Why?  

Because you're going to walk away  and now what are they going to do it,  

so they're going to have to take a huge discount  on the loan to get rid of it. Something's going to  

happen. Nothing good is going to come from over  mortgage properties so you darn sure don't want  

to be the buyer of any of those. One of the reasons  I got myself involved with tax liens and tax deeds  

was I can buy properties 10, 20, 30 cents on the  dollar or I don't buy them, I buy those for 10,  

20, 30 cents of the dollar with no mortgage or  I don't buy them . All right if you're out trying  

to buy probably zero down, you're gonna have to  start making the mortgage payments and many people  

will try to get you to assume that loan. You don't  ever want to assume any loan ever. You never want  

to assume a loan. If you want to assume and call  me, I'll I'll find you some loans you can assume,

that's insane. Why would you want to take on  somebody else's debt? You'd never want to do that.

All right now in history, the market can change so  you're not going to get involved in that,

but if you don't know what you're going  to sell it for, don't buy it. If you can't get the  

best price, don't buy it. If you're interested  in zero down payment, happens all the time. Now  

look, I don't make the rules. The legislature  of the state always makes the rules. All right,

the borrower, when they buy a property, signs a  promissory note. When you sign that promissory note,

that's a mortgage. It's the law that you pay it. If  you don't pay it, you might still own it. You might  

still have that mortgage coming after you. So the  mortgage means you signed a promissory note to pay,

I'm going to tell you not to assume any of those  promissory notes. Now recently the president  

has changed some of those rules so you might want  to check on that but I'm going to tell you if you  

sign a promissory note in most cases the people  can come after you to get the payments on it.

All right now nationwide a lot of banks have  closed in the past 10 years. Now why did those  

banks close? Because they had loans, they're all  over the mortgage. You know the mortgage...

the market crashed and now the properties are  worth less, people won't pay for them and what  

is the bank going to do? They're not getting any  mortgage payments, they're not getting any payment  

so the bank fails. All right now you don't  lose a lot of money but the bank fails because  

we have guarantees at the bank but  the bank is wiped out, the stock goal  

are wiped out. So, many banks are closed because  they lent too much money on property. All right  

the federal government can have the exact same  problem. So, foreclosure is nothing to blink an  

eye at, it can be a big problem. Now 100% financing  isn't necessarily bad but let's look at an example  

of it being good. All right now if you're a class  A buyer and you're considered triple A credit and  

you have plenty of money in your bank account, you  could buy properties a hundred percent financing.  

Many people will sell to you and what they'll do  is say all right pay me x like property values 150,

they only owe a hundred on the loan. So, they sell  it for you 150, you make your payments based on 150,

they then make the payment based on 100, they keep  the difference. It's kind of a sandwich there, isn't  

it? So they make their profit in between. All right  so that's called equity. The difference between the  

loan and the value is the equity. All right so  those people are happy because they're making  

money on their equity. Well that's a legitimate  business. All right that's legitimate for you too  

if you're a class A buyer and you have AAA credit  but most of the people watching these videos on  

YouTube are not triple A credit people, they're  people are trying to do no down payment deals.

Well it's going to be a challenge and when you  take on that loan and you take on that property,

your challenges are just going to over... they're  overwhelming and don't be surprised if you end  

up in their foreclosure. In other words sellers  who selling with a hundred percent financing,

zero down for you, why are they doing it? Now if  you're triple A, you don't have to worry about  

it because you got reserves, you can handle the  whole thing but if you're not a triple A client,  

you really got to think about what you're doing.  When people have triple a credit, they might buy  

a million dollar building on a 100% financing but  the insurance company only has a $500,000 loan so  

they make their payments on the million and the  insurance company makes a profit on the difference.

Okay that's a legitimate business. It's been around  for years. All the tall office buildings you see  

downtown are done that way. It doesn't mean real  estate if single family homes can't be done that  

way of course they can but the triple A buyer is  not the one that's probably watching this video  

so think about that. They have substantial assets,  they can handle any kind of problem that comes  

along. For example what happens if they were  renting the property and the tenant moved out?

