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
