Brainstorming...(very long) - Posted by Dan

Posted by Dan on November 19, 2000 at 18:11:52:

Jim,
I guess I was thinking that they would take that amount because they dont have to be involved in the transaction. If a realtor is involved in filling out the contracts, qualifying the buyer, and doing all the other stuff that realtors do then they WOULD want their commission. But in this scenario all they are doing is sending a buyer to me. Thats it.
I see your point about them losing a large commission by sending a qualified buyer my way. The above scenario would only work with a realtor that I have done or am doing regular business with, if even then.
Regards,
Dan

Brainstorming…(very long) - Posted by Dan

Posted by Dan on November 18, 2000 at 18:01:20:

My mind is sometimes like Howard Cosell’s mouth - it wont shut up! Sitting here all week long after having cochlear implant surgery, I have done alot of thinking about real estate. This is what I have done this week…

  1. Used a website that I have where I can click on a parcel shown on a map of my county to tell me who owns that property, when it was acquired, legal description, and most importantly, the owners address. if the owners address is different than the property address, then the house is likely a rental.
  2. I have printed out in two different neighborhoods near my house all of the parcels that are owned by a person not living there. MAny are out of state owners.
  3. Drafted a letter to send to these owners, stating that I would buy their house if they become interested in selling in the future. Here is my letter:
    Dear (homeowner)
    "My name is ___________, and I buy houses as a hobby to supplement my regular job at a ___________________firm. One of the things that I do is send letters to owners of property that I may be interested in buying. That way, if you are interested in selling, whether now or in the future, you will know that someone is already interested in your house. The house I am interested in is located at ____________(address). You can save the hassle of finding a real estate agent and paying their commission if we can get together and commiserate a mutually beneficial deal. Also, if we cannot make a deal together, I know others in the area that can possibly help you. Bear in mind that I do not mind buying a house that needs any kind of fix-up. I will buy ?as is?.

If you are interested in selling your house, please contact me at home. The phone number is ________, and the best time to reach me is during the evening hours. Feel free to contact me at anytime!

Please save this letter. You can avoid the hassle of getting a realtor and paying a commission!"

  1. printed out a bird dog flyer stating that I will pay 200 bucks to anyone that fills out the info on them about “FSBO” properties that I close on. The question is, who do I give these flyers to? just people that I come in regular contact with and that I know? My feeling is that I may not want to let just anyone have these flyers because my name and address is on them. And I cant really expect strangers to mail them to me can I?

  2. Wrangled with an idea of running an ad in the paper that says something like "transferring? bought a new house? need to settle? Call me before calling a realtor! I can save you a commission! I will buy your house or sell it for you! I can even make your monthly payments for you! Call me if you need to sell your house! (name and phone)"
    The idea behind this ad would be to get calls from motivated sellers that are willing to sell a bit below market (but not at 70% or lower like most wholesalers buy for) and then visiting them to give them a 90 day option (if they are still living in it) to buy their house at say 10% below market (plus subtracting the realtors commission) and then going out to try and flip the house within those 90 days. Of course they can also try and sell the house on their own or list with a realtor granting me an exclusion. I would then market the house aggressively, finding the propective buyer a lender if necessary, and offering to pay the 500-1000 closing costs (since no realtors commission is involved) for the buyer and, upon finding a buyer, exercising my option with the sellers at the lower price and having a double closing, closing with my buyers first and then the sellers.
    Or, if the house is empty and they need to have the payments made, do the sandwich lease option deals discussed so freely on this board. Of course, the ideal house for the above would be one that is in good shape and probably newer where the sellers dont have alot of equity but need to sell quick.
    Lets say I run the ad and get a call from a seller that has to move soon to take another job. They have been trying to sell on their own for 85k, which is right around what the other like houses that are listed with realtors in the area are selling for. I make the appointment, go over there, and tell them that there is no need to have the house listed so high since there is no realtor. So I take off 7% of their asking price ($5950 in this case) and then take off another $3050 for my “profit margin”. So this brings up my price that I have an option to buy for - $76,000. I tell them that if they want to keep trying to sell their house then they can. All I would ask for if they sold before I do is a $1000 buyout of my option. Still much cheaper than paying a commission! I then go out and market, market, market, and find my buyer for $82,000. I entice them to buy by pointing out that the other houses listed with realtors are selling for 85 grand and that I will pay their closing costs which lets say is $1000. I then exercise my option to buy with the sellers at $76,000 and they pay the closing costs. I close with my buyers first, and then my sellers, making sure that my title company allows me to do it this way beforehand.
    $82,000 - 1,000 closing costs - 76,000 purchase price = $5,000 profit for me!
    Is this an idea? Someone shoot it full of holes for me! Of course on the sandwich lease options, I would think it would be harder to do those but the potential profit is higher, although you have to wait a bit to make it…
    This is pretty much an idea from Ron legrands book that I have been reading. I read today that 60% of the houses in this area have not been selling during the initual listing period! This info was provided by a broker that I guess is maintaining that they are better than the others.
    Am I on to something here? I like the idea above because:

  3. There is very little risk for me. If I dont sell the house myself I get a 1000 buyout of my option. Of course, if I (or the sellers) dont sell within the 90 day option then I dont make anything. That is my risk.

  4. It opens up a larger pool of potential sellers and buyers, because we are dealing with houses that are newer and in good shape that are attractive to any potential buyers. People that have to sell their house and are willing to sell 10-15% below market are alot easier to find than those that are DESPERATE and will take 50-60% below market. Most of the latter properties need alot of work, which I dont want to fool with. I can concentrate on deals only.

  5. It means that I shouldn’t have to worry about finding financing for the house. If my title company allows it (and if they dont I will find one that does!) then I can set up the above mentioned double closing.

  6. I can deal with houses that dont need alot of poking and prodding around in, like having to get inspections, lead based paint addendums, etc. and wont have to go back and forth about who fixes what. The houses I am talking about are usually newer and bought by career people with white collar jobs that have a good chance of being transferred.

  7. I dont have to fool with realtors. I can offer a commission to a realtor if they bring me a buyer for the house, but they dont have to be involved with the transaction.

  8. I get to enjoy the free entrepreneur spirit of getting out of something what I put into it.

  9. I am helping two parties out while helping myself out too! Which is true with most creative real estate…
    Someone shut me up about this and shoot it full of holes, or I am likely to go out and try it!
    Later,
    Dan

Re: Brainstorming…(very long) - Posted by David Alexander

Posted by David Alexander on November 19, 2000 at 20:12:34:

Dan,

the real deal is you need to learn to market for motivated sellers.

Once you learn to find sellers, really motivated ones then you will see ways to put deals together.

I would also suggest not telling anyone that you are out doing this as a Hobby… just my thoughts anyway.

That’ll make them think your nonchalant and fly by night in my opinion.

I’m probably as nonchalant as people go, shorts and tshirts etc., but when it comes down to it, talking to sellers that’s where I seperate the men from the boys. I let them know in no uncertain terms that I am the person that can solve their problem and in doing so I’m planning on getting paid very well for it.

In this business as others have said the absolute minimum pay day I would work for starting out is 10k, and if it’s that low it better easy to get to and I had better counted every cost because.

You are a Real Estate Investor, and Investors solve problems that people have with their houses, for the rick you take on and the knowledge you ahve to acquire look to get paid Big.

David Alexander

Brainstorming - Posted by JPiper

Posted by JPiper on November 19, 2000 at 11:08:00:

Dan:

I would doubt this strategy would work the way you envision it.

First, your strategy will require QUALIFIED retail buyers. By qualfied I mean a buyer who can obtain conventional or government financing. By far and away the vast majority of these buyers are working with Realtors when they buy houses.

Think about it. If you?re the average buyer you are either intimidated enough by the process that you call a Realtor, or you pick up the paper and start scanning through all those ads?.most of which are by Realtors. You might even look at those full page ads by the large Realty companies. You next call is to that company, where a Realtor prequalifies the buyer, probably gets them to a lender, and once they have determined that the buyer is qualified, they enter the buyer?s desired house criteria into the MLS. Out pops 10-20 houses which they show the buyer.