Now there's no payment coming in. Triple A  client has reserves, it's not a problem. If  

they've got reserves, they can handle this. What  are you going to do if the rental person leaves?

You're a big trouble fast. So if you can't figure  out how to get a lot more payment than that 100%,

in other words if you can't change the use of that  property, you better think about it because it's  

going to end up just like this slide. It's going to  get pretty smelly around that room with that big,

big mortgage which there is the elephant  in the room, you're going to make that payment. If  

you can't make that payment, well then you're going  to go to bank foreclosure just like everybody  

else. All right I got in the business that I'll  explain simply. It's tax liens, tax deeds, there's  

over 2 million tax defaulted properties every year.  All I want to do is I want to buy those properties  

at what they want to sell them for, they generally  sell them for 10 and 20 cents on the dollar.  

You're looking at a county map, okay? Not  just the United States. It's all the counties.  

All 3,000 those counties sell tax  defaulted property. All right this business  

has been around for 200 years. I love to buy these  properties. Why? Because I buy for 10, 20, 30 cents  

on the dollar and the mortgage has been cancelled  and trustee has been cancelled, that means I have  

no mortgage so now I own for 20 or 30 cents  on the dollar and I have no mortgage. I've got a  

lot of margin between my price and what the market  is gonna sell for. You've got to have margin. Zero  

down payment, there's no margin. All right now  the AAA clients, they can do stuff you can't do.

They can buy a big building like this, it will not  matter if they lose the tenants because they have  

reserves, they have money left over. You don't have  money left over so that property is going to go to  

crises situation very, very quickly. All right so  if you're a buyer just getting started and you  

have a dream of no money, I'm going to suggest you  be very, very cautious and why? Because how are you  

going to make the payments if you lose that  tenant? Now if you're taking a rental property and  

if you're turning into an Airbnb  then what you you're going to be able to do is  

maybe instead of getting 2,000 a month, you're  going to get 6,000, you're going to probably afford  

100% financing but otherwise you better rarely  have thought about how you're going to do that.

The average zero down payment person gets  themselves in bigger trouble but as I say,  

2,000 dollar payment but you can bring  in 6,000, it's not a problem. You're gonna  

be able to handle that. All right so  zero down payment works okay but when does it work  

okay? It only works when you have a plan and   how you're gonna handle it. All right  

so move ahead cautiously and move ahead slowly.  Why? Because what's going to happen? You're going to  

have payments to make so if you bought zero down, I  don't particularly envy you. I've seen people do it  

and survive it but I've seen a lot more  of them that didn't survive it. All right  

so what are you trying to do? You're trying to  turn a little bit of money into a lot. So what  

I did is I stopped getting involved in zero down  payment, I stopped getting involved with flippers.

What did I do? I bought properties at low prices at  the auctioneer and then I sold them at a slightly

higher price so I bought it low and I sold it  low. Why did I do that? So I could make a profit.

Now I have clients that have used their credit  cards and purchased as many as 60 properties.

This 100% financing buying. Now what did they do  with them? They sold them on installment plans so  

they got a down payment, once they get the down  payment, what did they do? they got installments  

and they had a business that worked that went  on and on and on to the point where they could  

do 60 properties in maybe six years. All right now  that's the exception to the rule. The point is all  

of you can do this, it's not difficult. Do you have  something to learn? Yes, you got a ton to learn. This 

is not a secret formula. I've been doing this for  decades, other people did it for decades before me.  

Now I'm about to close this video and when I do,  below me there's a free gift for you. You got to take  

advantage of that, okay? You might want to like the  video, you might want to tell someone else about  

it, you might want to make some comments, that's all  good. All right you definitely want to subscribe so  

you'll know about the next videos coming up. Okay,  I'm Ted Thomas. I'll see you on the next video.