New REI need help with property - Posted by dustin

Posted by JohnBoy on January 22, 2001 at 24:48:43:

First of all, just filing a BK against the second will not get rid of them allowing you to sell the home with just the first mortgage left to deal with. The second is a secured creditor with a lien against the property. Even though you could file BK against them and have yourself discharged from the debt you owe them, they still can foreclosure on the property. They just can’t come after you to collect on any losses they incur from foreclosing and selling the property.

You say you owe a total of $140,300. What is the property worth???

You also stated you already filed a BK a year ago. What type did you file, chapter 13 or chapter 7? Chapter 7 discharges all your debts and you can only file a 7 once every 10 years. A 13 is a repayment plan where you would still be paying back the creditors, only you won’t get nailed with paying all the interest owed and your income will determine how much you could afford to pay into the plan every month.

How were you planning to buy another property if you already filed a BK a year ago? Most lenders require at least two years from the discharge date before they will finance someone that had a BK. Of course, there’s always the creative way to get around that problem which you could learn from reading this site.

One option is to get the second to sell off their mortgage at a discount. A buyer could offer them something to buy out the second at a discount making them the new second mortgage holder and take over your first mortgage in exchange for releasing you from the second.

The big question is how much is your house worth and what do both payments total plus the taxes and insurance?

How old are the loans and what is the interest rate on each one? How many years were they each taken out for?

New REI need help with property - Posted by dustin

Posted by dustin on January 21, 2001 at 18:32:45:

I purchased the CS program 2 months ago and am trying to learn everything but am finding the task increasingly daunting. I am 24 and have absolutely no RE experience. Here is the situation: I found a property for 75k. The owner will take 10K down and finance 65K. The property rents for 650/month. I have NO cash and bad credit. The owners will not finance for investors only occupants. Why? What difference does it make to them. Furthermore, how do i give them added security, as i’m guessing that is why they don’t want to assist in financing for inverstors. any help at all would be appreciated

Dustin

Re: New REI need help with property - Posted by JohnBoy

Posted by JohnBoy on January 21, 2001 at 19:11:48:

For one, if you pay $75k putting $10k down of your own money and rents are only $650, you will be at a negative cash flow.

The reason this seller won’t let you buy this to rent out is because he is probably another investor. Chances are the seller will want 10% - 12% interest on the $65k plus taxes and insurance on top of that. Definitely a negative cash flow in this case.

You NEED to spend your time and energy looking for MOTIVATED SELLERS! Stop looking for properties! Find the MOTIVATED SELLERS and you WILL find the deals!

Here is a post I recently made on the main newsgroup that may help you with this.

Dustin,

The way most people make money in this game is by using creative techniques to solve one persons problem while being able to structure the deal to where it makes you a profit.

The key to finding a lot of deals in this game is to look for the MOTIVATED SELLERS…forget about looking for houses, that’s a waste of time and requires way too much work!!! Narrow it down to dealing with “motivated” sellers and make less offers that get more offers accepted!

Let me give you an example on buying a house for full market value with no money out of your pocket and picking up a quick $5k up front, positive cash flow every month and a nice payday on the back end…plus where talking about dealing in NICE homes…NO junkers!

Mr. Seller has a newer home he purchased about 2 years ago. When he purchased the home he put about 5% down and was able to qualify for 95% financing. After closing cost he had hardly any equity left.

Mr. Seller ended up buying a new home a couple years later. He’s been trying to sell this home before he has to close on his new home. He can’t even afford to list the home with a realtor because he doesn’t have enough equity in the property to even cover the 6% - 7% commission he would have to pay the agent.

Now his new home is ready and he needs to close on it. He closes and figures he’ll sell the old home soon, but soon enough doesn’t seem to be coming. Now he’s starting to have some financial problems because he has to start paying two mortgage payments until someone buys the old home. He has a problem now because he can’t afford to make two mortgage payments. If something doesn’t give pretty quick he’s going to fall behind on the payments on the old home. He’s going to pay the new homes mortgage first. But he doesn’t want to be late or get behind on the payments of the old home either…he’s worried about damaging his credit if he misses any payments.