In other words, the buyer can EASILY take a look at what?s available WITHOUT having to call each individual ad, look at one house at a time, get the owner?s answering machine, etc etc etc. This is the whole purpose of the MLS for a seller. MAXIMUM EXPOSURE to the pool of qualified buyers. It evidently works?.Realtors sell by far and away the majority of houses sold in the US. Those big companies don?t exist for no reason at all. They have a system that works. In fact, the Realtors long ago understood that specific ads don’t sell houses per se…only the public believes that. Realtors have large ads to attract buyers, who can buy any of a number of houses. A specific house ad may be in there to please the seller and honor a listing committment…but it’s not there to sell the house. Same thing could be said about open houses…they don’t sell the specific house…but they do attract buyers, and perhaps other sellers. The whole idea is to get someone in the door…from there you sell them a house…any house…of which you can find most of them in the MLS.

YOUR strategy leaves out that crucial element. YOU are working without the MLS?and therefore are no different than the myriad of other FSBO?s that attempt to sell their house without the MLS every year. Will you sell any houses? Maybe. But the problem is that you have no ?hook?. Because of that skinny spread you have no ability to create TERMS, and therefore attract the buyers that the Realtors may not know how to deal with. Nope, you need the same buyer that the Realtor needs, except you don?t have the means of finding this buyer.

Enough about the MLS. But rest assured this is a powerful tool. If I were attempting to sell a house for all cash to a qualified retail buyer, it would be in the MLS without question.

The process of dealing with QUALIFIED retail buyers is not an easy one. The old saying ?All buyers are liars? didn?t start for no reason at all. You aren?t going to be in the position of most of the people on this newsgroup who can deal more systematically with ?non-qualified buyers?. You?re going to have to work your buyers?.the system for dealing with them already exists?.it?s the real estate brokerage industry, of which you won?t be a part.

You?re going to need to have in your offer ALL of the things that the buyer would typically want and the things that would be required by state and federal law. Buyer?s today are always advised to get inspections of all sorts?.so your offer better reflect that. Otherwise, you?ll be paying for the results of those inspections out of your pocket. Any inspector can walk through the prettiest of houses and nitpick it thereby justifying his own cost to the buyer. Therefore you?re going to need inspection clauses to deal with this.

The costs that you haven?t considered are ALL of the costs of operating your business. You?re going to have ongoing advertising?.it?s not cheap. Costs for advertising those homes, costs for advertising for the seller. You?re going to have marketing costs, legal costs, accounting costs, insurance costs, etc etc etc. Skinny profit margins mean that these costs are going to be a major factor UNLESS you can deal in volume. Whether you can deal in volume without the MLS is questionable in my mind?given the type of buyer you?re going to need.

Frankly, if I were you and I was convinced that this was the way to go?.I would simply go get my real estate brokers license?.collect my 7% fee?..and use the MLS as one of my marketing tools. That 7% looks like the approximate amount of your profit.

JPiper

Website - Posted by Rick

Posted by Rick on November 19, 2000 at 06:35:36:

Dan,

Could you please tell me what the URL is for the website you are using to look up parcel and owner information? Is it for local area only (to you)? Is it a free service or a paid service.

Thanks!

Re: Brainstorming…(very long) - Posted by dewCO

Posted by dewCO on November 18, 2000 at 21:24:49:

You lost me after #3 (your post is way to long), your letter. Lose the I buy houses as a hobby part. It’s way to wordy. And the words is not “commiserate” it’s consummate (I think it has 2 "m"s any way).

You want holes? - Posted by B.L.Renfrow

Posted by B.L.Renfrow on November 18, 2000 at 20:05:55:

OK, here are a few:

  1. That letter is w a y too long! It’ll be in the trash before they finish the third paragraph. Send a postcard. “I BUY HOUSES. ANY PRICE/CONDITION. CALL ME IF YOU’RE THINKING OF SELLING…”

  2. I don’t believe “commiserate” (to feel pity) is the word you’re looking for. Maybe you meant “consummate”?

  3. If you run that ad, expect to be brought up on charges for acting as a broker without a license. You can’t offer to “sell it for them”…in every state I am aware of, selling a house “for another and for compensation” requires a license.

  4. That $5000 profit in your example could be eaten up in a hurry. That’s not enough room.

  5. Your idea of a double close was a good one…until recently. Just within the past year, lenders have gotten particularly squeamish about funding deals where the seller hasn’t been on title for at least 6-12 months. So if your buyers are using a conventional lender. it’s a good bet they won’t fund the deal.

