Posted by JohnBoy on March 19, 2000 at 13:50:03:
A seller is motivated to sell. They haven’t had any offers coming in and are getting desperate to get their property sold for what ever reasons. They have equity in the property and they will NEED to get some cash out of it, which they would normally get from selling the property.
Since no one has made any aceptable offers on the property, the seller is getting motivated. You come in and would like to buy their property. The problem is, you don’t have any cash and can’t get a loan. Since the seller is “motivated” at this point and NEEDS to get some of their cash out, you might be able to help them solve their problem. You get the seller to either refinance the property so they can pull their cash out or take out a second mortgage against the equity in order to get the cash they need.
After they’ve done this, you would either, L/O the property from them where your lease payments would cover their loan payments, OR, you would have the seller sell to you using a “wrap around mortgage” where your payment would cover the sellers payments on the underlying loan or loans, OR, you would just take over their mortgage or mortgages “subject to”, OR, you would buy the property on a contract for deed.
The end result is the seller gets the property sold and the cash they needed.
To use this approach the seller would need to be “Very Motivated” and have the ability to refinance or get a second mortgage, meaning they need good enough credit, possibily income (depending on the type of loan program), and enough equity in the property to pull cash out.
This is not a common approach since most sellers wouldn’t be willing to do this, although some will if they are motivated enough. You would be limiting your ability to find deals using this approach as your primary tool to use.
If you don’t have cash or resources to refinance on your own then you should concentrate more on building your cash and credit first by turning the properties over quickly.
If the seller “Needs” cash and won’t refinance or take out a second, but you would be able to buy low enough under market value you could flip to another buyer and walk away with the spread.
If the seller only “NEEDS” a little cash up front, then you could put the deal under contract and use the cash from YOUR tenant or buyer that you will be leasing or selling to. You would use the cash your tenant/buyer gives you as a down payment, option consideration, or first months rent and security deposit.
The key is finding “motivated” sellers, not properties. Once you find a “motivated” seller, find out why they are motivated and want they will “NEED”. Not what they “WANT”. They always “WANT” everything they can get, but your job is to determine what they really “NEED”.
They may say we owe $80k and we’re asking $100k. We “WANT” $20k cash out of the deal. WHY do they WANT $20k cash now? What are they going to do with it? They may need some money for moving expenses or down payment money on their next home or rent and security deposit if they’re moving into a rental. How much would they actually NEED for that? If you know a good mortgage broker you might be able to help them with getting financed on their next property so they don’t NEED the entire $20k to put down. You might find them 100% financing if their credit is good and they wouldn’t NEED any cash. They may only NEED $2k - $3k for moving expenses. You could help them out by paying this with your credit card or get them the cash needed from the money YOUR tenant/buyer would be putting down.
The end result is that you find out the problem, find a solution to solve that problem, and the seller gets what they “NEED” Vs. what they “WANT”. Since the seller is “MOTIVATED”, finding a solution and solving the problem will get you into the property.
Remember, the seller will almost always “WANT” everything they can get, but when they are truely “MOTIVATED”, solving their problem by finding a solution to what they really “NEED” will get you more deals closed.