i was thinking of going after fsbo’s and using options. what would be a good strategy here, how could i get them to do an option?
An option can be a great strategy because you have no pressure to close.
However, you need to ask yourself what you will do that that seller isn’t doing to find a buyer. Why would they want you to tie up their property? You need to have a creative way that you will find a buyer they they aren’t using.
It’s really simple, just tell them you want an option on the property and you will sell it using your own resources and money. You could always make the option nonexclusive so there is no risk to them, it is unlikely their going to sell it before you anyways. Just make sure it isn’t listed and ask them what is the least they would take if you paid them all cash. That is your option price.
The cheapest marketing technique would be to use signage. Go buy 200 owner financing signs with a local number on it. Then record a voicemail describing the property and if they are interested to leave their name and number.
Go find a mortgage broker whereas you can send credit applications from the various buyers. Then the broker can tell you what LTV loan he can get them with you carrying back the difference as a second mortgage. It is still owner financing… just not 100%. You will get way more calls offering owner financing rather than conventional methods.
Of course… using this method you may get 100% cashed out… but I wouldn’t count on it. Raise the price 5 to 10% from full market value… so if you do have to take back a second for 5% you are really cashing out 100%.
When you talk to a mortgage broker… have him fax you a SHORT credit application which you can have your buyers fill out if they like the property.
Also… you will probably have a title seasoning issue from your buyers lender since your not on title. To bypass this problem… just have the title company transfer title directly from the owner to your buyer. You can get paid as a mortgage payoff or something like that… just ask how the title co. wants it done.
Of course… if you use a owner financing strategy to sell it… you may find a cash buyer who doesn’t need your help with a broker… but don’t count on it.
Also… if I were you I would go after a bread and butter property in your area. Find a property near the median price of your area which is where most people want to live… instead of high end properties or low end condos. Make sure the property is in good condition too.
If the property is vacant… I would also get cooperation from the seller to put a lockbox on it so I wouldn’t even have to show it to buyers. Then you could just put the credit applications on the counter and they can fax you it without you ever meeting them.
Find a mortgage broker with alot of experience… you want someone who specializes in subprime and who will tell you he can get them almost any loan depending on how big of a second mortgage you take back. These old pros are out there… but you have to look for them.
In addition… if the property is free or clear and you can negotiate the owner to take payments for their equity… or if there is a loan on it and the owner is OK with you making them for him with the loan staying in his name until it’s paid off… that just gives you more options with buyers. Because then you can put them in as a lease purchase buyer or completely owner financing them if they can afford the payment plus your profit.
With owner financing… I wouldn’t put them in w/o at least 7-8% down… shoot for 10%. With lease purchase… don’t put anyone in who doesn’t give you at least 3% as a nonrefundable option deposit.
Incidentally… if you have the cooperation of the seller… you can do this strategy under a purchase agreement, an option agreement, a land contract agreement… giving you the deed etc. It really is all the same thing… control of a property.
Thanks for your explanation of the option strategy.
Could you please give me an example with numbers on how one could take back a second mortgage and still get cashed 100% out?
Home FMV - $100k
Purchase - $90k
$10k profit spread
Buyer qualified for 90% LTV
So one would have to sell to buyer for $111,200
if it will appraise for that amount…
the 90% loan from lender would be about $100,080…
take back note for $11,120 from buyer…
One would get the expected $10k profit spread and a second note
Your example is perfect. In fact I just had a blunt conversation with a motivated buyer for my condo… I told him point blank that if I get him financed 100% by taking back a second mortgage that I will raise the price and he was completely fine by it.
I would still only do a cash out option as a last strategy.
If you can take over payments it gives you more options.
For example, you could put it under a purchase agreement that your buying subject to… then sell the property before you close on it with seller’s cooperation.