This is where I would come along and be in a position to SOLVE HIS PROBLEM! I can put a stop to his worry and stop the bleeding TODAY! All he needs to do is agree to my TERMS and I’ll even pay him what he owes on the property, which is pretty close to full market value. He knows he wasn’t going to get any money out of it after paying off his mortgage and closing costs, so all he wants and all he NEEDS, is to get out from under this mortgage!

I agree to take over his mortgage. I take it over “subject to”, which means I assume his loan without even qualifying through the lender that holds his mortgage. He will deed the property over to me. I now OWN the home. HE is still on the loan that has the lien against the property. He remains responsible to the lender for that loan until I pay it off! Usually within a few years when my tenant ends up exercising their option that I will give to them under a lease option agreement. I won’t be liable for the loan on the property. His bank can’t touch me if something were to go wrong. The loan is in HIS name, not mine! However, I will be liable to the seller to perform on our contract agreement to make his payments and pay off that loan eventually, but my liability is to him, not his bank.

He deeds the property over to me. The house is worth $150k. His loan balance is about $145k. I agree to start making the payments in 30 - 60 days from today! Now I have 30 - 60 days to market the property before my payments start. The payments are $1400 PITI

What’s the FASTEST way to sell a property? Sell on TERMS! So I run an ad in the paper.

NO BANK QUALIFYING!!! RENT TO OWN NICE! 4bd/2ba House Call xxx-xxxx

The phone starts ringing off the hook!

I find a potential buyer that has $5k to put down and says he can afford to pay $1700 per month. ($150k homes in the area would rent for $1200 - $1400 per month, so getting $1700 a month on a $1400 rental when offering an OPTION to buy will bring a premium rent and people will gladly pay it because no one else will even finance them because of one reason or another) I agree to give them an option to buy the home for $165k in one or two years. Again, you get a premium on the sale price because you’re offering TERMS!

I collect the $5k up front as “Non-Refundable Option Consideration” and “IF” they exercise the OPTION, the $5k will be deducted from the purchase price of $165k leaving them with a balance owed of $160k. If they don’t exercise the option the option money paid is non-refundable and is lost!

I get the $5k up front, plus first months rent of $1700. Since I was lucky and found this tenant the first week I get to keep 100% of the first two months rent since my payments won’t start for 60 days! So I collect $5k + $1700 first month rent up front for a total of $6700. The following month I collect the full $1700 for rent and the 10 months after that I collect $300 per month positive cash flow. At the end of the year IF they exercise their option they will pay $160k. After paying off the underlying mortgage of $145k I’ll collect another $15k at closing.

So lets see, that’s…

$5k option money up front $1700 first months rent $1700 second months rent $300 x 10 months rent = $3k $15k at closing

That’s $26,400.00 over 12 months total PROFIT!

Now what happens if the tenant/buyer doesn’t exercise the option in a year???

WONDERFUL!!!

Now I get to start all over again!!! I get to collect another option fee, raise the rent after a year for inflation and get a higher selling price for the option the next time around!

I just keep repeating the process over and over again until someone eventually exercises their option!!!

Assuming every tenant was to exercise their option in the first year…how many deals like this would you have to do each year to make $100k???

Just FOUR deals like this one and you’re making $105,600 per year!

How many hours would that work out to be to find and structure a deal like this and get a tenant/buyer in the property? Not very many!

How many hours per week would you have to put into working at your job to make $105,600.00 per year???

So how do we find these deals?

One thing to remember is that the typical home buyer or seller does not understand any type of creative real estate buying or selling. They typically use a realtor to buy or sell. When that realtor doesn’t sell that home or when that buyer can’t get that loan…that’s where motivation starts to set in. The seller starts getting motivated to sell and the buyer starts getting motivated to buy. In either case they both just want out or in. The seller will just let the property go to get their problem solved and the buyer will gladly pay any price to just get in if you can solve their problem.

