Last week I wrote an article which examined how offering terms on a property that you are selling can be a very powerful tool to get a property sold. I thought it would be worth a follow up blog to discuss the other side of the equation. For those investors looking to acquire investment properties, finding ones where terms can be negotiated can be equally as powerful.
With the abundance of inexpensive REO foreclosures and short sales on the market, many investors have overlooked the strategies associated with using owner financing to acquire investment property. Many investors don’t realize that there are still opportunities to find and negotiate financing with motivated sellers as an alternative to buying REO properties with conventional financing. This is especially true considering the fact that conventional financing requires a significant down payment and can be tricky to obtain after you’ve added 4 or more properties to your portfolio. Using private financing is a great way to continue to add properties to your portfolio without bumping against the limits set by Fannie Mae and Freddie Mac.
Look at local listings in high foreclosure areas and you’ll usually see a gap in pricing between bank foreclosures and private home sellers. Many home sellers simply haven’t come to terms with the fact that the recent foreclosures in their neighborhood have caused market values to plummet. While these sellers may be less willing to negotiate their selling price, they may be open to negotiating terms.
What many investors don’t understand is that the terms you negotiate with a seller are far more important than the price you agree on.
For example; if you had the choice of buying a $60,000 REO or a comparable $100,000 property from a private seller, which one would you choose? Most investors would simply say the cheaper property, but a savvy investor would ask what kind of terms could be negotiated with the private seller. If this private seller was stuck at a selling price of $100,000, but was willing to give you owner financing with no money down and a 4% interest only loan for 20 years –isn’t is possible that this could be equally as attractive? Especially when you consider the fact that the less expensive REO property may require more repairs and a 20% down payment for conventional financing.
For many investors, this is a tough concept to drive home, but one that can elevate your real estate investing to the next level. Using conventional financing to acquire properties can only get you so far. Learning how to find and negotiate deals with seller held financing is a powerful strategy for building a portfolio of real estate and future wealth.