What is the polite way to.... - Posted by JTF

Posted by JohnBoy on February 27, 2002 at 16:22:08:

If you purchased to hold as a rental then your income would be less than what it would be on a L/O. Selling on a L/O usually allows you to get above market rents. Holding as just a rental will only allow you to get market rents.

Do the math. It currently rents at $775 plus the landlord is paying the water. If you were to buy this as a rental then take the amount you would be financing and compare your PITI payments plus the water cost VS. the $775 in rents you would collect. Where does that leave you with on getting a positive cash flow? If rents were only $775 then my PITI plus the water expense each month would have to be no more than $675 per month max. to allow me to make at least $100 per month in positive cash flow.

So assuming water was $50 per month, and taxes were $100 per month and insurance was $50 per month, that would be $200 right there, leaving only $475 for P&I payments on my mortgage.

If my interest was 7% on my loan then the most my mortgage could be to keep my P&I payments at $475 would be a maximum loan amount of $71,397.00 to keep my cash flow at $100.

If my rate was going to be 8% then the maximum loan amount I could go would be $64,735.00 to keep my P&I payments at $475 to make my $100 minimum in cash flow.

What is the polite way to… - Posted by JTF

Posted by JTF on February 20, 2002 at 22:37:33:

tell people that you will only cash them out at 75% of market value? I find it easier to explain to someone that I want to purchase their on terms, rather than for pennies on the dollar.
Any thoughts??

Re: What is the polite way to… - Posted by Carey_PA

Posted by Carey_PA on February 22, 2002 at 13:12:37:

I agree with Johnboy’s approach. I am upfront and honest with them, I tell them that I need to make money and if I can’t make money on their property, then frankly I’m not interested in it.

They usually understand that and they are ok w/ giving a steep discount now or they want a different type of offer.

I’ve had one guy tell me that I was nuts and that he wasn’t giving his house away, blah blah blah. I reminded him that he called me and he’s more than welcomed to keep my name and # and call me in the future. He hung up on me :slight_smile:


Re: What is the polite way to… - Posted by Kent C

Posted by Kent C on February 21, 2002 at 01:07:50:

I make a low ball offer. WHEN it gets rebuffed, I counter matter-of-factly…“Of COURSE your property is worth more. Thats why I’m interested in it. But I am a business man. This is all I am willing to give right now…but it IS cash and it IS right now. If you wait , perhaps, 6 months you may get more than I am offering. Then again, you may not. Let me know if I can be of service…thank you …good day”. And walk away.

I base a houses value at what I can sell it for quickly. In most cases that is no more than 80% of FMV. Tell them this.
Home value is a function of time. It is worth 100% if you have 6 months. It is worth 80% if you have 30-90 days. It is worth 50-70% today.

Kent C

Re: What is the polite way to… - Posted by JohnBoy

Posted by JohnBoy on February 20, 2002 at 23:17:45:

The only way I could pay you all cash is if you were willing to take a STEEP discount on price! I have to make a profit to justify my investment, risk and time involved. If I have to place new financing on the property then it will cost me thousands in closing costs, holding costs while making the payments until I get someone in here and any realtor commission when I go to resell it in the future. All that can eat up 20% - 25% of the value of the property easy! Then I have to still account for my profit to be made on top of that.

Now if we can do this on terms I can go a lot higher and probably get you close to market value! So unless you really NEED to get this cashed out I wouldn’t recommend taking that kind of a loss on your equity. Of course, I’d be thrilled to buy it that way if that’s what you really prefer, but I would hate to see you have to do that when we can get you a lot more by working out some terms where I can get you top dollar for this!

Re: What is the polite way to… - Posted by Mark (CO)

Posted by Mark (CO) on February 21, 2002 at 13:39:26:

I found home where owner is asking 88k (this is the last of 52 houses he has sold-wanting to travel). Comps in immediate area are 95k-115k. I offered 60k cash. He felt it was worth at least 95k and thought he could get more than 60k (I know, lacking some motivation). I’d like to by a home and then sell on a l/o. Is this a good idea with this one, and if so, what would you suggest?
Rent 775/mo, tenant pays all utilities except H2O. House is in great shape.

Re: What is the polite way to… - Posted by Randy, OH

Posted by Randy, OH on February 21, 2002 at 10:57:00:

Why wouldn’t the seller just list it with a realtor and get full price, all cash? That would only cost him 6%.

WOW - Posted by tang-0-rang

Posted by tang-0-rang on February 21, 2002 at 05:44:35:

I loved reading this post…excellent. this is going in my file.
Todd Williamson (CO)

Re: What is the polite way to… - Posted by JohnBoy

Posted by JohnBoy on February 22, 2002 at 16:35:29:

Cash is KING! You want CASH, then you take MY PRICE!

You want your PRICE? Then you take MY TERMS!

My terms are simple. No cash out of my pocket and no new loans in my name! You be my banker and I’ll get you your price!

You don’t want to be my banker then you settle for my price or no deal!

Make a decision! I have a million other homes to look at that are offered for sale! Otherwise, NEXT!