  6. If you can do a closing for $1000, that’s pretty good. I am in a rural area where costs are relatively low, and a normal closing with a conventional lender runs closer to $1500-$2000.

  7. Re your comment about not having to do things like “getting a lead-paint addendum”: you have to do a lead disclosure in ANY residential property you sell or lease…no exceptions.

Now…don’t get discouraged. Rather, your next step should be to figure a way around these issues. Consider buying one of the fine courses available on this site.

Brian (NY)

Re: Brainstorming…(very long) - Posted by BWhite-TN

Posted by BWhite-TN on November 18, 2000 at 19:52:37:

Hey Dan,

You’ve brainstormed some great ideas. Now as Will Rogers said " You may be on the right track; but you better get up and move or you’ll get run over"

One thing in your ad can be trouble–I will buy your house or sell it for you! The sell it for you can be construed that you are acting as an unlicensed real estate agent.

Your concern about your address is valid today. Consider using a box at Mail Boxes Etc. I do and I rest much better.

Good Investing

Re: Website - Posted by djaN.Y.

Posted by djaN.Y. on November 19, 2000 at 20:54:23:

Ditto.

Re: Brainstorming…(very long) - Posted by Dan

Posted by Dan on November 18, 2000 at 21:34:32:

You are correct the word should be consummate. I messed up. ignore the letter part. I agree with you and others posting here that it is too long when a simple post card would do.
If you ever get an hour or two, finish reading the rest of my post. :slight_smile:
Thanks
Dan

Re: You want holes? - Posted by Dan

Posted by Dan on November 18, 2000 at 20:46:29:

Lets go over this step by step. Thanks for your attention to detail to my post by the way…

  1. Thats a good idea. Saves time and all the cute writing I like to do…

  2. You are correct. “Consummate” was the word I was looking for. A slip of the tongue…

  3. I was pretty much aware of this when I submitted my initial post, but left it in there as I wasn’t paying alot of attention to all the legalities involved. I would obviously not have that in the ad. Can you suggest a better way to put it Mr. Renfrow? A way that is legal?

  4. If I have closed the deal and done no repairs, what else would eat into the profit? I am not making any payments, no holding costs, etc… Lets just say that if the closing costs DO end up being more than a grand then I would simply pay a maximum of a grand in closing costs. Fill in the blanks for me what would eat away at the 5 grand (besides taxes).

  5. In lieu of a double close, I could sell my option to the buyer or assign the contract to the buyer, right? Wouldn’t this take care of that little problem?

  6. I am not an expert on closing costs. I only know that without a realtor that they cant be that much. Like I said above, if the closing costs are that much higher than a grand, then I could just say I would pay a Maximum of a grand.

  7. That is my ignorance of the technicalities and the due process that goes on during the sale of a house. Whatever needs to be stated or disclosed in a sales contract I need to learn about. I just know that realtors have alot of things to disclose that I wouldn’t have. I just need to educate myself when the time comes about this, and I will. Maybe you could help me do just that, Mr. Renfrow! :slight_smile:

Dan

Re: Brainstorming…(very long) - Posted by Dan

Posted by Dan on November 18, 2000 at 20:48:51:

Thanks alot for your positive feedback. Yeah I know I need to change that ad. Like I told to Mr. Renfrow, I was aware that I had that in the ad but I just wasn’t paying alot of attention.
Good luck!
Dan

Some answers - Posted by B.L.Renfrow

Posted by B.L.Renfrow on November 19, 2000 at 09:27:17:

Regarding #3, your ad, aside from the issues about offering to sell a house for another, I would keep it short and simple. I’ve found I get the most responses from ads which say something like: “I BUY HOUSES, ANY PRICE/CONDITION. CALL BRIAN AT…” I do occasionally change the wording a little, but when I stray too far from the basic message, the calls go down.

Another thought about the ad: I wouldn’t go too far in “dissing” the Realtors in public, specifically where you wrote, “Call me before you call a Realtor.” Don’t know about your area, but in mine, even though I rarely work with agents, I don’t need them bad-mouthing me all over town. I will certainly explain the advantages of dealing with me when talking with a seller, but I wouldn’t take aim at the profession in public like that!

Also, I agree with the other post which advised to get rid of the line about buying houses as a hobby. When you go see an auto mechanic, or a doctor, do you want to see someone who repairs cars or practices medicine as a hobby? Even if you are a part-time investor, it’s important to project an image as a professional.

