Real Estate Investor · AZ · Member since 2008 · 45 posts · 1 vote
Wow, What a day. I have just getting numerous calls based on "I Buy Houses" type advertising I've recently placed.
As I alluded to in another thread, speaking with sellers as a newbie can be quite surprising at times.
My biggest hurdle is what to tell those callers that are upside down on their properties, often by $20-75K.
How is the best way to deal with this situation and address it professionally and expeditiously?
I'm not looking to give anyone false hope, and as we discussed in another thread we are investors looking to buy... or not buy a house.
My biggest hurdle is what to tell those callers that are upside down on their properties, often by $20-75K
There is always a short sale... I like them best when there is both a 1st and 2nd mortgage... Makes it easier to get accepted in my experience.
Also, if they are not that upside down... and if the mortgage is good with nice low fixed rates, the property is in good rentable shape, these can make nice rentals, if you can make them cash flow... Also, the property should not be in a depreciating area…
This technique is not any different than someone buying a rental using 100% financing.
Also, if you resell them on a lease option terms, you can demand full full top of the market sale prices.
But as you described, if they are 20k+ upside down... not a deal!
P.S. People will write checks to get out from under the debt… Get creative…
I usually agree with Eric, but not on this issue. Properties bought at (or above) market value certainly WILL NOT CASH FLOW! In almost every market, properties must be purchased at a big discount to market value for them to cash flow. Using a downpayment to "make them" cash flow does not improve the quality of the deal. That just means that you are forcing (buying) cash flow with money that you consider off budget. You've always got to consider that there is an opportunity cost to that downpayment.
Again, I totally disagree. There is a huge difference between buying a property that is upside down (has negative equity) and using 100% financing to buy a property that is purchased at a discount.
For example, let's look at a rental property that has a market value of $100,000. If I paid $110,000 for the property, almost everyone would agree this is a terrible deal (and that's what we're talking about). On the other hand, if I paid $50,000 for the property, almost everyone would agree that would be a great deal. If I got 100% financing on the property, that would mean that I borrowed $50,000 (since that what I paid) because 100% financing means you are financing 100% of the purchase price, not the market value. THAT IS A HUGE DIFFERENCE.
It's business, tell them the truth. By doing so, you may be validating the seriousness of their situation, which can be a good thing to those who don't like facing reality.
It's very difficult to make a property financed 100% LTV to cash flow as a rental...the market doesn't work that way in my experience. at that level of investment, your renters could buy cheaper than you could rent it to them after you factor in your profits and operating expenses....
Real Estate Investing has so many languages that we all can have an opinion and each one of us be correct.
When a seller calls me and they re upside down or in "fantasy" land I let them know on the telephone...however I don’t educate the seller about my buying techniques on the phone.
If you sense they are a Short Sale candidate ask them if they have spoken to their lender about a short sale. 6 months ago the general public didn’t know what that term meant now almost everyone who is upside down and behind in payments does.
I like asking if they have spoken to their lender over asking them if they would consider a short sale... Its all about position power...
When a seller calls me and they re upside down or in "fantasy" land I let them know on the telephone...however I don’t educate the seller about my buying techniques on the phone.
Michael,
What are you referring to when you say you don't educate the seller about your buying techniques in this situation on the phone?
If they ask how I buy houses or what a term means I tell them that their question was a good question and when I come out to buy their house I will explain everything to them