Always remember, the seller has that ONE house that THEY need to sell! You have THOUSANDS of others to choose from that you can buy. You don’t NEED to buy his one house for sale when you have thousands of others to choose from!

As the buyer it is YOU that holds all the gold. Those that hold all the gold makes all the rules!

You don’t like my rules???


Re: What is the polite way to… - Posted by Kent C

Posted by Kent C on February 22, 2002 at 02:28:02:

I’d ofer no more than 75k assuming it needs NO repair. But at 75k he aint gettin all cash! He’s going to have to give some concession if he wants a higher price. I liked your 60k offer, it sounds right-on for an all cash offer.

How bout sticking to the 60k cash or offer 70k with him holding a 2nd mort or something. Not that you want the 2nd mort but it may squeeze him into considering the all cash one.

You dont want to give the 95k…no way…no deal…nothing in it for you.

Remember you cant buy houses where you are competing with a homeowner. A home owner may actually give 10% OVER his asking price. And quite easily pay him 100% of his $95k. Lay out the 60-70 price and walk away.

Kent C

Re: What is the polite way to… - Posted by JohnBoy

Posted by JohnBoy on February 22, 2002 at 16:24:39:

They may have already listed with a realtor and it didn’t sell.

They may just hate realtors and refuse to deal with them.

They may not have the time to sit and wait around for a full price offer.

They may not know how to sell on their own thinking they need a realtor involved or an attorney.

The list of reasons are endless since every seller has different circumstances.

You would “think” anyone with a little common sense sitting on a lot of equity would know they could just slap an ad in the paper and offer their house well below market and get a FAST sale and walk out with a chunk of cash in their pocket! But surprisingly many people don’t seem to understand this!

Who knows why people do the things they do, but they do them!

Instead of trying to rationalize why people do the things they do or whatever, focus on how you can get these people to find you so you can buy their property from them and make some money!

People do the strangest things!

Re: What is the polite way to… - Posted by KeithK2

Posted by KeithK2 on February 22, 2002 at 24:07:41:

This seller is probably looking for a faster sale and quicker cash due to some outside ciurcumstance. If they had all the time in the world to list their property and wait for their price, the real estate agent would have been the first person they’d call. When there is a time pressure or adverse circumstance (like a foreclosure, tax bill coming due, etc.) the speed of the sale is more important than getting maximum equity.

Hope this helps

All Success

Re: What is the polite way to… - Posted by Followup question

Posted by Followup question on February 25, 2002 at 12:03:16:

At Ed Garcia’s suggestion, I would like to build a relationship with a locally owned bank. Do I understand that getting a loan in my name through this bank is not the way I should build this relationship?
Btw, the owner said ok to 88k offer, and no money out of my pocket. However his arguement was that I would get a better interest rate through the bank. He also said the bank would look at tax appraisal and loan 75% of that value. He would carry the remainder at the same terms as the bank and split closing and loan costs. I’m ready to counter with him carring the total amt or no deal but should I get the loan in my name at the bank to “build a relationship” with them?
Once again, I appreciate your help!

To the point. Thanks! - Posted by Mark (CO)

Posted by Mark (CO) on February 22, 2002 at 18:46:00:

I’m talking to him tomorrow and if you don’t mind I may just repeat some of your lines to him. It certainly changes my perspective a bit (from being a motivated buyer to a shrewd negotiator).

Re: What is the polite way to… - Posted by JohnBoy

Posted by JohnBoy on February 25, 2002 at 15:42:55:

I would not agree to over paying for a property just for the purpose of getting the ball rolling to build a relationship with a bank! I’d wait until I got the RIGHT deal to do that with!

What kind of a relationship can you expect from a banker where you are willing to pay 93% of FMV for properties??? By the time you get done with closing costs you’ll be close to FMV on this. Just because the seller may be willing to hold a second doesn’t make it a good deal.

The ONLY way I will ever pay near FMV is when I’m buying on MY terms! Which is, NO new loans in MY name, period!

Now if you want to talk 80% of FMV as total purchase price and that’s on a property needing NO repairs, then we can talk about getting a new loan in MY name! Otherwise, where’s the deal???

Remember, the first 10% of a property’s value is just air! You’re looking at only getting the property at 7% below FMV which is barely enough to cover a realtor’s commission!

Bottom line! You want CASH out of this? Then it’s MY price! You want your price? Then it’s MY terms! No exceptions!!! I’m in business to make a profit! Not to just make any deal doable just because it can be done! ANYONE with decent credit can buy under those terms, but where’s the deal???

If the property is worth $95k and is in EXCELLENT condition needing NOTHING done to it, then the MAXIMUM price I would pay if getting any new loans in my name, would be $76k! If it needs ANY repairs then deduct all repair costs from the $76k to come up with the best price I could pay. And that would be pushing the envelope on price!

Now if the seller is willing to carry the $88k then lets talk some more!

He says you could get a better rate through the bank but yet he would carry a second at the same rate as the bank??? Where’s his argument??? LOL

You want TERMS! So even paying him a higher rate would be better to get your terms! Sure, I could get 6.5% - 7% through the bank! But I’ll pay you 8% rather than having to deal with the bank! Plus we’ll both avoid closing costs since you already stated you’ll pay half!

