Selling to Investors - Posted by David Zahaluk

Posted by Kristine-CA on January 10, 2004 at 10:42:16:

Dave: one thing that I see that is missing is the information about cash flow. Investors need to know rents and expenses in relation to debt service. Even newbie investors should be asking for this. Where I am I would have a hard time selling to an investor for 85% of appraisal price unless the rents were fantastic. But every market is different in this regard. I’m working someplace with little appreciation so cash flow is king. Your area may be different.

Sincerely, Kristine

Selling to Investors - Posted by David Zahaluk

Posted by David Zahaluk on January 10, 2004 at 10:31:15:

Does anyone have experience selling rental houses to investors? I specifically am testing the market for new to intermediate investors who don’t have a full time business up and running.

I plan to buy, fix and rehab single family houses that would retail in the $75,000 to $100,000 range, which represents about 50 to 65% of the mean sales price of my market.

I have greater capacity to buy now that I have gotten a bank line of credit (see my post from yesterday under real estate financing).

I have a source of financing willing to do a 5/1 ARM at 5% on a 30 year AMMO with LTV’s of 80% up to 95%. I plan to sell these houses at 80 to 85% of their appraised values, meaning the buyer can get in very light or even get cash back to get started. This financing source may be willing to title the loans in a corporation or LLC (at least he will for me).

What am I missing? What is the downside to the investor? What is it about this offer that makes you interested or want to run for the hills?

It is a lot easier to test this hypothetical offer for free rather spending my own time and money to see what my market says? Your candid feedback is appreciated.

It goes without saying that I am not trying to sell anything to anyone. I only want to work with investors in my own market for logistical reasons. I simply want investor feedback and I respect the No Soliciting rule of this board.

Dave Zahaluk

Re: Selling to Investors - Posted by Alex Gurevich

Posted by Alex Gurevich on January 12, 2004 at 14:07:39:

You’re onto something…conceptually.

Obviously, if you could have buyers lined up to buy from you for cash for 80-85% LTV, you’d be much better off than trying to flip to rehabbers for 65-70% LTV, or even listing in MLS for that matter.

Your buying criteria would change - you can afford to pay a bit more. Therefore, you could be moving many more homes and cashing out quickly.

But I think you’re defining your market slightly wrong. It’s not the new or intermediate investor, per say.

Somebody who is hanging around on this forum, buying no money down courses and attending seminars is already conditioned to pay less. Chances are also high, they have no cash or means to get financed and cash you out.

They won’t make good prospects for this plan.

You’d have to go after (a) existing part-time single family landlords, or (b) “create” your own market among busy professionals (engineers, accountants, doctors, etc.) with money and credit to get financing.

Creating a new market like that means running ads, sending mail, getting them into a seminar room, educating them about advantages of “buy and hold”, showing how wonderful cash flow works with the discounted prices they’ll be paying and the lowest rates they’ll be getting, etc.

You’d have to organize the whole thing into a turn-key, low or no time and personal involvement “package” where a property property manager is available with resources to do “make readies”, maintain and lease rentals, take care of tenant calls, etc.

I think you get the point.

Re: Selling to Investors - Posted by Kawika Ohumukini

Posted by Kawika Ohumukini on January 10, 2004 at 11:52:09:

80% would probably be the max so you might want to consider selling it at 70% LTV to a rehabber and save yourself the time and expense thereby giving you more time to find more deals. At 70% the properties will go quickly. Advertise as fixer-uppers or handyman specials.