Let’s say you want a quick start in “cash or terms” investing.
It’s my philosophy that we do not be a one trick pony, meaning we all specialize in wholesaling flipping, or specialize in retailing rehabbing, but we have a few tools in our toolbox.
The greatest opportunity where housing is reasonable, and the “rent to value”, is reasonable, is helping sellers that don’t a lot equity and they need to sell on terms.
Cash or terms is the business model.
Give a low cash offer which most sellers hate, and explain to them why it’s so low, because you need to resell it not to a consumer but to an investor.
If they want to go retail that the pay the cost to sell with an agent, which include commissions, closing costs, spruce up costs to compete with all the other houses, like paint, landscaping, etc., and vacant house costs, because houses that are cluttered with people stuff in it just sell a lot longer.
Realtors want vacant houses.
Most agents that aren’t trained in seller financing, if there’s no equity Agents get nervous, because they know that sellers is not going to be happy.
So why aren’t the sellers happy if they had very little equity?
Most sellers sell with the intention of buying the next house with equity they have.
So let’s do some subtraction
sales price $100,000
- minus commissions $6000
- minus closing costs $2000
- minus sellers concessions $3000
- minus spruce up costs $2000
- minus vacancy costs $4000
so 6+2+3+2+4= 17,000
Oh my God that 17% of value the house!
Is that typical? I think it’s typical is 10 to 15% of cheaper houses, when the houses are more expensive the numbers are less percentage-wise but it’s a lot of money
- minus commissions $18,000
- minus closing costs $6,000
- minus sellers concessions $9,000
- minus spruce up costs $4000
- minus vacancy costs $7000
so 18+6+9+4+7= $42,000
30,000 would be 10%, and 45,000 be 15%, so that’s about 14-15%
so low equity house that is 95% loan-to-value, $300,000 house, owes $295,000
what’s the problem there?
The poor sellers have to pay get rid of that house.
If the costs to sell are $42,000, and their $5000 equity, they have to cut a check for 37,000. to sell their house! Ouch!
Even if the realtor said “I’ll take my commission a note” which they never do, you as the seller still got a big check to pay.
How to sell it in person not on the phone but in person
You need if you negotiating with sellers, and the sellers don’t have an agent, need to present a solution, and presenting a solution is a lot like a financial planner would present a solution for financial planning.
I know this because I have been financial planner since I was 25 years of age. That’s 30 years.
Talking concepts is very important.
Talking with emotion and not logic is very important.
There’s a danger in educating the seller too much and teaching techniques on how to solve the problem is never a good idea.
I never do that.
I don’t educate sellers.
I give them WHIFFMs. What is in it for me? WHIFFMs sell.
Like for instance all draw line paper.
Making 3 columns
Column 1, selling traditionally with an agent
column 2, renting it out with a property manager
column 3, seller financing in Florida
Column one a go through all the cost to sell with an agent
and also go through the time it takes to sell with an agent
days in the market (DOM) tell the average amount of time it takes to sell a house with an agent
So it’s costs money and it costs time
Column 2, renting it out with a property manager, there are risks and rewards
A property manager cannot guarantee cash flow so you can make your bank payment
A property manager cannot guarantee will be no damage
in a property manager does not keep an eye on the property that much, maybe once in a while
so if there’s an eviction you have to pay for it
and if this damage you pay for it
if there’s no rent coming in, you have to pay the mortgage
Column 3, I generally talk about seller financing in general
there’s lease to own and owner financing
Lease to own you turn the property into an investment property
you are landlord and you have to pay the mortgage
your to pay maintenance and taxes and insurance
hopefully the behavior of your tenant buyer versus a regular tenant is better, money on time, no damage
the tenant buyer wants to buy the property
the tenant buyer does not cause you trouble as the landlord
the buyer wants you the landlord to give them a good recommendation when they try to get the mortgage down the road; they need their landlord to give them verification of rents (VOR)
Owner financing means you’re selling the property and the owners have a deed
it’s a little bit like contract for deed where you pay on a contract, and you can either finish the contract or refinance contract and pay off the existing financing
How to sell subject to
it’s important that you read this next sentence,
I DON’T BUY SUB2 UNLESS ITS A PERFECT HOUSE
what’s a perfect house?
4 bedroom 2 bath open plan great backyard
I’m going to own it, I’m going to be responsible for making the payment the matter what
if I’m renting it out in the tenant doesn’t pay I still have to make the payment
if there is maintenance to do I have to do that
Due on sale clause
if you probably do subject to the due on sale clause is generally a non-issue in my opinion. This is a fiercely debated topic.
