There is a neighborhood a in my area that is aggressively appreciating. The neighborhood is turning around and being gentrified. Houses that were bought 10 years ago for $200k are now worth over a million. I think purchasing a property subject to the existing mortgage and selling it would be a sweet deal. Does anyone have any idea on how I can reach motivated homeowners who would be open to this idea? I was considering sending letters to homeowners in pre-foreclosure that I get from the county lis pendens list. What kind of incentives should I offer a seller to to convince him/her to work with me, if any? Does anyone have any experience in purchasing high equity properties subject to the existing? What has been your experience doing so?
I’m reluctant to respond to a one-off poster, because this sounds like mere curiosity satisfying, than seriousness, but I’ll bite.
For starters, if you’re having to convince someone to accept a deal…
- You have the wrong mindset,
- You’re cultivating the wrong approach, and…
- You’ll fail to close on creative financing offers.
To say this another way, if you don’t know what value you bring to the table, you will consequently be unable to close on your deals.
I can’t begin to share my ‘sub2’ experience with this, because I’ve been at it since 1990. Suffice to say, that the ‘sub2’ sellers you want, are the same ones that don’t have a lot of options. They’re broke. They have no equity. They need out yesterday, and they value their credit. So, you’re looking for proactive sellers with no equity.
Of course, I’m only talking about the “getting in for nothing” deals.
Regarding high-equity deals: M experience tells me that if you’ve got 10 to 20 percent to put down, there’s a high-equity seller every day, that will agree to ‘sub2’ financing. Especially if it means a faster sale, and not paying real estate commissions.
Which brings me to mention that trying to close on sub2 deals with agents involved, is tantamount to entering into a Tarantula kissing contest. Sure, there’s pain and suffering, and your lips turns black and blue, but just consider how much faster and easier suicide could’ve been.
The incentive required to close on any deal, depends solely on the seller’s needs and what motivates him to sell.
If he needs a fast sale, the incentive then is to give him a fast sale. If it’s debt relief, the incentive then is debt relief. If it’s cash to move, give him some. It doesn’t have to include all his equity. It can be a fraction of it. And it goes on from there.
So, what is the value you plan to bring to these sellers, to entice them to accept your offers?
What do you mean by a one off poster?
Do you think the best place to find sellers looking to save their credit by selling me their house subject to is by sending letters to owners in Lis Pendens? The value I plan on bringing to these owners is credit relief. We all know what a foreclosure on a credit report would do to a homeowner. I don’t have a problem giving them cash to cover their moving expenses. How much do you think would be fair for me to give them?
Lis Pendens indicates that the property is involved in a litigation. That doesn’t mean foreclosure necessarily. In that case, you’d sift for a notice of default.
Profile the properties/situations you want to buy in first, not the owners. Figure 5,000 leads at minimum, and figure 70% of those are duds. It’s just the cost of doing business.
Send the owners of these profiled properties your “I want to buy your house” letter/postcard. Do it every month until…
- They call you.
- Your pipeline is over-filled with leads.
- They tell you to stop bugging him.
- They sell to you.
Moving money? Forget what’s fair. That’s for amateurs, housewives, and real estate agents to screw their minds over.
You do what works, and is profitable, for YOU.
For example, if a seller needs moving money, that amount can vary from seller to seller. There’s no set amount.
Some sellers have money to move. Others need money, but they have a hard time admitting it. And there’s anything in between.
The issue is, starting off by offering them zero money to move. Why offer what you don’t know they need? Let them squirm and admit they can’t move out without some help. Then you remain in the driver seat.
The problem is that you haven’t started the conversation by reeducating the seller about how little equity he has to work with. This procedure is called “yellow padding a seller.” It’s an old, old negotiating stratagem. Read my blog page for further explanation.
Meantime, most sellers don’t distinguish between “gross equity” and “net equity.”
Lots of sellers believe if they owe $220k, and their house is worth $240k, then they have $20k coming to them at closing. Wrong.
After all the conventional costs to sell, they’ll be lucky if they don’t have to come out of pocket “five thousand” to close.
You know, so much for the twenty grand he thought he had coming.
Assuming you’ve demonstrated how far underwater the seller actually is, selling through an agent, he’ll just be glad to bail without being skinned in the process.
Then it’s a matter of figuring out what the seller needs out of the deal to move. This is up to your negotiation patterns and ability.
Frankly, I start at zero, and try to work up to the rental rate of a beater U-Haul truck.
I know two investors who routinely ask the sellers to pay them the “five thousand” (or more) to take over their upside down houses. There’s always that.
That’s more than I wanted to say, but that’ll get you thinking.
The houses I want to purchase subject to all have a significant amount of equity because the neighborhood is gentrifying. How would you suggest I handle these type of owners? Should I send stop foreclosure letters to people with a notice of default on Lis Pendens list?
Issue:
“Handling” a seller falls pretty much into the same category as “convincing” a seller. If you don’t understand, or accept that you’re bringing a benefit to the seller, or can’t communicate the benefit for some reason, then your offer presentation turns into a hard-sell. So…
You’re not “handling” them. You’re offering them a benefit. They either need it, or they don’t. You’re job is to drill down to the sellers that “need” your solution.
