How do you win on MLS? - Posted by Ehab

Posted by Joe(TX) on August 19, 2003 at 20:34:26:

Thanks for the response. I actually played with the numbers in Excel and came up with the 11.65%.

What happens with the investor in 5 years? He has made his money in that the F/B owes $107k and the existing mortgage is only $23k leaving him positive $78k. How does he cash out and realize the 12% annual that he has accumulated since it’s still tied to the F/B and the $23k existing mortgage? Does the F/B refinance?

How do you win on MLS? - Posted by Ehab

Posted by Ehab on August 18, 2003 at 09:06:53:

I have a realtor send me a list of fixer upper and foreclosures every Monday, yet by the time I get comps and visit the properties for my walkthrough–which total takes about 5 days–it seems that I’m always too late with my offers.

Any advice for winning with MLS? Should I just give up on it and hope people call on my signs?


Offer first - tthen due diligence - Posted by John Behle

Posted by John Behle on August 18, 2003 at 20:14:45:

I began investing and bought a whole two properties in the first year and a half. I spent an incredible amount of time cutting out ads, prioritizing, calling, driving by, etc. and … wrote very few offers. By that time good deals had gone to more astute investors.

When I got it through my head that that was an incredible waste of time and energy, I bought a million dollars in property in the next three months. When I got it about using real etate agents and some partners, I bought a million a month in property.

The first step was to avoid useless activities. If you do the due-diligence on properties first, you seldom get around to getting an offer through on a good property. When I would find a property that looked good, then I would get the seller in my office and sign an offer. A truly motivated seller will come to your offer. Whatever I am unsure of as to the property will be put in a contingency. The value is always an issue and every offer was “subject to a FNMA appraisal of $XXX,XXX.XX or more. Appraisal fee to be paid by seller and reimbursed by buyer at closing should appraisal be $XXX,XXX.XX or more.”

If a seller balks at paying for the appraisal, I point out that they will be re-imbursed at closing. I mention that if the value is as represented, then there is no risk to the seller. Most only balk at that point when they know it will not appraise at the price they are trying to pawn off on me.

If I haven’t seen the property (most of the time) and even if I have seen it, it will be subject to my or an associates inspection and approval". Even if I have seen a property, I would want a more thorough inspection. To do all that before striking a deal and coming to terms with a seller is a total waste of time.

I can pull comps by the computer within seconds if I want them on a property. To take five days for all this is way too long. I just want to know at first that we are in the ballpark. A more thorough valuation can come later.

My job at first might have been termed “property analyst” or “real estate researcher”. When I realized that my survival and future depended on me becoming a “deal maker” then it all changed. I learned to pull up a list of great properties in seconds off the MLS within minutes or hours of them being listed. The best ones got offers right away. I began to use agents and hired 8 to work for me putting out offers all day long. I gave them a list of leads and a stack of signed offers - subject to my inspection and approval of the property. I trained them as to the clues to look for in a property and what type of deal it could be and offer to write. At one point I had to number the offers and leads because I had two different agents present two radically different offers to the same seller on the same day.

The key to success is to make deals. Terms is what drives the profits and motivated sellers. When you thoroughly screen sellers and properties quickly in phone calls, then there are few that you actually have to reject when you do your later due-diligence.

I do NOT advocate writing offers on properties you don’t intend to close on. If I present the offer or have it presented by an agent, I want the deal - if it is as represented by the seller, agent and other “preliminary” due diligence.

I do NOT advocate tying up deals or sellers with the hope of re-selling or flipping the property. I do not operate that way. The only way a deal isn’t concluded is if there are hidden proplems with the property or title. I believe the practice of committing to buy a property and backing out via a “weasle clause” because you can’t find a buyer is wrong. It hurts people. It’s un-professional and un-ethical. If I say I will buy a property, I will do so unless the agreed upon due-diligence shows problems or contradictions. Sometimes that happens. We had one seller that represented a property was free and clear. After putting time, energy and money into the deal, we found out he had two loans, no equity and was a few days before foreclosure. I now check titles before or shortly after an offer is accepted.