Motivated sellers are those that have been trying to sell but haven’t been able to for one reason or another. Or they may be facing foreclosure, or they may be in a divorce situation, or they may have been transferred with their job and need to move on but they don’t want to leave the house empty or deal with renting it out to renters being so far away, or they may have lost their job and can no longer afford the home and need to find something less expensive, or they may have purchased another home and are now stuck with two mortgage payments, or for what ever other reasons they just need to get out from under their mortgage payments.

The buyers just need someone that will sell to them. They can’t get a bank loan or some just “think” they can’t get a bank loan and they only care about two things! How much down and how much per month? If they can afford the payments and have enough to put down in order to let them in, price doesn’t matter to them as much. They just WANT to be able to buy a home!

Your job is to become the “PROBLEM SOLVER!” Instead of thinking in terms of, I’m looking to buy properties, or I want to be an investor, or how do I buy properties with no money, or how do I get financing, etc…

Start thinking in terms of being a “problem solver”. Your job is to find SOLUTIONS to fix someone else’s problems! Your job is to sit down with these people and find out what their problem is. Once you figure out what their real problem is, you now know what they NEED! They all WANT an all cash sale. They WANT full price and WANT someone to just waltz in and buy their home the traditional way. But your job is to find out what they really NEED! Once you find out what their PROBLEM is, then you can determine what their NEED is. Once you know what they really NEED, then your job to get the deal closed is to just come up with the SOLUTION that will get them what they NEED!

You aren’t a real estate investor, you are a PROBLEM SOLVER! You find SOLUTIONS to solve anyone’s PROBLEM! That’s how you make the deals come together!

The best way to find the motivated sellers is to get them to find YOU! You get them to find you by getting the word out that you buy property! Any property, any condition, any price, any time! It doesn’t matter. Just present the property to you and you will figure out a solution to solve the sellers problem to get them what they NEED!

You get a bunch of business cards printed up. Put them out everywhere you go. Hand them out to everyone you meet. Get flyers made up. Post them everywhere you can. Put them in Laundromats, bowling alleys, advertising boards in supermarkets, car washes…put them any where you can put them! Then get some poster signs made up. Post them anywhere you can. Telephone poles. Nail them to a stake and post them on every intersection in town. Let the world know that DUSTIN buys houses for CASH! Just give him a call!!!

Eventually people will start calling YOU! Most won’t be motivated, but some will! You want the ones that are motivated. When they call YOU, that’s when you screen them over the phone first and determine their motivation. Then you go visit them and get face to face with them and build a relationship with them. You want them to get comfortable talking to you. They may want to talk about their dog for all you care. Let them! Get comfortable with them. Let them build some trust in talking with you. When ever they talk, you SHUT UP and just LISTEN! Listen to everything they say. The more they talk, the more information they let out. The more info they let out, the more you learn about their PROBLEM. The more you learn about their problem, the more you will be able to find out what they really NEED! Once you got that information you can now figure out a SOLUTION that will SOLVE their PROBLEM by being able to give them what they NEED! Your solution to their problem gets them what they need and you make a profit for your problem solving skills! You’re a PROBLEM SOLVER! You’re the DOCTOR OF SOLUTIONS! DR. DUSTIN, the master of problem solving!

Now, get busy and go out there and pick up two deals by the end of the month and then report back with your success story!

Check out Bill Bronchick’s course on lease options. I highly recommend his “Nuts & Bolts to Creative Real Estate Transactions”.

