When to Stop Looking for Motivated Sellers - Posted by Rock

Real Estate Investing Single-Family Homes
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Posted by chris on April 24, 2000 at 17:19:21:

Rock-

Motivated seller does not by default mean the property is in a war zone. The property can be a high end property in a nice neighborhood with no problems. The seller may have run into problems such as his high paying corporate executive job is being transferred and he cannot pay this mortgage and the mortgage on his new residence or maybe he is being downsized. Realtors are not interested because there is no equity to pay their commission because Mr. Seller over leveraged the property to play the stock market. The seller needs a solution and he does not know what to do. The Real Estate Professionals (Realtors) haven’t given him much hope. Here comes The Rock-the light at the end of this Motivated seller’s tunnel.

The investor is also referencing everything to throwing his money into the deal. Start computing the returns when you are making money on other people’s money.

-Good Luck,Chris

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When to Stop Looking for Motivated Sellers - Posted by Rock

Posted by Rock on April 24, 2000 at 13:54:33:

I have about $65K in cash that I’d like to invest in RE but am new to this and want to be smart about it. Is anyone else in the same situation as me - I just want to buy one property, rent it out and “get my feet wet”. I don’t want to deal with Land Contracts and foreclosure auctions to start with. I found a great location where there’s 2 properties for sale that would make perfect rentals. Neither of these sellers are flexible or motivated - they want a conventional deal with cash. I was wondering, should I put my $65K into both of these homes to get started and get a feel for the biz?

What about the experts on this site? Once you have loads of cash, what’s the point in spending hours of your time trying to find motivated sellers if you can easily buy perfect rental homes without all the hassle?

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Re: When to Stop Looking for Motivated Sellers - Posted by Bill

Posted by Bill on April 29, 2000 at 13:02:33:

Keep looking for motivated sellers… and focus on your overall objective. Is it to maximize return with minimum risk? That’s it for most of us.

Consider this: http://www.landtrust.net/

Take some time to prepare your plan, get focused, and do deals which ONLY fit your plan. forget the rest.

Bill in OR.

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Re: When to Stop Looking for Motivated Sellers - Posted by Mark (SDCA)

Posted by Mark (SDCA) on April 25, 2000 at 12:35:47:

I have to slightly disagree with the “never” answer… I say stop looking for motivated sellers when you are ready to stop buying. AS for why would you not want to just use your 65K to buy perfect rental homes. It’s like this… If I offered you 2 identical loaves of bread, one for 1.00 and one for 85 cents, which would you buy? If you buy “perfect rental houses”, you are paying 1.00 every time.

Cheers,

Mark

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I smell what the Rock is cookin’ - Posted by Senator

Posted by Senator on April 25, 2000 at 09:03:07:

I am new at this game. I have 2 rentals (1 bought with 10% down, 1 bought with $0 down).
It seems that with $65K, you could combine creative financing with conventional financing to build your RE business. I definatly would not blow all the money on 2 houses, but you do not have do every single deal with nothing down. I am currently looking at a duplex thats in good shape and a low price for the area, so I may put some money down to make the deal.
Of course, you should never stop looking for motivated sellers, but I wouldn’t miss out on a good deal just because you dont want to invest any money.
I am all ears to any responses, as I am trying to learn this racket just like Rock is!

Senator…Alabama.

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Re: When to Stop Looking for Motivated Sellers - Posted by Laure

Posted by Laure on April 25, 2000 at 04:08:40:

I figured my returns last night and am getting between 15% and 45% return on my investment. I haven’t figured this return yet:

New purchase on Wednesday:
Asking price… 33k
Purchase Price…26k
Rehab…4k
Needs carpet, paint, tub surround, and ceilings all need plastered.

It’s just ugly. Has no basement or garage. If it did, it would go for 59k. I am figuring, I will L/O it out for 49k for 595/ month. Get 3k in option money and only have 1k of my money in it. Now that is because I have a banker that loans me with no money down. He takes a lien on other property I own, so I get in for free.

But, figure the return on that one ! I have received 7140 in rental income, plus 3k in option money the first year ! That’s 10,140 at the end of 12 months. Payments, taxes and insurance cost about 4400 per year. That’s 5740 in profit the first year and with only 4k out of pocket! Payments figured on a 15 year amortization at 9% interest.

I get lucky, and the buyers actually buy after two years. 5740 plus second year’s cash flow of 2820 PLUS profit at close of 23000 less their 3k option money. hmmm…$28,560. NO realtor fees, no vacancies, no repairs (use Bronchicks L/O program). Now take that to the bank ! AND YES, IT WORKS !