Re: How do you win on MLS? - Posted by Ronald * Starr(in No CA)

Posted by Ronald * Starr(in No CA) on August 18, 2003 at 10:57:04:


You are being very inefficient. Five days before you can look at a potential buy?

You need to learn the market values in your area so you don’t need to pull comps for every property. You probably also need to get more efficient at getting comps.

If you are serious about real estate investing, you should have a service such as DataQuick or First American Real Estate Solutions, if you are in a major population center where they operate. If ncecessary, get a subscription in conjunction with some other investors.

Here in CA, we can get comps faxed to us from title companies within a couple of hours. Since you never mention where you are, I don’t know if that is so where you are.

Good InvestingRon Starr****

Re: How do you win on MLS? - Posted by Brent_IL

Posted by Brent_IL on August 18, 2003 at 09:32:48:

One thought is to see more property so that you’ll know the range of recent sales. Then you’d just need the walk-through to establish your top offer.

If you’re working with foreclosures, you won’t need a walk-through until after you sign a contract.

Re: Offer first - tthen due diligence - Posted by Brent_IL

Posted by Brent_IL on August 19, 2003 at 01:24:47:

John Behle,

I wish you would post on this board more often. I am always amazed at the quality of the information that I learn from your posts. I sincerely appreciate it. Thank you.


Re: Offer first - tthen due diligence - Posted by Eric

Posted by Eric on August 18, 2003 at 22:32:33:

What is your investment strategy? You talk about buying $1 million a month in property?!?!? Do you buy and hold/rent or fix and sell? Lease options? How do you buy so much property? Very leveraged or just have a lot of money to work with? Thanks. Eric

Re: How do you win on MLS? - Posted by kgreen

Posted by kgreen on August 18, 2003 at 10:33:36:

If you do not do a walk through to estimate repairs, how do you know what to offer or how much profit margin you have on the home?

Re: Offer first - tthen due diligence - Posted by John Behle

Posted by John Behle on August 19, 2003 at 12:42:34:

That was a few years back. Some of it we were keeping and renting and others were sold for low down on a contract for the cash flow. We had one loan officer at a mortgage company pretty much full time just on our deals, but many were all cash or paper trade deals.

A large number of the deals were for the trade of existing notes that I had in portfolio. About one out of every three offers my agents presented went through (not always on the first offer of course). I had extensive backup packages on the notes including paperwork, title work, appraisals, payment histories, pictures, etc. and a computer program that would help them select the notes they needed for a deal and print summaries of the payments, rates, terms, etc.

Our market changed to less of a buyer’s market and I focused more on paper instead of properties. We have properties now, but few residential as I hate management. I’m more inclined to commercial properties, but won’t pass up a great deal in the residential area.

My best experience with agents were with the new ones or non-mainstream. They either hadn’t been indoctrinated in the typical way of doing things or had already broken out. Quite the deal for them. Office space, phones, great training, leads, signed offers and 100% commission split. You can get outside agents to play your game, but I found it so much easier to have them in house in my brokerage. As the broker, I did their training and could step in to help in negotiations. Some of the deals were high tech negotiations and required some real finesse. Doing a paper trade deal is very possible - IF - you know how to identify the right property and negotiate the deal.

Re: How do you win on MLS? - Posted by Brent_IL

Posted by Brent_IL on August 18, 2003 at 14:22:01:

My approach is sort of inside out, because my concern is making a deal with the seller. Anything else is secondary because if there is no deal I don’t care about repairs.

I sell on lease purchase. I know what similar houses in fair shape are worth at quick sale value, so I know what I can sell them for by offering owner financing.

