Let me tell you a story about how I made a bundle of money this week. It’s the story of how I captured my latest deal. Now when I tell you the story you may think that I’m counting my chickens before they’ve hatched but you really do make your money when you buy. Never, loose site of that important fact. In this case the money is made and in the bank. Now until the home is sold the money is mine to loose or keep, depending on how I manage the project.

Persistence and Ambition Lead to a Working Relationship

You could say it started about a month ago. A young ambitious Realtor contacted me when he saw my ads stating that I buy houses. He sent me about a half dozen listing and to my surprise the list had potential. I am a licensed and active Realtor but I appreciate a go-getter when I see one. I can only cover so much ground myself and I love to enlist the services of ambitious people. We looked at a few of these properties on his list and we made some offers but nothing came through. The beautiful thing was that this young Realtor came back with another list of properties. That is how I knew he had the stuff. Many Realtors say they want to work with investors but when they actually see the nature of the game they roll out quite quickly. The fact that this guy came back told me he was real deal.

I want to give this young Realtor a plug here. His name is Jorge Reyna. His office number is 703-503-1893. He lives and works in Fairfax county Virginia. If you’re moving to the Washington D.C. area he just might be your man for finding you that dream home or your next investment property.

In the second or third batch of properties he sent me there was a single family home in Mclean Virginia (bank owned.) Mclean is a high-end neighborhood inside the Washington D.C. beltway. This particular property is only about 15 minutes from Washington D.C. down the scenic George Washington Parkway. Jorge said he thought the property was worth about $750-800,000 after repairs. I pulled my own comps and was convinced that we could get even more than that. The bank was asking $740,000, way too much for a home that needed about $85,000 in work. On this deal I contacted the listing agent myself. She gave no indication that the bank would take less. When I told her that I was considering placing an offer for significantly less than asking price she did not seem very happy and she made it clear that our chances were not good at all. I had Jorge proceed anyway.

Submitting Offers Despite Reluctance from the Listing Agent

We submitted a cash offer but I only had proof of funds for about 70% of what I was offering. Usually I’m OK even if I’m short on cash when I make an offer as long as I have a significant portion of the money. Often times the bank will negotiate and give me 5 days or so to show proof of funds after the contract is ratified. That is good for me because I don’t want to go to my potential partners and ask for a check until I know I have a deal in the bag. Unfortunately this bank was going to be sticklers and wanted proof of funds before they would give any indication that they liked my offer.

With that we changed the offer. I went to one of my private lenders and got a pre-qualification letter for the additional funds and changed the cash offer to a finance offer but still with me putting about 70% down. We resubmitted the offer and this time the seller said that if I was going to use financing at all that I had to qualify with their Wells Fargo Mortgage Guy. I asked Jorge to contact the seller and find out if the bank would give me any indication on their feelings about my offer. When Jorge got back to me it was clear that the bank had no intention of prematurely tipping their hand until we jumped through all of their hoops.

At this point I had a feeling that the seller was going to turn my offer down flat. I did not want to go all the way through a convention loan pre-qualification to get shot down. So I went to a gentleman with whom I have partnered in the past. I told him the scenario. I asked if he would go on the contract with my company. He would have to sign all the documents and then show the additional proof of funds. I went through the entire presentation that one must perform when asking for money from someone. I showed him the comps. I told him what I felt we could get for this property. I showed him a rough estimate on the cost for repairs and he went over and took a look at the property. This was all a bit premature in my estimate because (as I advised my would-be partner) there was a very good chance that we would not get this house. There was a good chance that we would be laughed out of the bank.

Regardless of the odds, I guess I have built enough trust with this partner that he agreed. So once again we presented a cash offer. I showed my money and my partner sent in his bank statement showing the rest of the money. Now we sat back to wait for a response. The response that came was another demand of us. The bank now wanted to see all of my company documents. Normally the bank never asks for company documents. The title company always asks for these documents but that is usually just before closing, long after a deal has been made. At this point Jorge asked me if we just wanted to walk away because it was pretty clear that the seller was giving us the run around. I told him that this is actually a good sign. If the bank is treating us like this then they’ve probably ran off a lot of potential buyers. If we have the staying power we just might benefit. I quickly sent Jorge my company docs. I have them in digital form because I’m used to having to submit them. And again we waited.

Success! A Counter Offer, and . . .

The bank finally came back with a counter offer. It was much better than I thought, but it was still significantly more than what I had offered, like $100,000 more. So at this point I had a glimmer of hope but still just a glimmer. I sent over my contractor to get a detailed estimate of repair costs. I re-analyzed the comps. Finally I returned to the bank with another counter offer. I upped my offer price by $20,000. To my amazement they accepted.