Mr. Seller, I understand you want TOP dollar for your property. I’d love nothing better but to give you top dollar for it! But the ONLY way I can do that is with you carrying the full amount. Otherwise if I’m going to put new financing in my name then the only way I can do this deal is by paying $XXXX amount!

I can go the $88k, but you’ll have to finance it and I can go as high as 8%. Otherwise if you NEED any cash out of this then I can only pay this amount instead!

If neither of these offers will work for you then here is my card. Call me if you change your mind later!

NEVER, NEVER, NEVER try and force a deal just because you can get the property somehow. Otherwise what you’ll be buying isn’t a DEAL, you’ll just be buying someone elses PROBLEM! That’s NOT what you’re in business to do! You’re in business to make DEALS!

When you go to your banker to build a relationship you want to build that relationship on your ability to buy good DEALS! Not deals where you’re paying 93% of FMV! Those aren’t DEALS! Those are typical everyday real estate transactions that happen between retail sellers and retail buyers. You’re not a retail buyer. You’re a DEAL MAKER! You buy wholesale and sell for retail!

Your purpose of building a relationship with banks is to eventually get credit lines with them. Your credit lines are used to buy for CASH where you can buy for well below market value and sell retail for a nice hefty profit! If you where to use your credit lines to pay retail for property then you won’t be able to replenish your credit lines fast enough and your money will be tied up to long keeping you from being able to buy more deals! Then when a GOOD deal comes along you won’t have the funds available to close on it!

If you pay 93% plus closing costs for properties, then how will you get that money back out to replenish your credit lines?

If you buy for 60% - 80% of FMV which is the total amount invested after any fix up costs, then you can easily refinance those by putting permanent financing on the property and getting the cash back out to replenish your credit lines. If your total invested is below 80% of FMV then you can even pull some additional cash out after covering the amount to replenish your credit line, leaving you with some cash profit off the refi and still have 20% equity left in the property. You can’t do that if you’re paying 93%+ of FMV for your properties!

If you pay 93% of FMV and then add on the closing costs and costs on getting the new financing you’ll be around 95% - 99% of FMV invested into this. What happens if you had to sell in a hurry for some reason? You’ll be taking a big loss! If you had to list with a realtor that will cost you 6% right there! Then chances are you’ll never get a full price offer so you’ll have to take less just to get it sold. Then more closing costs to sell it! By the time you’re done with everything you’ll be walking away a lot less than $88k and after adding in all your closing costs from when you purchased you’ll have to come to closing with over $10k out of pocket just to get the thing sold fast! If it even sells fast! You could be stuck with it for 6 months while waiting to find a buyer willing to buy at FMV or a little below that. See why the first 10% of a property’s value is all air??? That 10% gets eaten up in a heartbeat! Are you still willing to pay above 90% of FMV for this by getting any loans in your name??? Is the risk involved worth it? Not to me!

Now sell it to me on terms and I can justify more risk! If I had to I can sell FAST on terms and get out of it without having to worry about any bank loans remaining in my name! The more risk I take, the LOWER the price I need to justify the risk! The less risk I have to take, the more I can pay on price! It’s that simple! Risk Vs. Rewards is what determines the price and how I buy!

Re: What is the polite way to… - Posted by Brent_IL

Posted by Brent_IL on February 25, 2002 at 14:15:07:

In many counties, property is accessed at a value lower that FMV. If this is true where you live, and the seller is working with the tax appraisal, and the difference between the values is significant, ask the seller to carry a fixed-percentage-of-appraisal second that is based on his expectations for his equity, i.e. ?25% of the new appraised value to be applied to the purchase price.?

Maybe you can resell by carrying the down payment for someone who can qualify for an 80% loan, if your spread is large enough.

If your seller has bought and sold 52 houses, in the absence of fraud, I would believe that he knows what he’s talking about.

The rebuttal to the banks lower interest is to point out that although the seller’s rate may be higher than the bank, there are no mandatory junk fees to boost the APR. A lower loan-associated cost reduces the down stroke which enables you to buy his property. I think you could build a relationship with the local bank just as quickly with a refi. A relationship is developed over more that one deal anyway.

You describe the seller as one who is willing to work with you. I’d avoid the “pay for everything or I’ll walk” statement. What if you make a counter-offer with the seller paying all transaction costs? In return, you’ll give him a no-interest secured (unsecured?) note due in seven years, or when you are cashed out, whichever is first. It may be easier for him to justify.

Just quick thoughts.

Re: What is the polite way to… - Posted by Mark

Posted by Mark on February 26, 2002 at 21:33:05:

Well, I told the owner I’d pay 88k only if he financed it all, 76k if I had to go to the bank. He immediately said he’d keep the property. I actually feel good about it. I learned more about what the right deal might look like and also developed a plan regarding what I’d offer. I also know he’s really not a motivated seller and therefore I wont spend any more time on it. I appreciate your help very much, and the help of others (my wife is appreciative too).

Would the numbers change any if my plan was to buy and hold insted of l/o?

Thanks again.