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UP2 The Texas 2-Step

By utilizing AmeriFund’s Texas 2-Step program an investor acquiring a property at or below its potential market value can reduce the amount of the cash outlay on the acquisition and thereby increase the rate of return on the investment.

The Texas 2-Step is utilized exclusively for acquisition of properties that, due to property condition or other factors, can be acquired at a cost well below their potential value. The follow types of properties are prime candidates for the program:

A property that cannot be financed using conventional or FHA financing due to the condition of the property
A property acquired at a “fire-sale” price from a motivated seller
A property with title issues or other legal impediments that can be resolved by the investor shortly after acquisition
A property acquired from a family member selling the property below value

Although an investor can potentially acquire the property with zero or nominal cash outlay, the investor will typically need to have liquid assets representing not less than 20% of the cost of acquisition and anticipated improvements that can be utilized as cross-collateralization. The program is best suited for investors that have the ability to pay cash for the property but do not want to invest that cash permanently.  Investors must also satisfy Fannie Mae reserve requirements which could require additional verification of assets (although the assets used for reserves can typically be retirement account assets).

An example Texas 2-Step Transaction

A bank foreclosure requiring foundation work, paint and replacement of carpet can be acquired for $100,000.  The cost of making the foundation repairs and placing the property in prime condition is another $15,000.  Once the improvements are completed, however, the property will appraise for $155,000.

We arrange for the borrower to acquire the property and make the improvements and then, in a second transaction, we provide the borrower a permanent mortgage loan in an amount up to 75% of the value of the property.  Thus, in this example, we would provide permanent financing at market rates up to a loan amount of $116,250, an amount sufficient to cover the investor’s total cost of acquisition.

Why would an investor that could pay cash for the property want financing with minimum cash outlay?  Simple. Leverage (borrowing against the asset to reduce the capital investment) results in a higher rate of return on the investment.  It’s simple economics.  Read more about increasing the return on a investment in our Guide to Return on Investment.