I am very excited about this deal. I am convinced that I got it purely because I actually had the endurance to stick with this when other people said its not worth the hassle. I know a lot of rehabbers like to call listing agents and feel them out for indications of the seller’s willingness to lower the price. I’m certainly for being judicious with your time but often you have to just go fishing.

Lessons Learned:

My fellow investors, I honestly believe that your greatest advantage in the race for riches in any field is that the vast majority of people out there are inherently lazy. I know I am. I force myself to do the things I don’t want to do just because I know other people are not doing them. Don’t listen to those get rich lazy people. Get up, get moving, keeping going and make some money.

Persistence is a virtue. Patience is a marketable business asset.

This Article is Copyright © 2004-2009 BiggerPockets, Inc. All Rights Reserved.

Persistence is a Virtue. The Story of How I Got My Latest REO Deal.

Why would anyone want to cherry pick their deals? What if you miss out on a big deal?

In basketball, the player that stands by the net the entire game and takes the easy shots is considered a cherry picker. This is frowned upon because they want you to be more engaged in the game. They want you to sweat and push your self so hard to earn each and every point. Not take the easy way out and cherry pick all day.

That’s not how you play the game, right?… Or is it?

Let’s get right to the purpose of this post. Because I’m not here to talk about going in the field and picking cherries and I’m not here to talk about the game of basketball.

I’m here to talk about the game of real estate and whether the concept of cherry picking in real estate can help or hurt your business. I’m also going to let you in on why I don’t follow the “first come, first serve” rule in my business and why you shouldn’t either.

But first, let’s start this off the right way…

What the heck is Cherry Picking When It Comes to Real Estate?

Cherry picking is a method used to position you and your business to only work with the most qualified leads first. This actually goes against the “first come, first serve” rule. For example, if you had a real estate website and you had 2 seller leads sign up in the past 48 hours, who would you contact first.

Seller Lead “A” signed up at 8:00am on Monday

They completed 60% of your sign up form and according to their numbers, you had the potential to make $20,000.  They also mentioned that they weren’t too flexible on terms.(Of course you would need to contact them to confirm and to also get more information)

Seller Lead “B” signed up at 11:00pm on Tuesday

They completed 100% of your sign up form and according to their numbers, you had the potential to make $12,000. They also said that they were flexible on price. (Of course you would need to contact them to confirm and to also confirm their  information)

Wednesday is your day to hammer down and contact leads, so my question for you is: Who would you contact first?

Some investors right off the bat, would go after the one with more money (Seller Lead “A”).  To them it would be a no brainer. You can do alot of things with $20,000 and if you negotiate right…maybe you can make more.

However, right off the bat Seller “A” throws up two red flags for me:

1. They didn’t even take time to complete form.
2. They said they weren’t flexible on price…

These 2 reasons alone would make me contact “Seller B” First

Now I know what some investors might be thinking…

Lamar, What If they had technical problems with the website?

What if they were in a rush and just provided as much as they could?

Lamar, Are you crazy? Seller “A” has more potential to make you more money? Who cares about flexiblity? I like the sound of $20,000 bucks.

Well, you have a right to ask questions like these. However in my opinion, “Seller B” would be the easier choice. Initially when I see choices like this, maybe there are valid reasons why “Seller A” didn’t completely fill out the form. Maybe they aren’t as flexible because they feel that they’re giving you a really good deal to be. But this is not something you’d be aware of upfront. You’d have to make the call to find out. A call that will take time.

I’d contact “Seller B” first because to me that seller seems to be more motivated. They said they were flexible on the price and even took the time to complete 100% of the form.  (Basically answering all your initial questions)

I don’t have the time or patience to play the “What if” game. Cherry picking your leads will save you time because way you are contacting the most qualified leads first.  Someone that can’t even take the time to answer all the questions you provide on your site isn’t someone who is too serious about selling their home. You could contact them and they could have “trust issues” and only reveal information that they want you to know. Not information that you need. If they’re not flexible on the price, then that is already a sign that you may have a tough negotiation.

Who cares if they signed up first? The fact is that its your business and you deal with whomever you want. Cherry pick the best leads and I guarantee you’ll see sucess much faster. It helps you save time, stay focused, weed out the tire kickers, and get deals closed fast!