I mentally allocate $3.00 a square foot for possible new fixtures, patching, painting, floor covering, and landscaping. I’m not very good at estimating repair work. I have the seller warrant that everything but chattels will be in good working order for 18 months after closing. Just as a mortgage is the security agreement for a note, the sellers sign a performance mortgage as the securing agreement for their compliance with the terms of the purchase contract. According to the terms of our agreement, if they don’t pay me, I don’t pay them, but I get credit as if I had. No repair worries.

The price is addressed in two ways. If the appraisal comes in low, the contract readjusts the financials proportionally. If the way I set the terms will work on one price for a given house, they will work on all prices for the same house.

Since many of the houses I buy are over-priced, I pay for imaginary equity in Monopoly® money to keep the sellers happy, so my acquisition price is not affected that much.

The seller tells me what they want and I come up with a way to give them their heart’s desire. All they have to give up is full security for their note and a portion of potential interest earnings.

I try to hypothecate as many deals as I can, so I don’t worry about profit margins. If I only have 3 or 4 hours invested, $20,000 is good, but so is $8,000. Over the long term, I’d estimate that in a four-way transaction between the seller, me, my buyer, and the 12% investor that cashes me out, I leave the settlement table with 14% of the actual property value, net after everything.

As I said, to me, the deal making is everything.

O.K., Joe and Osirus, but this is it. - Posted by Brent_IL

Posted by Brent_IL on August 19, 2003 at 01:58:45:

I?ll give it a try, but no promises.

My challenge is that facts sort of just coalesce in my head, but I have a hard time explaining what I?m doing to others. When I?m unclear with my answers, it generates questions that I answer unclearly that beget more questions. See my problem?

The Monopoly® money terms will have to wait. It?s too late for a cash flow primer.

Here?s some background. Two paragraphs herein are cut-and-paste.

When I say that I try to hypothecate as many deals as I can, all that I mean is that I construct a deal that yields a sufficiently high return, so that if I sell the income from the sandwich position to another investor at a lower yield, I will make a profit. I don?t sell a house because a resident/beneficiary has already purchased the house I bought. What I?m selling is the income stream and balloon payment from the net cash flow of that particular deal. I could be just the balloon. It is due in 18 months to 5 years depending upon my commitment to the sellers. Seven or eight years, tops. I use lease/purchases (NEHTrust-type) to eliminate all of the costs of ownership. What I?m left with is the difference between what I owe and what is owed to me.

This is sold at a discount for whatever lump sum will yield a 12% annualized return for the investor.

Getting the first cash flow buyer is a project. The rest will flow naturally from that one. When you are looking for your first moneyman, remember that some ROI?s have more appeal than others. It isn?t always the highest rate of return. For example, I will get more investor money by promising a 24% annual return that I would if I promised 47% because, while most of the deals could support the interest rate, the ROI will be perceived to be too good to be true. 14% is thought of as an excellent return, but only a crook offers 27%. Investors aren?t familiar with the returns developed by CRE practitioners. To them a 100% annual return is unheard of, and an infinite return is inconceivable. Look at advertisements in the financial press to get an idea and add a point or two.

For me to pay 24% the scenario would have to be:

1 ? Tell me when you want your principal back.

2 - Review the pro forma. I?ll never change the contracts, so I don?t care if you read them or not.

3 - You have one meeting to ask questions. I will answer them. That?s it.

4 ? If you believe what I?m saying, give me money. Wait for the pay-off. No more interaction.

5 ? If you think I?m off in la-la land, put your money back in your pocket and say goodbye. No more interaction.

Then again, 12% has a better image than 13% or 10%. The dealmaker is in complete charge of the rate offered because charges, fees, quasi-contracts, and the like can be put in place to make the income fall into the range that you?ve determined ahead of time. Recall that we aren?t selling the seller?s deal or the R/B?s CFD, but we?re selling a spread position constant.

The 12% investors aren?t all that easy and take more effort on my part. Many have been burned before. Once they?ve been paid, they are easy to get to reinvest from that point onward. I started to pay 12% in 1979 when the prime rate was on its way to 20%. As I learned the art of CREI, the discount rate became less and less important, and turnover became more significant, so the rate didn?t change. Besides, when I talk to people, I like being able to move the decimal point to the left to determine their 1% a month return.