And what percentage return would that be on my 4k investment??? LOL

So, I am still buying from motivated sellers, that is the only place to make money. But I am using some of my cash, and my credit.

Laure :slight_smile:

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Re: When to Stop Looking for Motivated Sellers - Posted by Jim IL

Posted by Jim IL on April 25, 2000 at 01:02:53:

Rock,
Whoah! Wait a minute!
Do NOT spend your $65k on two houses!
The return of 10% may sound good to you, but if you use the ideas you can learn here, you will surely blow that measley 10% out of the water.
Think about this;
You find a seller who is willing to let you get into the property for ZERO dollars.
This is a multi unit, and was managed badly!
You take over the property, close on the third, get pro rated rents, and the security deposits given to you NOW!
Now you have MORE CASH in your pocket.
You now spend a few dimes on cleaning up the place, and raise the rents.
Your postive cash flow is a few grand per month.

What kind of return do you have now?
I know, there were no numbers here, they are not needed.
You put in ZERO and got out Cash flow, and equity, if you bought right!

Honestly, I was blessed to start my REI business with no cash or credit, and thanks to that, now when the cash is there, I cannot and will not spend it.
There is no point.
Does that mean I never spend money on my properties?
Of course not!
Repairs are needed from time to time, and there are holding costs here and there, but in the long run, I NEVER put any cash in unless it comes back double.

There is just no point in putting up your own cash to buy properties.
Then again, IF I had $65k to spend, and really, really wanted to spend it, I’d find a property i could buy for 50 cents on the dollar or less and go that route, maybe.
NAH, the heck with that!
I’d still use something else.
No point in draining your nest egg when you don’t need to.

Good luck, you have come to the right place to learn,
Jim IL

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Re: When to Stop Looking for Motivated Sellers - Posted by Bill K. - FL

Posted by Bill K. - FL on April 24, 2000 at 19:25:00:

Your thinking is flawed because you will soon reach a point where you won’t be able to qualify for another new loan. All your money will be tied up and then you will have to refinance, if you can, or use the methods posted on this site.

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Re: When to Stop Looking for Motivated Sellers - Posted by Trump

Posted by Trump on April 24, 2000 at 16:02:33:

I dont care if you have 65k or 65 million. WHY, WHY ,WHY do you want to spend your own money. I’m not talking about qualifying for loans either. Find your local investors club and learn more before you spend ANY money.

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Re: When to Stop Looking for Motivated Sellers…NEVER - Posted by Jim Rayner

Posted by Jim Rayner on April 24, 2000 at 15:46:38:

Rock

one should never stop looking for motivated sellers especially the ones that are really motivated. I started out with nearly double the pot you have and through careful use of those funds have reached the point you describe as having enough money so why bother to go to all the trouble of looking for motivated sellers. Here’s why I still look only for motivated sellers and distressed properties:

what could I do with 65K?

  1. I could buy 5 SFH as rentals leveraged at 90% LTV and probably get a 17% annual Rate of Return before taxes. this would not be my first choice.

  2. I could begin a year of 4 rehabs of SFH’s Financing both the purchase and the rehab cost with the 65K and generate perhaps a 60K profit on each. If i buy them at 30 cents on the dollar my return for one year would potentially be 408% or 245K before taxes. This might tempt me but, I really have grown tired of rehabs.

  3. My third option would be to purchase a 12 unit multi-residential building. A deal this size would generate a annual cashflow of approximately 23K in my market bought on my investing criteria. While this represents only about a 35% annual rate of return before taxes therein this type of deal however lies a hidden benefit. Because it is bought from a motivated seller it comes with built in upside potential in terms of the property’s value. Because of the upside potential I have bought properties that within one year of purchase following rehab and replacement of tenants I have properties that now appraise 3-4 times more than they did the day I bought them simply because I have increased to the cashflow from them.
    Last year I did 5 deals like this and everyone was done with a motivated seller and better yet done with no new investment capital. Upside profit 1.4M

I 'm sure there are bigger and better deals out there but they’re all in the hands of a soon to be motivated seller and I’m just waiting for them.

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The hassle begins After you buy and become a landlord. - Posted by Bill K.- FL

Posted by Bill K.- FL on April 24, 2000 at 15:24:12:

Many newbies make the mistake of buying and holding single family houses to rent out. If you are thinking of becoming a landlord check out www.mrlandlord.com and read the horror stories. Speaking from experience I wish someone would have told me this 12 yrs ago when I started out. If you like the idea of fixing up the house every time a tenant moves out without hopefully doing too much damage, of chasing them for the rent each month, and filing evictions; at least you can say you were warned.