In my opinion, Cherry Picking the best leads can only help your business. If you get tied up in the “What if” factor, then you may end up hurting your business.  You’d be suprised out how many “unmotivated” sellers you can identify upfront.

One of the questions I ask on my website is:

Are you Very Motivated, Somewhat Motivated, or Just Curious?

You’d be suprised at how many people actually answer “somewhat motivated”.

Although cherry picking is frowned upon in basketball, the team with the most shots will always win the game. In real estate, it’s all about getting your deals closed. Bottom line!

To your success,

J. Lamar Ferren

“New Breed” Real Estate Investor

Ps. The best way to cherry pick leads is to have a website. If you don’t have one, then you really need to get one. Do you practice cherry picking in  your business? Why or Why not?

Photo Credit: Axel-D

This Article is Copyright © 2004-2009 BiggerPockets, Inc. All Rights Reserved.

Can Cherry Picking Hurt Your Real Estate Business?

When you close a deal and make a profit, are you able to make even more money afterwards . . . from the same deal?

First off, let me make it very clear that this is not about raising the rent or increasing the value of your home – or anything like that.

While doing things like that can increase your income, what I want to talk to you about today deals with marketing. When you close on a deal, your relationship with the buyer/seller/investor doesn’t have to stop there.

And the best part is, as you close more deals and do what I’m about to suggest to you, you’ll see growth in your business.

Let’s get started…

In order to make more money on deals that you have closed, it is going to depend on how well you were able to sustain your relationships with your buyer/seller/investor. Relationships are key to this strategy and if you had a rough closing, then it will most likely not work out. This is like the gasoline to your car. The engine isn’t going anywhere with out it!

What to do right away…

Immediately after you close on a deal, you should tell people to let their friends know about your business. This may be a no-brainer to some, but I had to mention it because when you get a check in hand after a closing, it can get very exciting – when people are excited, they tend to forget the basics.

Now most people will stop here . . . they’ll just let the buyer/seller/investor know to spread the word and probably never contact that person again. (Unless they’re dealing with an investor who does multiple deals)

The most important part of this strategy…

At this point you need to collect an email or mailing address and do 1 of 2 things…or both!

1. Launch and Email “Follow Up” Campaign

2. Launch a Direct Mail “Follow up” Campaign

If you do this by email then you’ll need some type of auto responder or you’ll just need to ensure you remain consistent with your emails.

If you do this with direct mail, then you’ll just need to ensure your budget can handle it.

What you going to do is continue building upon that relationship by sending them informational tips that they could use concerning their home, and/or greeting them on national holidays.

There are a lot of home owners out there who wouldn’t mind getting tips on saving electricity, conserving water, taking care of the lawn, increasing the value of the home, what local companies they should use for home remodeling/repairs/painting,  etc…

Do you see where I’m going with this?

They are going to keep seeing your name tied to valuable information that they can use every month or however often you send it to them.

The best part…

Now at some point they’ll probably come across a friend or relative that just happens to be looking for a home. What do they do? They immediately think of you because you are so fresh in their mind and they say, “Hey, you should check out my friend, So and So..” The friend obviously already has an existing relationship with them and will most likely take their advice and give you a call.

Trust me when I say that you’ll love hearing, “Hi, I was told that you were the one I need to talk to if I want to get a good deal on a home. Can you help me?” Boom! Now you have another deal to work on. Don’t forget to ask them that important question I talked about last week . . . and I know you now know what to do after you close this new deal, right?

That is why I said earlier that relationships are key.

A quick story on how someone tried this on me . . . and it worked!

Back when I was trying to buy my first home, I was having problems with securing the loan. It wasn’t my fault. I was fully qualified, but the lender was just taking forever! They kept losing paperwork; they forgot to tell me things I needed to give them; they kept telling me how they were so backed up with other files. At this point we had a week left to close!

It got to the point where I had to switch lenders, because we had to buy this house. So, the new lender that took over my file had me fax everything I gave my last lender, and called me everyday with updates on what was going on. More importantly, they assured me that I was going to close on the house that same week.

To make a long story short, I closed on the home 2 hours before my closing. I definitely didn’t want to tell my wife that we weren’t able to get the home!

I really appreciated their service and they asked me to write a testimonial. I was so excited that I wrote one for them right away.

About a month later I received a letter in the mail saying, “We just wanted to thank you for choosing us to do your loan and we wanted to let you know that we appreciate your business. If you have any friends that need our services, please feel free to tell them about us. ”

In addition, they had some extra information in the letter about credit repair, or something like that.

