2x assets, I’m not down with that formula. What is the price to earnings ratio? I don’t like an all out liquidation for an unfinished house, especially on land, which can have higher carry costs. Plus, accessing all those various sources of credit, they aren’t deductable.
Now if you had a plan to borrow, cheat and steal to cover the full purchase price and needed work to make it livable in a short amount of time (less than 6 months) and then secure a conventional loan to pay back the funding sources and it pencils out to a considerable savings because it required a cash offer due to condition, well that is a plan I can get behind. The trouble with that is the funding sources, in most cases, rich relative is one of the only ones available.
In this market, it’s a huge red flag when something doesn’t sell for a while. One exception is condos with litigation pending, in that case, nobody can get a loan because of the litigation, so the “cash only” designator reduces the buyers pool and the price. With due diligence into the reason for the litigation, you can score a winner on those as a rental, but it’s a play for the more advanced investor.
You want to be a maverick, here’s a plan I amost went with but chickened out. There was a condo complex in litigation built during the boom and chock full of repos and shorts about a year ago, cash only designator. The litigation was for the community pool and it wasn’t something that could get crazy even if the complex lost, about a grand per unit would fix the problem. I could score a 3br for under 100k, all cash, but I only had 50k liquid. I could have done what you mentioned with regards to borrowing against investments and moved in with no mortgage. My income is over 100k, I’d have no mortgage and I could spend the first two years paying back the funding sources I tapped at about 2k a month which would be comparable to mortgages I was considering. So in two years, I’ve recovered from the loans and I own outright. Spend the next two years banking the equivalent of a mortgage, get my downpayment back, go buy a normal house in a normal way and have a cash cow paid off rental in four years. Or just get accustomed to the condo life and never pay a mortgage after just 2 years. That plan works because the amount I would bite off was so small compared to earnings, it’s less than .5x earnings as housing debt, just requires non housing funding sources which are costlier and non deductable but are very short term. It would have required that I leave my current zip code and would have happened during my kid’s high school years, so I decided against it, but it doesn’t make it a bad plan.
Once you free your mind of the concept of “dream house” and latch onto “dream scenario” or “dream payment” a lot more options open up.