You could literally have a buyer in a week or two who has 10% down or close to it. Or lease purchase it with 3% option deposit. Then you buy it and immediately sell to your buyer. It can also be a double closing whereas you take the money from the down payment to make up back payments or give cash to seller. So now you have a long term cash flow source… you have the deed and either sold it with a land contract or wraparound mortgage aka all-inclusive trust deed. Plus after 12 months your capital gains tax drops to 15% and if they default you go do it over again.
But… if the seller won’t do that, I would still do a cash out option strategy. You ain’t got nothing to lose except marketing expenses… signs are cheap, put them out at major stoplights on telephone poles. Just spread them out and do it late at night to avoid getting a ticket… plus you can park almost anywhere cuz no one is out. Don’t put them on pretty trees… that pisses people off. :shocked
In fact… I just put out 25 signs last night to buy… and I now have two shortsale prospects, both vacant. One of them we may just find a buyer first and make up the payments and forget about the discount. But the first one is a higher priced house and I think he owes too much so we’ll probably have to discount the second.
arie- what kind of signs do you put out? also in my market it a buyers market right now, should i be focusing on finding buyers before sellers since there are so many out there who need to sell right now? and if i find a buyer who can get 80% financing and i find them a house but the seller is only willing to sell to them at 90k, (house is worth 100k) and im going to sell to the buyer for 110k, how do i make this deal work? there is 10k that the buyer doesnt have, do i lend him that 10k or do i buy the property from the seller and sell to buyer on contract? how does this work if there is still money to be brought to closing if the buyer is short?
If the buyer can only get 88k…80% of 110k I wouldn’t do it. He is short 2k and this is not including closing costs. But if you did do this… you would have to bring the difference to closing and take the rest back as a second mortgage. I would look for a different property for the buyer, there is a 50% chance they aren’t going to pay you on the second mortgage anyways. If you can’t get cash at closing… don’t do it. Then again… you could always trade these second mortgages for cars, rv’s, boats etc… you won’t be able sell them for cash at a discount… but you will be able to trade them. I still wouldn’t do it without getting cash at closing though.
You can get a list of buyers and then look for the property. Right now I would rather just find motivated sellers and then find buyers for that specific house. But I like finding really motivated sellers who will let me take over their payments so I can sell on lease/purchase and ownerfinancing. But if you did get a list of buyers for an area then backed into the fsbo sellers… that would work, you will be alot more real to the seller if you have a stack of buyers. When the buyers call… tell them you are about to buy properties in the area and so your already looking for buyers. Ask them the minimum they need for beds/baths, square footage… where they want to live… how much money they have… hows their credit etc.
For signs… I just bought 18 x 24" yellow signs with black “owner financing” on it. Then I write with a fat marker the number and anything else I want on it like purchase price. I put most of them in that neighborhood. Get those one inch roofing nails… for most signs all you need is one nail… you don’t really want to piss off people by making it really hard to get if their trying to take it down. Make sure the OWNER FINANCING takes up 50% of the sign.
If the property is vacant… I will give them the lockbox code and just tell them to go in and take an application on the counter. If there is a tenant in there or it’s owner occupied… I will just have them drive by it and if they like it to call back and leave the name and number.
You will get alot of calls on these owner financing signs… what I just started doing right now is a I have a voicemail message where I tell them about the house and my financing programs…leasepurchase with 3 to 6% as a deposit, ownerfinancing with 7 to 12% down, bank financing + partial ownerfinancing if they have some credit but no money and tell them to go to the property. If you have multiple houses… you will need various ports so they can press the number of the house they want to hear about.
this is what my plan is, i want to find buyers first then find the property, im going to put up signs in the area to get my leads. should i just send those people directly to my loan officer and find out what they can get for a loan? then how should i present myself to a seller, should i just tell them that i have list of buyers who are looking in their area and ask them their lowest price. would you do a deal where you are going to profit 5k at closing and carry a second mortgage for 10-15k? also how do i explain to my buyer what im doing exactly, if they find out they are getting 95% financing and they see a house they like, why wouldnt they just go straight to that seller and work out a deal?