The next month they informed me about the rise in foreclosures, then about loan modifications, then about refinancing, or new housing/mortgage laws that have been passed, etc. This happened consistently – month after month.

So now, whenever someone comes to me about needing a loan, I always think about who is fresh in my mind –the people that closed my loan!

If I wanted them to stop mailing me, then I would just tell them, but I don’t have a reason to. Not only did they do an awesome job, but they continue to provide me with valuable information that I may or may not use, and I would be more than happy to refer them to a friend. Who knows how much money they make from doing this.

This strategy is all about retaining relationships and following up. I guarantee the better you get at this, the more money you’ll make, even after closing your deals.

To Your Success,

J.Lamar Ferren
New Breed Real Estate Investor

P.s: Are you doing this already? How is it working for you? Do you think this could work for your business?

Leave a comment and let me know!

Photo Credit: AMagill

This Article is Copyright © 2004-2009 BiggerPockets, Inc. All Rights Reserved.

How To Make More Money, Even After Closing Your Deals

The current market conditions have resulted in incredible opportunities for investors.  In order to take advantage of the oversupply of opportunities, we investors must efficiently sift through the many available properties and separate the deals from the duds.  But first, you need deals coming into your pipeline that fit your criteria.  And not just a few, you need an abundance.  Finding great deals is the most important part of real estate investing. 

Here are some steps and ideas to get tons of profitable deals to cherry pick from:

1. Have agents do the work for you – Agents are starving and will work their tail off for peanuts these days.

2. Build an REO agents list – Use Craigslist, Foreclosure.com, web searches or even get agent info from Title companies.  Build an email list.

3. Give them your criteria and teach them your systems – Work with the agents to use your effective systems, it will save both of you a lot of time.

4. Use multiple agents to find deals – Agents usually specialize in certain areas and types of deals, multiple agents will bring more deals into your pipeline.

5. Find agents that can feed you properties before they are listed – Being able to snatch up deals with no competition is huge.  Prove that you can close on deals over and over and keep getting fed great deals.  Bail on a lot of deals without good cause and risk ruining the relationship, treat the bank/sellers with respect and do not waste their time.

6. Target a few areas or cities – Targeting multiple areas will increase the amount of deals you can cherry pick from, just do not overdue it or you may end up with some duds for deals a tough team building an effective team and spread to thin.

7. Court house steps, Auctions, Wholesale deals, Short Sales, etc – There are many other types of ways to find deals that are not listed.  Trustee sales on the court house steps, auctions, investors that wholesale deals, negotiating short sales even negotiating seller financing or lease options can bring in tremendous deals.

8. Marketing, Marketing, Marketing – There are so many foreclosures these days, but there are still distressed homeowners not in foreclosure.  People face financial hardships, divorce, probate, absentee owners, etc.  It is strongly recommended to have good targeted marketing campaigns to bring in more deals to your pipelines and the opportunity to negotiate straight with the seller.

Finding deals is often just a numbers game.  If you get 3 deals into your pipeline the odds are not in your favor.  If you get a lot of deals into your pipeline consistently and follow the steps above, you should have home run deals to cherry pick from for years to come.  Great deals are not going to just come to you, it is up to you to get to work!!

This Article is Copyright © 2004-2009 BiggerPockets, Inc. All Rights Reserved.

How to get tons of great deals, and cherry pick the best ones

By now most investors are aware that Limited Liability Companies (LLCs) are designed to help insulate the owner (member) of the LLC from the liabilities that may arise on an investment property held within the LLC. What has drawn confusion and massive amount of debate is whether or not an investor should create a Series LLC to protect not only the member of the LLC from the harm, but also have the ability to separate each property into its own “cell” so the liability from one property doesn’t affect all of the other investment properties. The concept behind the Series LLC is great but there can be some hidden dangers lurking under the surface for the uniformed.

An LLC is a Bucket

An LLC is really nothing more than a “bucket” that helps prevent the holder of the bucket from being drenched by water splashing around in the bucket. In this case, the water is liability. However, the water in the bucket can become tainted, although it doesn’t directly harm the holder, all of the water inside is now bad. The question often becomes, do if I need a separate LLC for each investment property? My answer to that question is the classic attorney weasel answer of “it depends.” It depends upon the investor’s level of personal risk tolerance. In a perfect world every property would be in its own LLC thereby protecting all of the other investment properties from harm, but as a practical matter, this is often not feasible from an initial and annual cost standpoint. Even though I don’t charge myself to create an LLC, I don’t have an LLC for each property because of the fees associated with each state. One potential avenue that has developed over the last dozen years is what is known as a Series LLC. The principal behind the Series LLC is that it is no longer necessary to form multiple LLCs to hold different investment properties. Instead of having all of the water mixed together in the bucket, the Series LLC bucket holds the water in several “balloons” called cells; if one balloon pops the other balloons remain unharmed.

