Does it make any sense? - Posted by Barry

Posted by Joe on May 23, 2006 at 12:03:31:

You need to add in that you get a discount for a quick closing. Taking title sub2 should be quicker because new financing is not a contingency. So your closing might be 21 days instead of the normally 30, or even a longer 45.

Does it make any sense? - Posted by Barry

Posted by Barry on May 23, 2006 at 06:29:43:

I approach a homeowner who wanted to sell his property in foreclosure. Property values at $450,000.00. its a single family house.

I tell the homeowner that I’ll pay fair market price. Then I tell him the costs that go with selling the property.

  1. Real Estate commissions @ 6% = $27,000.00
  2. Discount 10%( Noone pays Asking Price) = $45,000.00
  3. Repair( It always needs work) = $15,000.00
  4. Seller’s concession(Closing Costs) = $4,000.00

Total = $91,000.00

Loan amount is $325.000 and back payments are $10,000.00.

Suppose my deal goes through with this person he ends up deeding the property to me with subject to first mortgage of $325,000.00.

Off course, mortgage guy does not know it yet but he would know it soon after I go recording my deed.

Now what I do? I refinance the property and get my cash out. Then I lease option it with good amount of down payment to a guy who does not have good credit and can’t get loan from the bank.

So he’ll pay the mortgage on this property untill he buys it or I get someone else.( The idea behind lease optioning is to avoid title seasoning)

Please tell me is it workable?
What problems may come in the way to do this kind of deal. Anyone of you had done it before.
To me it is great idea though I had not test it yet.

Barry

Re: Does it make any sense? - Posted by Joe Kaiser

Posted by Joe Kaiser on May 24, 2006 at 03:21:51:

Barry,

What you need to remember is that you’re an investor. You need to
know that and so does the seller. That’s how you MUST be positioned
whenever you’re discussing the possibilities of you purchasing his
property.

You’re an investor.

A lot goes with that, btw.

“I’m an investor, which means I need to be able to buy your property at
a price that allows me to instantly turn around and resell it at a profit.
Is that okay with you?”

Once they agree (they almost always do), you’re in. Getting just that
"I’m an investor" concession locked down allows a dozen other things
to kick in, with PROFIT being one of the biggies.

It’s THE KEY PIECE to the negotiation process.

You get that in place and things like cooperation, due diligence,
contingencies, inspections, showing to potential buyers, renegotiating,
cancelling, etc, are all set up like ducks in a row.

Go in positioned as an investor who requires a profit, get agreement
with the seller just on that one piece, and the negotiation process just
got 100% easier.

Joe

Re: Does it make any sense? - Posted by dealmaker

Posted by dealmaker on May 23, 2006 at 17:12:41:

Let’s say you do the deal with the seller. You’re going to have to get someone in that place QUICK or you’ll bleed out. Will local rents cover the nut on the current mortgage? How about on the re-financed mortgage?

The biggest problem other than (1) initial bleeding, (2)possible negative cash flow is your idea of doing a L/O “with good amount of down payment to a guy who does not have good credit and can’t get loan from the bank”.

The first problem with those types is they DON’T have big amounts of down payment sitting around, and THEY HAVE BAD CREDIT! In other words, you’re going to lend money to someone who a bank WON’T TOUCH.

Disclaimer: I do this all the time, 4 or 5 deals per year. However, I always sell for at least 15% over market to people who are not bankable.

Good luck

dealmaker

Re: Does it make any sense? - Posted by dutch

Posted by dutch on May 23, 2006 at 15:17:15:

Where is YOUR profit? the 10% you negotiated? How much are you giving the seller?

You forgot what most newbies forget to show the seller and to add to the calculations. YOUR SALES COSTS to re-sell the property (realtor fees, closing costs, etc). If you don’t incur them, so what. You MIGHT!

Dutch
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