All deals have common elements. Existing financing is taken over subject-to. Always.

Every purchase contract contains redundant verbiage to implement eternal subordination and substitution-of-collateral.

All purchase money mortgages have a payment that is capped at 90% of net income less the payments for the original underlying financing, regardless of the payment schedule. Any underpayments are accumulated and paid with the last scheduled payment.

There is a moratorium on payments for one to how-many-months-can-I-get-away-with.

All but zero interest or less-than-zero interest PMM notes have some percentage of the first scheduled payments going directly to principal.

There are about 30 other pro-buyer clauses in the standard contract to purchase. A few are mutually exclusive, but I can choose the ones that I want to mix-and-match after the contract is signed, but I have to decide what to do before the documentation is drawn up. That way I can optimize the exit. This doesn?t affect the seller unless he asks for something that changes his position.

When you design your deal keep in mind that financial calculators are stingy. They flatly refuse to make any payments for you. When you?re developing the financing package to purchase a property, know the risks; use built-in safeguards; and don?t make promises that are exceedingly difficult to fulfill, or promises that are impossible to keep without flocks of ducks simultaneously lining up in row after row.

It?s analogous to seeing the building plans for a new house by simultaneously viewing several plastic overlays of the different phases of construction. The people who dig and build the foundation have one set of plans. The tradesmen who frame the house use another set. So it is with the plumbing, electrical, HVAC, carpentry, and finish crews. Although they are interdependent, each of these blueprints are drawn and put in use independently of the other sets of plans. When transferred to transparent overlays, the only way they make sense as a unified whole, to one such as me, who is not familiar with blueprints, is if you pile them from the bottom up and view the entire stack as a completed picture. The plan?s compilation has to be worthwhile for the project to be built.

So it is also with a financing package we design to buy a SFH investment. We look to the house?s existing equity for quick money for closing costs and down payments. Longer-term financing is arranged with the actual carrying capacity of the property and its contract sale value in mind. Individual components can be developed to address specific aspects of the transaction, but when you put everything back together, the combined costs, taken as a whole, must be low enough to warrant buying the property.

Our goal is to keep the overall percentage level of limited-liability semi-secured indebtedness very high while simultaneously keeping our cash payments and real estate secured obligations very low. This is done to keep our return on investment in the upper double digits. When we are convinced that it would take an act of God not to get a high return, we feel confident in passing on a portion of the return to someone else.

Here?s a simple example of a buy-sell-hypothecate transaction. It?s a simple example because I didn?t build in any extra tax advantages to sell to a fifth-party. I?m also going to use a purchase money mortgage interest rate of zero to cut down on the calculations. If you aren?t getting zero-interest seller financing, it?s because the sellers are not must-sellers, or you aren?t asking for it. If I have to pay interest, I?ll get another seller concession that will negate how interest affects the financing. There are many variables to these agreements, but I?ll try to adjust as few terms as I can to make the point.

Asking price - $100,000

Purchase price - $100,000

Existing loan - $50,085 - 8% APR; $410.91 current monthly payment.

CFD sale price to R/B - $110,000 - $1101.92 R/B payment to me. He owns it (kind of) so he pays the expenses. I have a dozen mini-talks that I give people to explain the reasons why I want to do things in a certain way. I don?t have a buy-this-house-with-100% financing talk. All that CFD buyers want to know is how much down and how much a month. No talk necessary.

The seller, a wild and crazy kind of guy, wanted 20% down. Purchase money mortgage note was rounded off to $30,000 with monthly payments of $400 and a five-year balloon. The payment is $400 because I spent 15 minutes by first asking the seller what he felt the place would rent for, and then asking him about the property?s expenses. If he had low expenses, I kept suggesting categories until his estimate was realistically in the ballpark. The net operating income was $400. He was losing money and didn?t even know it. He was lucky I agreed to make the first mortgage payment from another source.