LLCs Are State Specific

LLC formation and levels of protection are governed under state laws. Each state has its own specific level of protection that it will provide an LLC. Typically, the differences center on the level of protection that assets within an LLC will have if the member of the LLC is sued personally. These protections are found within the State’s statutes or case law. A perfect example of the different levels of protection is found in the states that offer charging order protection versus states that offer judicial foreclosure as a remedy. A court in a state that offers only a remedy of a charging order prevents the member of the LLC from losing the investment assets within the LLC if he or she gets sued personally. A charging order is basically a lien on the member’s interest, if funds are distributed out of the LLC the holder of the charging order is entitled to the distribution. However, the charging order does not allow for the holder to participate in the business or force distribution. A state that provides for judicial foreclosure will allow the courts to have the discretion to pierce into the LLC and attach those investment assets to satisfy a personal judgment against the member. In the majority of states, depending on if they are charging order or judicial foreclosure states, if an injury occurs inside of the LLC, only the LLC assets are at risk and the member of the LLC is not subject to personal liability exposure. However, there are a handful of states that allow the assets inside of the LLC to be protected from each other. These states are: Delaware, Iowa, Illinois, Nevada, Oklahoma, Tennessee, and Utah. Wisconsin has a modified version of the Series LLC law.

The Benefit of the Series LLC

In the states that have Series LLC statutes, the benefit arises in being able to have one LLC that is broken up into different component “cells” to isolate injuries from one property from spreading over to the other properties held within the separate cells. Each cell can have different members so this increases the flexibility by having different ventures with other investors within one Series LLC. Another distinguishing feature is that each cell will have its own name, contracts, accounts, and as of a private letter ruling published by the IRS in 2008, each series can have its own tax status. Thus, the Series LLC gives great flexibility of being able to create one LLC instead of multiple LLCs subject to multiple fees to the state where the Series LLC is created. However, before the investor jumps on the Series LLC bandwagon there is a very important question that needs to be asked.

Where Is the Investment Property?

If an investor has an LLC created in one state but has rental property or is wholesaling in another state, he or she must file their LLC to conduct business in that state. There is no way around it. If you own property and create an LLC, you are doing business in the state where the property is located.

Blindsided by Fees

This is known as a foreign filing. If the investor does not foreign file the LLC, the state could impose penalties and the LLC will not be able to avail itself to the protections of that state’s legal system. In several states, including California, it can be a very expensive process to either create the LLC or foreign file LLC to do business in that state. On the surface, Series LLCs seem very attractive to those investors who live in states like California where it costs $800 per year per LLC for the privilege of doing business in California. If an investor has 5 properties in California and he or she wants to create 5 LLCs, the annual fee for California will be $4,000. Unfortunately, the investor is often duped into believing that by creating a Series LLC in a state such as Nevada or Delaware they can avoid this $4,000 annual fee to California because the $800 fee will only be charged once. This is not the case. The California Franchise Tax Board has specifically stated that each series in the LLC will have to pay the $800 fee. Now the investor is worse off financially because not only does the investor have to pay California $4,000, but he or she has to pay Nevada or Delaware it’s fees, the fees to the resident agent, and the fees to maintain the necessary business presence in the state of origin.

Will it be Respected in the Morning?

Remember, LLCs are governed by State law, therein lies all of the conversation about Series LLCs. If the investor creates a Series LLC, will the separate distinct cells and added protection be respected in the state where the property is located when that state doesn’t have statutes allowing for Series LLCs? The problem is we just don’t know. There hasn’t been any case law on whether or not a state like California will offer the protections of the Series LLC. So the investor is taking a big gamble on whether or not the Series LLC is actually going to provide the protections promised. A lot of the internal protections may come down to notice: Was the party that was dealing with the LLC put on notice that he or she were dealing with a separate series and only the assets within that particular cell would be attachable? This potential lack of respect should definitely cause the investor to pause before going with the Series LLC.

Lack of Formality

Each cell within the Series LLC is treated as a separate business. That means that each cell within the LLC has to be treated as a separate business. Each cell has its own distinct name, its own distinct bank account, its own distinct book keeping and accounting requirements, and from a transaction standpoint, it needs its own contracts, letter head, business cards, etc. Therefore, even in the states that allow Series LLCs, if the investor fails to follow these formalities the separate cells may not be protected from an injury arising on one of the investment properties.