You can find both courses at these links:

http://www.creonline.com/c-131.htm

http://www.creonline.com/c-122.htm

You can check out all his stuff at this link:

http://www.creonline.com/legal.htm

You will get my bill in the mail at the end of the month! LOL

JohnBoy… - Posted by Amy

Posted by Amy on January 23, 2001 at 20:13:45:

Your scenario was amazing and really opened our eyes about the process! How long have you been doing this? I agree you should be a coach/mentor, will you be ours??? :slight_smile:
A few questions: 1st, how many mortgage companies/banks would NOT allow him to deed the house to you? And if that’s a problem, does he do it anyway and hope they don’t find out? Should we avoid sellers listed with real estate agents?
2nd, Is there a time limit to your contract with the seller like with contract for deeds (1-3 years?)
Do you make the tenant responsible for any damages, or just take it out of the 5k? What state are you in by the way? Do you find that this is a best case scenario or are situations like this honestly prevalent if you know how to find them? Do you have a sample of the deed you mentioned, that the seller deeds the house over to you, showing you own it? How is he able to do this when there is a lien on the property?
Were you agreeing to pay $145k regardless of what was actually owed on the mortgage at the end of the year?
Any suggestions about what the business cards should say?
Thanks so much for your time!!

Re: New REI need help with property - Posted by James Blackwell

Posted by James Blackwell on January 21, 2001 at 21:57:21:

Can someone help me? Ive been reading CREOnline for quite sometime, and for the past few years I have been picking up bits and pieces here and there, I am suprise that Realtors are not well verse on this information. To make a long story short, I have a problem that I cant seem to get out of at the moment. Im engage to get married to my Fiance in North Carolina, some time in 2001 in which I will be moving there also. The problem is,I am living in Maryland at the present, I own a home here and my mortgage balance is about $118300, and I have a 2nd mortgage at about $22000, which is totaled at $140300. Now this is more than what the house is valued at. I have a VA loan and I was told that I could write to my mortgage co and ask for a VA Compromise. Well I just heard from my realtor the other day and they said that the first Mortgage CO couldnt do anything until I got a contract on my house, and then they ask me if I could write the 2nd Mortgage CO, to work out something. My question is, what could I write them? I wouldnt know what to say. He told me to write the 1st one and tell them that I was going to get married and I was moving to N.C. because my Fiance couldnt move with me because of her aging mother whom she wanted to be with. Plus I just filed Bankruptcy last year and I didnt want to damage my credit any more than I already have, because my Fiance and I have plans to purchase a home when I move to N.C. Also he tells me that my credit will look bad anyway if I ask for a VA Compromise. Now I can file bankruptcy on the 2nd mortgage, leaving just the first mortgage to deal with, which will enable me sell my home but my main problem is getting rid of 2nd mortgage. I hope I havent gone to far from the subject of investing in real estate, but just reading the testimonies gave me some what of an impression that I may be going about things the wrong way or there may be another way out of this. I would greatly appreciate it, if someone could give me some kind of feed back.

Thank You,
Mr. James Blackwell

Re: JohnBoy… - Posted by JohnBoy

Posted by JohnBoy on January 24, 2001 at 24:09:10:

Probably just about every bank wouldn’t allow it. Once you do it you will violate the due on sale clause in the mortgage agreement with the lender on most loans. You set it up to where you just hide it from the lender. You would have the seller deed the property into a land trust, naming themselves as the beneficiary of the land trust. Federal law prohibits any lender from being able to call a loan due when the seller deeds their property into a land trust, naming themselves as the beneficiary. Once that has been done you have the seller “assign” their beneficial interest over to you. YOU now become the beneficiary of the land trust which owns the property. Only the deed is recorded naming the land trust and the trustee of the trust. The assignment of beneficial interest does not get recorded, only notarized. Once the seller has assigned his/her beneficial interest over to you they will have triggered the due on sale clause. But since the assignment is kept silent and doesn’t get recorded, the lender will unlikely be able to ever find out unless you or the seller where to ever tell them about it. Now why would anyone want to do something like that??? :wink:

If the lender was to ever check the title on the property they would see the name of the land trust. They “might” start asking to see the actual trust agreement then, just to see that the seller is named as the beneficiary of the trust. Although you wouldn’t have to let the lender see the trust agreement, it wouldn’t matter since the seller’s name is what will show in the trust agreement as being the beneficiary. At that point they would most likely be satisfied! Since the assignment of the beneficial interest is kept silent and isn’t recorded, the lender wouldn’t know about the assignment.

