Re: P.S. - Posted by Eric C
Posted by Eric C on March 04, 2001 at 01:33:00:
Hi Vic -
You’d be surprised what people will do when you offer them enough money; whether that money is upfront or in monthly installments doesn’t usually matter much.
At the same time, I rarely use the term “option” if I can help it for exactly the reason you mention. You can accomplish the pretty much the same thing without using that word. And it’s often the word, option, that carries the negative connotation.
If he is truly afraid of getting the house back (and really few are), then I would ask, “What would happen if you did?” Let him think it out.
I probably wouldn’t want to be on title to this property without his attorney signing off on the deal. Too much liability. It would be quite easy to make the claim that you took advantage of him. After all, you have the license, and the rest of your group are all experienced real estate investors. He’s just a simple senior citizen.
Another point. If I am on title, the state can look back and reverse all asset transfers if they were not for full value and at arms length. You see the problem here don’t you? If you really get a deal, the state could take it away from you and if you are on title (and under contract) to the estate at that point, you could also have a specific performance concern as well.
The option would protect you as well as anything. It would be easy to show that you are paying as you go. If the state decided to take it away from you, you probably could argue that it (the option) should be assessed at FMV. The option would also serve to preserve your profit in the deal, which is all you care about anyway.
I still have my concerns about your investors. I deal with folks who make good salaries all the time. $300K is the average and over a mil is not unusual. These are the wannabes. They think they’re rich - I don’t. My conditions are still the same. No monthly payments. If they have good credit, then they can borrow the money from their friendly banker (personally)but I would never put a deal at risk because of their weakness. And that would be true regardless of their experience level. I would remind you that those who lose everything in recessions or depressions are those who cannot service their debt.
On the other hand, if you’re dead set on using the payment method (please tell me you’ll stop this soon)then again, the option is a far better means. Agreements can stipulate that anyone who misses a payment forfeits his share - immediately. And you move to replace them right away. If everything goes down the tubes, all you’ve really lost is the option money and you’re not obligated to perform further.
I assure you that cash invesments from your investors is the best method of all and you should make it a requirement to participate in your deals. It’s not that hard, really. I mean, c’mon, you’re talking here about $125K for the whole thing (and that’s at your original numbers). Get some people with money. It’s that simple.
Once you try it this way, you’ll never go back.
You asked about the numbers. I can only speculate as to the value of the property, but there is no way that I would offer any more upfront money than $10K at most.
I might take it along with me to show him. I might show him what an extra $1000 a month, or more would look like.
And last, I might just ask if I can buy the house period. No option. No funny stuff. Just cash today. And see what he says.
After he talks awhile. I would break whatever his number is down into increments I could live with. Many, many times I deal with elderly who need money to live on but are afraid or uncertain about leaving their homes.
I understand that. And we can work that out. But first we have to come up with a plan that makes sense for everyone. Him included.
Letters from bankers are good material here. As is a great reputation in the community.
These deals are where I pick up my best houses. I don’t always get them at the best prices, but I always get zero interest. Reasonable down. Large monthly payments. My word that I’ll do what I promise.
And that’s always been enough.
I don’t get every one of these. Often, there’s a relative or someone else in the deal. But I always make these offers above board so that everyone can look them over. They will anyway. Why not make sure that everyone is happy here?
I just purchased a small 8 unit building (in pretty good shape - 6 2bd, and 2 1bd)from a 73 year old woman. The units are probably worth about $150K at best (after some fixup) and they need to be filled with new tenants. We settled on $100K. $10K upfront and $10K per year for 10 years. No interest.
It’s not the best deal I ever made. And it’s not the worst. But I can certainly live with it.
I plan to keep these units a long time. I also plan to do some substitution of collateral (seems like we discussed this clause once before, yes?). It will be a nice addition to my holdings.
PS - I’m often asked about business in general. And what business would be good for someone just starting out. My answer is usually some form of service business. Stock broker, real estate agency, etc.
There a lot of folks who can’t follow my reasoning. Well, here it is. I wouldn’t worry about the disintermediation that these industries are concerned with; the Internet poses no danger to me whatsoever. Never will.
People long for communication. They want to be respected, taken notice of, and engaged. There are many things the Internet will change, but not human nature.
I would talk to this man. If I am interested, he will tell me what he wants. And if I truly listen, I will hear him tell me what he needs.