Look Before You Leap

The idea behind the Series LLCs is a great one: Consolidate all activities in one LLC to cut down on costs of forming multiple LLCs to protect the different investment assets. Unfortunately, it is currently uncertain whether this benefit will be realized in the states that do not recognize Series LLCs. It is important that the potential pitfalls of additional fees, lack of respect and formality requirement are properly weighed against the promised benefit when determining whether or not to create the Series LLC. Until there is some definitive law in the other states, I’m going to let the uninformed test the waters for me.

This Article is Copyright © 2004-2009 BiggerPockets, Inc. All Rights Reserved.

Series LLCs and Real Estate Investing: A Primer – Look Before You Leap, Though!

Ok, What Will Make Me The Most Money?

Yes, the question seems obvious but I think very few people actually take the time to answer it. Other books I have read in the past have mentioned this same question, but in various ways, which is why I ask myself the question every time I make an important decision. Unfortunately, most people just go through the motions and get in their routines. You need to stop that now!

For example, let’s say you’re doing a rehab. You should constantly be asking yourself what repairs/improvements will give you the biggest return on your investment. Or, let’s say you’re negotiating a subject-to….if you’re going after a non-motivated seller you could be wasting time on a deal that’s not going to close, while you should be chasing other deals. Or, and here’s a big one….let’s say you’ve had a rental property that’s been vacant for a while. And you get someone who shows up with the cash to move in; however they have terrible credit and no income. Now, the rookie investor is going to take the cash and lose money in the long run when they have to spend months to evict someone. The seasoned investor will be patient and realize they will make a lot more money in the long run by getting a qualified individual in the property.

I really hope you will do this. Just do it for one week. For an entire week, anytime you have a business decision to make ask yourself what will produce the most money. Actually, you should ask yourself this question about everything, even if it has nothing to do with real estate. Also, go buy the book that I mentioned in the beginning of this post because it discusses the importance of real estate in every persons portfolio.

Okay. One more quick thing. If you aren’t spending two hours per week driving for dollars then you might also want to ask yourself this question: “How come I’m not willing to take the necessary action that will help me quit my job in 2009?”

This Article is Copyright © 2004-2009 BiggerPockets, Inc. All Rights Reserved.

What Will Make Me The Most Money?

There are four ways to make money from subject-to’s. But, before I tell you one of those ways, let me quickly tell you about my search for a new home. I met with the seller last week and negotiations went nowhere so I left. Basically, the guy was not motivated enough, so I’m going to start sending out letters and continue my quest. I’m not going to update you every week (because I don’t feel like it), but instead once I buy my place I’m going to write a long post and give you the exact details about how everything went down.

Learning “They Pay You” Subject-To

Alright, how many of you know what the “they pay you” subject-to is? Probably not enough. Here’s how it works: When you purchase a property subject-to, you know that the property must cash flow typically around $200 a month at minimum. However, in this market a lot of calls that I get are sellers who want me to take over their payments ASAP, but when I do my research the property doesn’t cash flow.

Let’s use a scenario to show you how I solve this problem. I get a call from a seller and he wants me to take over his payments of $1,500 a month. I run my numbers and market rent is $1,300. I also know that I want positive cash flow of $200 a month, which means I need my payment on this house to be $1,100 a month. So, I call the seller and using my scripts I let him know that I can assist him. I tell him that I can take over his payments, however since our company doesn’t take on negative cash flow he will have to write me a check for $400 a month. I do this for a five year term, and you’d be pleasantly surprised that a lot of sellers are willing to do this. Think about it this way: Instead of having to pay $1,100 per month, he now only pays $400.

And, for you negative people out there who say this doesn’t work (it works, I do it) let me show you how you minimize your risks. You have iron clad paperwork which states that if the sellers do not make the payments to you, that you will stop making their mortgage payment and the property will be foreclosed on and their credit ruined. Only once, have I had a seller “test” me on this. He stopped making the payments, so I stopped making mine and right before the house was to go to foreclosure he brought his payments current (you only do this technique on straight rentals because of the risk, not on properties you sell via lease option).

Anyway, this may have been a little confusing which is why I recorded my latest “pitch” to a seller where he would have to pay $600 a month. Enjoy!

This Article is Copyright © 2004-2009 BiggerPockets, Inc. All Rights Reserved.

Creative Real Estate Investing: “They Pay You” Subject-To