When I do is I use land trusts and property trusts. Don’t get me wrong: subject to and wraparound mortgages in some kind of lease to own arrangements do give the lender the right to call the loan due.
Does that mean they do call loan due no matter what once they have the right? I’ve done them over 30 years I’ve never had the loan called due. Not once.
- Here’s how to endanger the property and have the lender call the loan due.
Don’t pay the mortgage on time
and have the insurance policy lapse
If something’s late the mortgage company is going to investigate it.
If there’s no insurance on their investment, the mortgage companies going to investigate it.
Now if interest rates rise, there might be a reason for lenders to look at their portfolio and review everything.
I don’t know, I just know that if you buy on a wraparound mortgage or sub to, and take care of make the payments on time and insurance, and you some kind of trust to protect yourself, youre in pretty good shape.
Please don’t ask me for legal advice, I have a great attorney that takes care of all that stuff.
So to get back to talking to the seller:
I basically say the seller there’s 2 things that I can do to help you.
But you MUST be willing to be creative. I’m going to go through your choices, and you tell me which one you like the best, or which one you hate the least!! lol
So ask you this question a start off:
what if, and not even know if I can get this done, because I’ve to check it out with my business partner, she does all the numbers and crunches the numbers to make sure that it works for us, but what if I could somehow get you a payment for period time that would mirror your PITI payment, your outgoing costs, and this might be for a period time I don’t know, say 24 to 36 payments, get some time that create some equity by paying down the mortgage a little, not much, a little,
Then at the end of this period of time, whatever the mortgage balance is at that time will be the sales price, we call this buying it for the loan balance in the future.
Would that be something we could even talk about doing or maybe not?
Now I don’t know if you invested in negotiation training but this is called “the what if statement.”
I’m being a “reluctant buyer” there,
I’m using the “what if statement” to feel them out,
just throwing out an idea, and
I’m using “appeal to a higher authority” with talking over my business partner, and
if they get excited about this, I’m not to get excited that they’re excited,
I’m going to go further and say something like…
“Oh I see that something that you consider… okay…. tell me exactly why that would be a good fit for you I mean what you like about that?”
What does this do? Well this is called “reinforcing”
I use analogy of a rope and TUG OF WAR and there is a line to be pulled over.
The sellers on one side and you’re on the other, and most negotiations it’s tug of war.
Well I don’t want to be a tug-of-war.
I want them to pull me on their side, I don’t want to pull them to my side
This “reinforcing” helps them pull me to their side.
There’s another reason for this,
this a nontraditional outside the box kind of solution,
and I want to prepare them the sellers to be talking to their friends about what they’re doing with their house.
They get to answer this question “how you sell your house, how much did you get for it?” to their friends and family.
This is what I want them to say back:
“You know we did something unusual, there was an agent that showed us how to get more money by selling on terms versus for cash, so we did a lease to own arrangement, avoided paying a commission and closing costs, saves that money, and they got a pair mortgage payment for period time and then pay off our mortgage. It’s a win-win for us we get full price without a commission closing costs, they get a dream house in their neighborhood that they want for their kids and they can get another neighborhood while they rent for a while and then but it.”
So I take a lot of time with the seller to try to get them to think this way. It also avoids buyers remorse, where the seller says “oh my God what I just do??? 🙁
NLP has to do with how you hold your hands and look at somebody and talk to them. It’s so hard on paper to show you what I mean. Video is easier. The tone-pitch of your voice has to be going down instead of up.
In the 70’s was a wonderful actor called Peter Falk he was in his 40s of the time, how to show call Colombo. The reruns are on all the time.
Peter Falk was this disheveled, frumpy, police detective in Los Angeles, working homicide.
Columbo always scratched his head have a cigar have this raincoat. But the biggest thing is how he talked to people. He always did it in a nonthreatening way.
His language is the way I want my students to talk to sellers. It disarms them. It makes the seller comfortable.
Here is a video.
Talking like Peter Falk and Colombo will help you get terms deals.
Some that in here and happy Friday everybody, I’ll try to get something else up here when I have time.
I would love everyone that reads this to get motivated to think about having a terms business and cash business
A terms business is subject to, wraparound mortgages, and lease option assignments.
A cash business is wholesaling flipping.
And don’t be a one trick pony,
have a full toolbox.