Your profit: I was thinking mostly of closing costs and advertising expenses. You are correct in that you could certainly stipulate an upper limit to the costs you would bear. But, more importantly, why limit your profit to $5k per deal? There are plenty of deals out there where the profit potential is significantly greater…find the motivated sellers, and many times they’ll make you a FAR better deal.

Double closes: You could certainly try to assign the option to the buyer, or alternatively, assign your purchase contract back to the seller. But unless the purchaser is coming out of pocket for your assignment fee, it’s questionable whether many conventional lenders would let that slip through nowadays. Also, remember that conventional lenders are going to lend based on the LOWER of appraised value OR purchase price. That the property may comp at $85k does not mean a lender will lend based on that amount, if a buyer is purchasing for $82k.

Depending on the economics of your area, there may or may not be buyers out there who have the $3-$5k for an assignment fee in addition to the downpayment amount required by the lender. Around here, they’d be pretty scarce.

The title seasoning issue is one that is still unfolding; where it will end up is hard to say with certainty. But as of now, NO subprime lenders of which I am aware, and FEW conventional lenders will approve a deal with no title seasoning. Exceptions are VA and FHA loans…for the time being.

How to get around this?

  1. Deal with cash buyers only, such as flips to other investors.
  2. Assign your option. See discussion above.
  3. Create a note between the original seller and your buyer and broker the note at closing for cash.
  4. Season the title. This means you either buy with cash, owner financing or take title subject-to the existing financing. This has been my approach. I have stopped doing sandwich L/Os precisely because of this title seasoning business. Of my two remaining sandwich L/Os, I just negotiated one into a subject-to deal last week in which I took title in a land trust. The other, I’m not sure what I will do with quite yet. For various reasons, it’s not a subject-to candidate, so I may go the note route. But my point is, sandwich L/Os are what I started with, and up until fairly recently, they were an excellent starting place for newbies. But that has changed. They are now difficult, if not impossible, to pull off. So the answer is, when the market changes, change your methods.

Regarding disclosure requirements, it depends on your state. In mine, there are none. But that’s unusual these days. Nevertheless, the lead disclosure is mandatory everywhere.

I applaud your creative thinking. I think you have the drive to make it work for you. It’s just a matter of seeing what works for others, then applying the proven strategies to your own business.

Brian (NY)

Re: Some answers - Posted by Ray

Posted by Ray on November 19, 2000 at 14:21:04:

Another possibility would be to hold property in a land trust. Tenant signs a regular lease of the real property with the trustee and signs a seperate option agreement to buy the beneficial interest from the beneficiary. The option can allow the usual credits for each month the lease is in force and provide for option nullification if the lease is in default. The option agreement could be drafted as a contract for option which will not vest until all terms of the lease and option have been met. The lease could be worded that it will be specifically governed by your state’s landlord/tenant laws to allow for a quick eviction.

What is the solution from the gurus who sell these courses which push sandwich lease options? I think the idea to assign your option to the tenant so that title will transfer from seller to tenant directly is a good one.

-Ray

Re: Some answers - Posted by Dan

Posted by Dan on November 19, 2000 at 11:54:42:

Brian,
Thanks for the very helpful response. BTW if I called you “Mr. Renfrow” before it is only because I didnt notice your first name before. But hey maybe you LIKE being called “Mr. Renfrow!” :slight_smile:

Yeah I am going to make a plain and simple postcard to send to the out of state and most likely also the localized absentee owners. Forget the letter. I agree with your reasoning about not making it known that this is a “hobby.” And yes, I do plan on running a simple ad like that in the paper. I was wondering if there would be any feasibility in looking for FSBO houses and putting a flyer that said more like the original ad was going to say on their house or mailing them one. Or it is just better to call all the FSBO’s and look for the motivated ones? I personally think that anytime they come to you instead of the other way around then you have the advantage.

As far as limiting myself to 5k per deal , well I certainly wouldn’t do that, but the example provided was one that I figured would be much easier to find than one where if I ran an ad in the paper stating “I buy houses” and someone called me where I could make alot more than 5k. But then I lack experience and you probably know more than I do whether or not it IS easier to find properties where the profit potential is much greater.