Issue:
How many owners are in foreclosure in this “gentrifying” area? Fast-appreciating areas rarely have meaningful foreclosure numbers. In that case, you’re likely to have to include areas outside this ‘gentrifying area’ to the point where you can capture a critical mass of prospects. Otherwise, economically depressed areas offer more foreclosure opportunities.
Issue:
Whatever you send, needs to stand out from any competition in a positive way.
For example a few years ago, it was all the rage to send postcards to NOD victims with headlines that read “FORECLOSURE!” They were supposed to appear as notices from their lender. Of course, they included a number to call to ‘stop foreclosure,’ but frankly that was/is the worst type of marketing I could imagine.
Here’s a sample from some guru, that I’m sure bankrupted many a investor who copied the idea of sending “official” “threatening” notices to NOD victims. I mean who wants to call back on something like that? Most foreclosure victims are in denial in the first place; maintaining eternal hope that “something” is gonna bail them out before they lose their house …so why call these chumps…?
http://jaypalmquist.com/images/efce935c_m.png
A better approach is something like this (I’m not advocating this example. I just providing direction.)
http://jaypalmquist.com/images/a29da4ce_m.png
Issue:
You need to offer a compelling reason to call you today. None of the above examples does this, and that’s why I’m not advocating for them, but…
The prospect needs a reason a call you today, before, or without ever calling any competitors. What could be that compelling reason?
Can you offer a free appraisal?
Can you offer referrals to effective and reliable credit counselors?
Can you make a cash for keys offer today?
Can you close in 48 hours, or less? (yes, if the house is empty, and you’re making a sub2 offer)
Can you help stop/delay/postpone a foreclosure?
Can you make a short sale offer, which would get your foot in the door to close on a sub2 deal?
Issue:
Every time you’re attempting to close on a creative financing offer, you need to develop trust and credibility in the seller. That’s done best by following a script, and presenting a credential book. Sellers who will be “involved” with the transaction after closing (as in remaining on the hook for their old loan, until you pay them off) need to know that you’re not a flake, and that they’re dealing with someone whom is reliable, trustworthy, and will do what they say. And nothing lowers barriers like good testimonials, a demonstrable track record, and references.
Just saying.
FWIW
Great information Javipa. Thank you
All are helping here. thanks
I would suggest mailing letters to those houses in pre-foreclosure AND knocking their doors. Face-to-face connections have always worked for me the very best. I suggest going to knock doors, and offer them a fast, cash closing. No fees, no hassles. Just quick cash. That’s what you need to offer: quick closing, no fees, cash in hand.
Hi,
Great and well-written information Javipa.
Thanks for sharing it.
There is some very good advice in this thread. In the beginning of my career of being a professional house buyer, I always tried to force or talk people into selling their house. One can not do that; it will never work. I aggressively market to people that have entered the foreclosure process and believe the best approach is to sincerely want to help people. When people contact me, I always ask if they want to keep their house or sell their house and go from there. In Utah we are a non judicial state which means once someone is 90 days or more late with their mortgage payment, a Notice of Default can be issued and recorded. After 90 days from the Notice of Default date, a Foreclosure Sale Date can and usually is issued, and that is at least 3 weeks notice. After the 3 weeks or so notice from your Sale Date, the house is sold at auction.
Then help people keep their house or sell their house. Have good resources for these people.
That is a great qualifying question. I’m not sure that newbies are at all ready for the “keep my house” answer.
If the owner answers “sell,” I would go one step further, and ask if he’s ready to sell today, or not, if we can come to terms.
If not, then we should not spend a lot of time with him. He likely has other offers on the table, and/or is planning to shop our offer, after we’ve blown our wad.
There’s few things more irritating than coming to the end of a presentation offer, and the seller seems to agree to everything, but then won’t sign …because he needs to consult his uncle, who’s into real estate, first.
Or during the presentation, the seller quietly excuses himself to hide all the postcards and letters he’s planning to contact once I’ve spent a hours laying all my my cards on the table.
Or worse, making a pitch to the husband, who claims he’s the decision maker, only to have him insist on talking to his wife first. Never mind the bread crumbs leading to that particular offer will be scattered to the wind by the time his wife hears the offer. And you can believe that the final offer you made will be shopped, altered, or rejected. Again, no thank you.
This is an absolutely great idea and I hope you’re enjoying your success now?
If you can target that area and pickup the existing 200k mortgage to resell for a million I would like to sit down and have a cup of coffee on you of course… seriously get going and land a few of those deals.
hey thanks for the post! So my experience in sub-to investing has been the last couple of years and just this last year I bought and sold 4 propeties subject to the existing mortgage. In each one of those times the seller has been in foreclosure, or the property needed too much work and they didnt have the money to make repairs. Or both.I would totally advise against trying to “talk” someone into anything in regards to this business. Its best to just figure out what their main goal with the house is first and see how you could tailor your offer to thier situation. Now I also must note that when I purchased all of these my intention was to “flip” them and not hold on long term. Basically from my point of view on these deals it didnt make sense for me to pay cash for these properties because the profit potential would be small in relation to what I put up. But buying sub-to I can now make the same amount that I would have had I paid cash(roughly) and I dont have to come up with nearly as much up front. Hope that helps