You are going to be hard pressed to get buyers to fill out an application before they see a property they like or want to buy.
After seeing the property… then go for the application. If you don’t have a house for sale yet… just get their buying criteria… min. beds/baths, square footage etc, how much money they are working with.
Also, after you send an application to the broker… there is a different application called a “Deposit Agreement” which basically means that you get a deposit from the buyer… THEN the broker tells them that he thinks he can get them alone and then they go ahead with the long loan application.
If you get the book Making Big Money Investing in Real Estate by Peter Conti and David Finkel… they have that application in their book, it is on page 221. What the application says… is that if they are approved for the loan… and you accept them… but they then back out…you will keep their deposit. If they are approved for the loan… but you sell it to someone else… then you give their deposit back. Also…make sure you do NOT fill out a sales agreement with the buyer until right before the loan package goes to underwriting. If you do this… you can have 4 or 5 people applying for a loan and you have 4 or 5 deposit agreements… then the person who can get the best loan you will sell to and give back the deposits to the other buyers or you can tell them that you can keep their deposit and look for another property for them… give them a choice.
BTW… you can get the mortgage broker to get that agreement signed for you. Just tell the broker that they previously agreed to the agreement… and that it is between YOU and THEM… not the broker. You can do this whole process without ever meeting a seller. Make sure you tell the broker that you want the Deposit Agreement signed before he goes ahead with the loan application. The broker will agree to this if you make it plain that he has nothing to do with the agreement… just between you and the buyer.
But remember… you are only sending buyers to meet a broker… after they have seen the house and they want to buy it… and AFTER you have sent their initial credit application to the broker and he tells you what kind of LTV loan he thinks he can get them.
Do a deal for 5k? Probably not… because closing costs are going to eat that like it’s christmas. Unless of course you can get the seller to pay for all closing costs. THEN maybe I would do it.
Yes… that is what you do… tell the seller you have a list of buyers and that you want a purchase agreement or an option on the property. “If I paid you all cash and closed quickly what is the least you would take for the property?”
Exactly!! You need to have an advantage! I simply try to get the seller down 10% then advertise the property with NO MONEY DOWN and No Closing Costs! with Approved Credit! I work with mid-range houses(100-150k) in my area.
There are a ton of people out there that have decent credit but just don’t have any money saved for a down payment.
I only make 6-12k on each transaction but I’m not doing much. It’s still more than I make at my J-O-B.
Yea, we tried that yrs. ago and it didn’t work out. you do a lot of work and it just doesn’t happen. and what are you going to do when you get cut out of the deal- and you will. somehow they will go around you and thats it. why dont you go to your local inv. club and get some wholesale deals at 65% and then try to sell one of those, adv. it the way you would have the FSBO- just tac on a small fee. do it by assignment
one thing you could do is get some money upfront and find them a house that they like, i dont think a lot of these buyers are going to know how to negotiate like an investor. especially if they cant get all the financing they need, then they really need you and cant go around you.
How can you find a buyer to just give you money up front? with no house in mind? I guess you could open up a whole new business
the negotiator… house buyer
I cant imagine anyone just paying someone upfront to go find them a house in this market esp.
Either way you decide to do these deals (fsbo’s or through your rei club) definitely use a non-exclusive option. That way you don’t have to put any money down since you are not taking the property off of the market.
And use caution if using assignments. Assignments are becoming “red flags” to a lot of lenders.
Good Luck :beer
you ask the buyer what they are looking for and you tell them that you will go out and buy that house for them until they can get 100% financing, go out and look at houses with them that meet their needs, if they are serious they will give you the money. in contract just add that if you cant find them what they are looking for they get their money back and have a title company hold the money. if you spend time and find them a house that meets their needs and they dont follow through then that is their loss. give it 30-60 days. ive done this 2 times. i learned this idea from john ulmer, i had him as a mentor and i learned quit a bit from him.