Real estate agents are going to be harder to deal with since most of them don’t understand creative real estate. Any seller that has their property listed with an agent is going to have to pay the realtor’s commission no matter what type of deal you could manage to work out with them. When a seller calls and says they have a listing with a realtor I usually tell them to call me back after the listing expires. Meanwhile, let the agent try and do their job and sell it out right for you.

On a “subject to” deal their is no time limit. The seller is told that it will usually be a few years until the property is sold to where the buyer can get new financing, but their is no guarantee of that. We only guarantee that we will pay the mortgage payments on time until the mortgage is paid in full. Their is more to all this with doing subject to deals that requires more paperwork. You need the sellers to sign a disclosure statement, power of attorney, trust agreement, assignment form, etc, etc.

When you L/O from a seller that you will be lease optioning to someone else, YOU are responsible for all repairs and maintenance to the seller. Your tenant/buyer is responsible to you for taking care of that. Should your tenant/buyer not take care of it or they ever stopped paying the rent, YOU will still need to cover your rent amount with the seller and YOU will need to take care of getting your tenant out and YOU would be liable and responsible for repairing any damages caused by your tenant/buyer just as if you owned the property yourself. This why you should always get a decent amount of non-refundable option consideration from your tenant/buyer up front and structure your deals so you get a decent cash flow each month. Also, screen your tenant/buyers well, before letting them have the property and signing any agreements with them.

When you have the seller deed into a landtrust, you just write up a new deed naming the land trust as the owner. Then you just record the deed. That doesn’t affect the fact their is a mortgage against the property. The mortgage is just a security instrument that secures the lenders interest in the property should they ever have to foreclose and take the property back to cover the mortgage balance that is owed against the property.

Every situation is different depending on the sellers NEEDS and what your plans are for the property.

When you take the property “subject to”, you now OWN the property. Anything owed on the mortgage is what you would have to pay. If you just made the payments on the mortgage and a year later you had a tenant/buyer that was able to get financing to buy the property, then the loan you took over would get paid off from your buyer’s proceeds and anything left over would go to you as your profit.

I BUY HOUSES FOR CASH!
ANY PRICE, ANY CONDITION, CLOSE IN 48 HOURS!
CALL AMY XXX-XXX-XXXX

Now I’ll answer your next question on the business cards before you ask it. Because I’m psychic, that’s how I know what you would ask. LOL

You probably want to know how you can say you will pay CASH on any price?

Simple! You didn’t say how MUCH cash you would pay. You just said CASH. So if you had a property worth $100k, would you pay $100k CASH for it? Of course not! You’re in business to make a profit and to justify paying all CASH, you will have to get one heck of a deal to do that! So you could offer the seller $50k CASH for his $100k property. Will he take it? Unlikely, but sometimes you may get surprised! In most cases they won’t except that offer. So what if you were to give them their price in exchange for letting you buy it on your TERMS??? If you can get your terms, then naturally you could give them a much better price! If you were to run across someone that just happened to be so desperate that they accepted your offer of $50k CASH, then you could easily get the money from a hard money lender if you didn’t have the cash yourself or the credit to get your own financing. Hard money lenders will loan up to 65% of the properties market value and if it’s a true hard money lender, then credit, income, job history, etc., isn’t a concern at all. The hard money lender only cares about the property. As long as they have enough equity left after loaning you the money they know they are well secured on their money because they can take the property and sell it at a discount and still make a profit off the deal after getting their money back.

For all the contracts, land trusts, and deeds, go to this link and check out Bill Bronchick’s course “Nuts And Bolts Of Creative Real Estate Transactions”. It’s a must have for anyone doing real estate deals.

My finger is tired now, it needs a rest! LOL