Advertising, like you said, and if I were to pay any realtors for any buyers that they sent me ($500) would eat away at the 5 grand profit in my example provided.

Your discussion about double closings means that if your information is correct (and I am sure it is) that I would have to find people to buy the house that qualify for either FHA or VA loans. If I did this, then I would be in business with a smaller pool of buyers. But I need to have a way for the people that can only get conventional loans to not have to come out of pocket to pay me my option fee. It should be noted that the house wouldnt have to appraise at 85k, only 82k as that is the purchase price. Perhaps there is a misunderstanding somewhere?

Also, you mentioned alot about taking title subject to the existing mortgage. This is the exact type of property that this could be done on, because many of these houses will be newer and thus not have much equity. Suppose in my example that the sellers still owed 76k (my purchase price) on the house. I would simply take title “subject to” in a land trust and then create a wraparound for my buyer, taking some money down and charging a higher interest rate than what I am paying on. At some point, after some seasoning, if the buyers are credit-worthy they would then refi and cash me out within a few months or years, correct?

But many sellers wont have that kind of trust in a buyer, to take the payments over “subject to”. It is their credit on the line, and many may not sleep well at night wondering if their payment is gonna be made. But if it works for others, it can work for me!

I see what you are saying about sandwich L/O’s. They become obsolete when you exercise your option to buy and cant flip to the tenant/buyer because you have no seasoning.

Can you explain what you meant when you said “Create a note between the original seller and your buyer and broker the note at closing for cash.” I think I know what you mean by this but I want to make sure…

Thanks again for your help. This is a great site with great people like yourself Brian and this is how I learn. BTW, what course would you recommend for me as far as what i want to do? I have heard alot of good things about Bronchick’s “Cash Cow” course. LeGrand’s course may be a little dated if he talks alot about doing the sandwich L/O’s in the course, but I dont know if he does or not.

Thanks again Brian
Dan

Re: Some answers - Posted by B.L.Renfrow

Posted by B.L.Renfrow on November 19, 2000 at 22:42:37:

Can’t say that I’ve seen any of the sandwich L/O “gurus” offer a solution…although the title seasoning issue is a fairly recent development. Most of the veteran investors already favor transactions in which they (or their entity) controls title. So I think you’ll see more investors moving toward subject-to deals. The PACtrust also offers a viable alternative to the traditional sandwich L/O.

If I understand correctly, what you’re proposing above is taking title subject-to, then transferring beneficial interest to your buyer after he fulfills certain terms of the lease.

The only problem with this is that I want to remain squarely in the middle of these deals until my seller’s loan is paid off. Having given my word to the seller that I will solve their problem, I am not about to hand over beneficial interest to someone who may or may not honor the committment I have made. What if the buyer falls on hard times, or loses his job, or becomes addicted to gambling, or…well, you get the picture. I will not give up my position until my seller is out of the picture entirely. This means I sell either to an all cash buyer, or on a land contract. That way, I can be sure the loan is paid – because I am paying it – even if my buyer doesn’t pay for some reason.

Brian (NY)

Courses - Posted by B.L.Renfrow

Posted by B.L.Renfrow on November 19, 2000 at 22:31:23:

Any of Bill Bronchick’s courses are well worth the money. Although I don’t have the Cash Cow course (I do have most of his others) I believe that one would best answer your questions.

About creating a note: You create a note in favor of the original seller, with the buyer as payor, just as though the seller is going to finance the buyer. That note can then be sold at closing, to produce cash to pay off the seller. The discount will depend on the buyer’s credit, their cash into the deal, terms and structure of the note, etc. Your profit is whatever you negotiate with the seller. The thing is, there aren’t too many people around who have the knowledge to put that type of deal together. Granted, you won’t be making the $20+k profits with these deals, but it’s an easy source of a little cash here and there, without too much work involved.

About subject-to deals: Yep, many sellers won’t. But all you need are a few. Believe me, there ARE sellers out there who will practically BEG you to take their deed. You just have to learn how to find them…or better yet, how to get THEM to find YOU.

Brian

Re: Some answers - Posted by JPiper

Posted by JPiper on November 19, 2000 at 15:02:52:

Why would a Realtor send you a qualified buyer for a $500 fee? Try $3000…or they take their buyer on down the street.

JPiper