Each month, a third-party bill payer deposits the R/B?s check, sends the seller $400, and sends the rest to the first mortgage holder. If there were junior liens, he would send it to the one that was charging the highest interest rate. There is no monthly income left for me.

In five years hence, the additional payments to principal will have reduced the balance of the first to $23,044. I will owe the seller $6,000. My R/B will owe me $107,248. The difference between what is owed to me and what is owed by me to others is $78,205.

Before closing with the seller I sell my beneficial interest for $44,375 to one who wants a 12% annual return for five years. I decided to pay down the first because guys who write checks for tens of thousands of dollars do not need to pay taxes on additional ordinary income from the cash flow. His LTV cushion increases rapidly. It was great to begin with because I used the SOC to move the purchase money mortgage off of the property. It is a much cleaner deal that way. He sends the check to escrow.

I direct the closing agent (my lawyer) to give the seller $20,000 for the down payment I promised in the purchase contract. After settlement, the lawyer gives me a check for $24,375 plus whatever is leftover from the R/B?s contribution to closing costs.

That?s the extent of my involvement unless something goes amiss with the R/B. It is my responsibility to fix it even though I am technically out of the middle.

This is the basic idea. The more you learn about how the pieces fit together and how everything interacts, the more exotic financing terms you will be able to use the reduce the present value of the contract terms to well below FMV. I try very hard to never go above 81% of true market value.

Box Score:

Seller - $20,000 less about 70% of closing costs.

Investor - 12% ultra-save investment.

R/B ? 100% financing on a new home: 2% to 4% down stroke used for 30% of closing costs and charges I made up. Until recently, 5% to 6% was the average.

CRE practitioner - $24,375 plus.

In real life, it is only one step more than a L/O and the same number of steps as a rehabber using hard money. It takes a lot fewer hours to do this than it does to do a rehab.

Hooray for our side.

This is it; I?m burned out.

Re: How do you win on MLS? - Posted by Joe

Posted by Joe on August 18, 2003 at 19:24:35:


Could you give an example with numbers ($) to explain your process? I am a little dense and need some help to follow your process.


Re: How do you win on MLS? - Posted by osirus

Posted by osirus on August 18, 2003 at 16:38:26:

Could you give a example of this hypothecation and Monoply money use?

Re: O.K., Joe and Osirus, but this is it. - Posted by Joe(TX)

Posted by Joe(TX) on August 19, 2003 at 12:28:24:

Are there any books that discuss this type of real estate investing? Software that helps you determine these numbers? What is the R/B’s interest rate?

Sorry for all the questions, I’m new and very interested in more info.

Re: O.K., Joe and Osirus, but this is it. - Posted by Brent_IL

Posted by Brent_IL on August 19, 2003 at 19:30:47:

I’m not sure about the books. I gravitate to RE books that address specific topics. I believe that Robert G. Allen’s book, “No Money Down,” is an excellent overview of buying on terms. It?s an old book. If you read it, keep in mind that the numbers he uses are dated. Ten percent annual appreciation, unassisted, is long gone in most of the country. It is the concepts that are important.

Excel will work as well as any other program, but it won’t do much good when you are negotiating. This is subjective, but I think that most sellers are less intimidated by calculators than they are by laptops. I?m already bombarding their mind with new ideas, why should I add to their anxiety. There is an article on this site about using a financial calculator. If you want to do this kind of thing, you have to make your calculator stand up, sing, and take a curtain call when it?s finished.

99% of all CFD trust sales that I do have the same financials. I mark up the real market value by 10% and offer 100% financing on a 30-year schedule at 11.65%. These terms approximate a 1% a month payment. No one ever asked why we charged 10% more than a LIBOR loan because we are the only shot that our buyers get. If the buyers contribute more that 5% or 6% I’ll give them an adjustment when they refinance.

The idea is that many small seller concessions add up to a large profit.