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Please don’t spend all your cash on two houses! - Posted by Mikeb(sc)

Posted by Mikeb(sc) on April 24, 2000 at 15:08:39:

Before you go out and do that, learn about financial leverage. Why settle for a couple hundred a month positive cash flow when you could use your 65k to leverage yourself into a small apartment complex or mobile home park. Cash flow from a 20 unit apartment complex could be much more than what you would get from a couple houses.

That’s one of the nice things about RE, you can use a small amount of cash to control a property using other peoples money.

You could use your cash to buy one run down house, or use the 65k as a 20% down payment on a 325k apartment complex.

Get the idea?

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Re: When to Stop Looking for Motivated Sellers - Posted by Ed Copp (OH)

Posted by Ed Copp (OH) on April 24, 2000 at 14:37:33:

Rock,
You ask if there are others like you? I am sure that there are a few, but mostly you will find those that want to learn this business and have little or no cash. My suggestion to you at this point is to protect your cash until such time that you learn what you want or need to do. Perhaps just putting the money away and going out and purchasing a “no money down” deal from a motivated seller at a wholesale price. When you have done a deal like that you will be in a lot better position to decide if you really want to risk your cash or not. Go slow, and learn…ED

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Re: When to Stop Looking for Motivated Sellers - Posted by Glenn-OH

Posted by Glenn-OH on April 24, 2000 at 14:13:41:

The name of the game in investing is leverage. You will greatly multiply your ROI (Return on Investment) if you can get control of many properties with the dollars you would put into one purchase. I assume your goal is to maximize your return, rather than have the fun of landlording on 2 houses.
Glenn

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Look for Motivated Sellers! - Posted by ken in sc

Posted by ken in sc on April 24, 2000 at 14:13:24:

My advice for what it’s worth - Learn some more before spending your money. Become an expert yourself (if not an expert, at least more knowledgable than most). Do this for a variety of reasons. 1. You can help people who need you. This may surprsie you but most of the time we are helping these people and they appreciate it! They will thank you! They NEED you. 2. It is more fun. Making creative offers and thinking outside the box is fun and a test of your mental ability and knowledge. Anyone can pay retail and then deal with tenants. 3. You make more money. If you buy a $70K house for $60K or on really good terms, your rate of return will be much higher than if you pay retail. Play with numbers, scenarios, and such and see how it works.
Don’t let that money burn a hole in your pocket. Take the time to learn before you leap into business. But then make offers and go!
Good luck! Ken

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Re: When to Stop Looking for Motivated Sellers - Posted by JBeal

Posted by JBeal on April 24, 2000 at 14:11:13:

To each his own I suppose. I rather do deals with motivated sellers and use OPM (Other Peoples Money). Why use yours with risk when you can use OPM with virtually “No Risk” I just don’t understand your train of thought

JB

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I think it’s 305% annually - Posted by Laure

Posted by Laure on April 25, 2000 at 04:11:27:

for the two year period. Of course, if you held the property longer, the return would decrease.

Laure :slight_smile:

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Re: When to Stop Looking for Motivated Sellers…NEVER - Posted by Ben in Ohio

Posted by Ben in Ohio on April 25, 2000 at 07:49:45:

Jim–

Nice post. It’s ironic to read this because it is where I am in the investment cycle. I started as a carpenter/rehabber, started a construction company, fixed and rehabed, kept some, sold some. Presently I have a few rehab deals in the works and like you, am tired of it. I certainly can relate to that.

With respect to your idea, of which I like, how would you suggest locating a motivated seller of a multi unit?

Thanks Jim

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excellent post jim - Posted by RR Smith

Posted by RR Smith on April 24, 2000 at 19:14:00:

leverage…that is the ticket…leverage that is better than the stock market
and less risky than the commodity market…

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Re: The hassle begins After you buy and become a landlord. - Posted by Mark (SDCA)

Posted by Mark (SDCA) on April 25, 2000 at 12:41:55:

I love posts like this!! Why?? Because it means more SFR to rent out for me!! Buy and hold is an amazing way to build wealth. And the hassle factor on SFR is VERY minimal. If it isn’t then you are doing it wrong. If you are doing the work yourself, you are doing it wrong. Hire it out. And if picking up a phone and calling a plumber is too much hassle then taking the check to the bank each month probably is too.
As for the horror stories, I am sure I could dig some up on paper gone bad, or read up about commercial buildings in Houston during the oil bust. There are NO bad niches in RE; there are just mismatches between niches and personalities…

Cheers,

Mark