What deal? - Posted by Jim FL
Posted by Jim FL on July 23, 2003 at 16:36:52:
With all due respect, you either missed a lesson along the way, or forgot it.
That lesson is this;
“Make your money when you buy!”
What you desribe is speculating, not investing as it is discussed on groups such as this and others.
Now, let’s take a look at some things you said in your posts to this thread. Be ready, I’m blunt, to the point, and will NOT “sugar coat” a thing.
If you don’t have a thick skin, close the browser now and quit reading.
I’ll address your posted comments, and not in the order they were posted initially.
You said in one post:
“To me; a novice 1st time investor, this seems like a good deal…any input or advice is appreciated.”
Frankly, you were given good advice, and that would be to pass on this “Deal”. (it is not a deal in my opinion.)
But, you then went on to say you will go ahead with it anyway?
NEVER, EVER PAY MORE than a property is worth.
Trust me here, if you stick with the buying criteria you are using now, you will not be in business long.
“Future profit” or “Potential profit” is just that, “potential”.
Okay, now that this is out of the way, let’s take a look at your comments in the order they were posted.
Starting with your initial post which created this thread.
"1)I have been to several online sources for pre-made RE contracts…I did find many, but nothing for "Subject to?“
Is there any online source to get a basic “subject to” contract?”
YES, there are forms for buying houses subject to available online, both for purchase and FREE.
I cannot and will not point you to them here, because I don’t want to violate this websites policy’s.
However, even if you were to find some forms online, using them would not be a good idea.
FIRST they need to be reviewed and checked for compliance with your local RE laws by a competent legal advisor.
Each state has its own laws that must be followed. Leaving something out of a contract that is required per state laws could very well cost you BIG money and/or a lost deal.
Next you said:
“2) Finally found my “motivated” seller. Whew!
They did not want to do a L/O but did call me back with a interest in “subject to.” I told them I would provide a BLANK contract as they indicated they want an attorney to look at it since they are still unsure. Hence I seek a basic online source for a “subject to” before going to all the trouble of using an attorney myself. I will simply be giving them a BLANK contract so their attorney can explain how it works to them.”
OF course the sellers are willing to consider terms, you are agreeing to pay them MORE than the property is worth.
Heck, if you want to pay a few thousand upfront, and a price above market value, then drop me a line, I’ll sell you a dozen properties per month.
By the way, be prepared for the attorney to nix your offer, or at the very least, request changes in the contract, if the seller does actually see one.
Attorney’s will often suggest changes just to justify their fees, and will also often kill a deal just because they don’t understand the transaction.
Law school does not teach common sense, nor does it cover most creative buying techniques, as mentioned here.
Now, on to your next post in the thread, which was a response to Ron Starr’s response to you.
“I’m paying maybe 4K over the comps… a 2yr L/O with a positive flow of $250/mo from my tenant buyer, …PLUS the option consideration of $5,500…Plus amortization over a 5 yr period if they choose not to excercise their option, I just L/O it again with more option consideration…Plus I get the tax deductions…So using my math, I’m $6,000 ahead in 2 yrs with just the rent! I have no intention to flip this property.
Finally; the tenant/buyer I have located has agreed to a selling price of 112,900 in two yrs! They will pay for all maintenance, insurance etc…”
Okay, we’ve addressed this above somewhat, but as a prudent investor, you should be prepared for “Worst case scenario”, the “what if’s?”
Your potential T/B’er has agreed to certain items now, good.
BUT…always a BUT, what IF they cannot, or they change their minds AFTER you sign this “Deal”?
What if the tenant buyer trashed the place, and left town at midnight, four months in, leaving you with BIG damage?
Your upfront money, which is really only MAYBE $1500, since you are PAYING $4k, and MAYBE collecting $5500, you are now in the hole, especially covering payments while you fix the place, and market for a new buyer.
OOPS, you just learned an expensive lesson.
Even with $300/month in cashflow, one YEAR is $3600, and repairs, maintenance and vacancies can eat that up QUICK!
Do you want to hold the bag?
I hope not.
In another post you said:
“However; I do not believe that every deal we seek will ALWAYS be below market; yet profits can still be realized. If my intention were to flip this, then yes; this would be ridiculous.”
No offense, but your newness is showing here. YES, EVERY “Deal” should mean buying below market value, and especially in this market we are in now, all over the world, this means WELL below market.
I mentioned the “what if’s” before, so let’s look further into that.
Here are a few “What if’s”.
What if…your T/B’er flakes, and you wind up holding this property for MONTHS, which you are admittedly HAVING to sell for MORE than it is worth, because you are PAYING more than it is worth?
Yup, you lost money, perhaps a LOT!
What IF…you have a financial crisis, and need to sell the house to get out from under your obligations to the sellers, FAST? What then? Yup, you lost again! OOPS!
What if…there is some disaster and the house needs major repairs not covered by insurance? OOPS! another expensive lesson.
A deal is only a “Deal” when you buy right, paying MORE than a property is worth is asking for trouble.
Your terms are not favorable enough to compensate for a high price, let alone a price above value.
You do not want to become a motivated seller, nor do you want to remain a motivated buyer, which your posting here indicates you are.
I’ve typed enough here, so I’ll just close by addressing one last thing you said in your last response to Ron.
Where you said:
" I did at least consult my RE attorney on this, “no charge” LOL…and he saw no pitfalls nor anyway I would leave myself exposed to any financial damage"
There is your angle, if there was one in this transaction. (I cannot call this a “Deal” because it ain’t.)
IF the attorney thinks this is a good investment, set it up, sign the contracts, and then ASSIGN the “Transaction” to the attorney.
Heck, they THINK there are not financial pitfalls here, so have them put their money where their mouth is.
I’ll bet if they REALLY are worth their salt, they will say, “nope!”
Anyway, buy this house at your own RISK…we tried to help anyway,
P.S. By the way, you are banking on appreciation here, and something you need to consider, what if the market stagnates, or values DECREASE?
What would you do IF your T/B’ers agree to the higher than current market price, AND you have agreed to pay more than current market price, then the property does not appraise high enough to cash out?
Trust me, the $6k “profit” you THINK is there, is not worth your time.