Tom & Cathy's 2nd Home

Tom & Cathy's 2nd Home
(Tom is a teachers aide and Cathy is a nurse)

Cathy wanted to invest in real estate really bad. With their limited income, they were looking for a place to start. Several years ago they purchased their current home with owner financing. After some five years of paying the payments, they took out a home improvement loan and fixed up the place. They were now ready for another home.

Checking with all the banks for list of bank re-possessed properties, they found a home just out of town that needed work. The bank would finance the home, price $60,000 with $5000 down, and give them $5,000 back at closing to make the repairs. They purchased the house and spent the $5,000 on a new foundation for the pier and beam home.

How they financed the improvements?

They could sell the first home and use the proceeds to fix up the new house. They could take out a home improvement loan against the new house or they could refinance the old home, paying off the two outstanding loans, and get cash back (equity) based on the new improved value. That would give them the money to repair the new house at a desirable, first mortgage interest rate.

Here is what they did. They re-financed the home they lived in combing the old home improvement loan and the old first mortgage together, and took out $20,000 equity. They got $600 off the old first mortgage by asking the original note holder for a discount. They now had the cash for the repairs and a new lower interest rate then they had been paying. Their plan is to move into the new house after they fix it up and rent out the old house. As they have cash from the re-financing to do the repair work, they can be their own contractor and save money by doing a lot of the work on the new house themselves.

Cathy and Tom ended up with a zero down deal and got into the rental business, which Cathy really wanted to do. These young people will do very well because they are willing to do the work and take a property others rejected. They used creative financing to get the deal done. I predict they will come out very well in the end. It is all about attitude.

Update 2006: I drove by the property the other day and it looks great from the road.