How can I solve a seller's problems if I'm using conventional mortgage?

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How can I solve a seller's problems if I'm using conventional mortgage?

Christopher R.
Rental Property Investor · Cary, NC · Member since 2014 · 89 posts · 10 votes

Hi. From what I've been hearing and reading, direct mailing to motivated sellers work because I'm "solving their problems". This means I can help them by buying cash, closing fast, etc.

In YellowLetters.com, a lot of their pre-made postcards even have the word "CASH" displayed very prominently.

But it seems to me that I'm less useful to a motivated seller if I'm using conventional mortgage because I'm not able to close in a couple of weeks and I won't be able to pay them cash, I need to have the property inspected, etc.

But since I don't have any investment properties yet, I could use conventional mortgages for my first 8 or so properties. With the interest from conventional mortgage being lower than other loan sources, it seems like a no brainer to use it for my first deals. 

But this leads me to the question: Am I not as "useful" to a motivated seller because I'll go through a conventional mortgage instead of offering them "cash"?

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Ben Leybovich
Rental Property Investor · Phoenix/Lima, Arizona/OH · Member since 2012 · 4k+ posts · 4k+ votes
12y

@Christopher R. - you don't need to have cash; you need access to cash.  Here's how it works:

1. Your letter says - I'll pay cash...  You find a deal whereby you can purchase property at 60-70 cents on the dollar.  Let's just say it's a house that need $30,000 rehab, but when it's done the house is worth $150,000 and you can purchase it for $75,000...  So - your PP of $75,000 + Rehab of $20,000 means that you'll be into the deal at $95,000.

2. You need either a partner or an investor.  If it's a partner, then let's say you split profits 50/50.  After holding costs and contingencies of about $10,000 more, having sold the house you'll be splitting $45,000.  If it's an investor, then you will simply have to add the interest you owe them to your expenses.  Thus, let's say that for financing the entire deal, you'll owe them $10,000 of interest - this'll bring your expenses to $125,000.  Having sold for $150,000, you'll keep $25,000 of profit.

3. If you want, instead of selling the house, you can refinance it. But, with an appraised value of $150,000 and 70% LTV, the most you'll be able to pull out will be $105,000, which is not enough to cover your total costs of $125,000. Thus, in order to do a keeper, the numbers have to be better by 20k - you have to purchase this house for $55,000 ! But, if you can do it, then you can market Cash Purchase on your advertising :)

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  • Curt DavisBusiness Member
    Flipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
    12y

    Make your letters to sellers in line with what you can actually do.  I would leave out words like Cash Purchase and focus more on helping them sell their home or you buying it.  

    Be up front with them and tell them how you plan on purchasing, it will make for less uncomfortable situations. 

    Also understand that usually motivated sellers are behind on taxes, homes are distressed and or out dated so you may not get them to make repairs or anything else due to the reason they need to sell so bad. 

    Good luck

    Curt Davis - KAIZEN Realty538 Reviews
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  • Christopher R.
    OP
    Rental Property Investor · Cary, NC · Member since 2014 · 89 posts · 10 votes
    12y

    @Curt Davis - Thank you for this! When you look at all the We Buy Houses, they all have CASH written all over their website. How do they do that? Do these investors have $150,000 lying around and they are buying these houses for cash? Should I buy with cash? I thought it was always a good idea to use leverage, or get a loan so I can buy more houses with less money. 

    0Reply
  • Curt DavisBusiness Member
    Flipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
    12y

    like us we use all private money so we can advertise we buy cash and can do it. You might consider buying with cash and then refi to pull it back out. 

    Curt Davis - KAIZEN Realty538 Reviews
    WebsiteView Page
    1Reply
  • Account Closed
    Dallas, TX · Member since 2013 · 4k+ posts · 744 votes
    12y

    @Christopher R.

    I understand there are a lot of motivated sellers in Memphis, Tennessee looking for real buyers, and I were told there are no real buyers in Memphis.


    Joe Gore

    0Reply
  • Christopher R.
    OP
    Rental Property Investor · Cary, NC · Member since 2014 · 89 posts · 10 votes
    12y

    @Curt Davis - Can you tell me more about doing a refi on a property that you already own. Is this commonly done? How does it work?

    0Reply
  • Dean Letfus
    Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes
    12y

    The real answer to your question Chris is that you are not as useful to a motivated seller if you can;t close quickly. So if you want to buy multiple properties getting a private lender to provide pipeline money is the only way to go if you aren't liquid yourself.

    1Reply
  • Ben Leybovich
    Rental Property Investor · Phoenix/Lima, Arizona/OH · Member since 2012 · 4k+ posts · 4k+ votes
    12y

    @Christopher R. - you don't need to have cash; you need access to cash.  Here's how it works:

    1. Your letter says - I'll pay cash...  You find a deal whereby you can purchase property at 60-70 cents on the dollar.  Let's just say it's a house that need $30,000 rehab, but when it's done the house is worth $150,000 and you can purchase it for $75,000...  So - your PP of $75,000 + Rehab of $20,000 means that you'll be into the deal at $95,000.

    2. You need either a partner or an investor.  If it's a partner, then let's say you split profits 50/50.  After holding costs and contingencies of about $10,000 more, having sold the house you'll be splitting $45,000.  If it's an investor, then you will simply have to add the interest you owe them to your expenses.  Thus, let's say that for financing the entire deal, you'll owe them $10,000 of interest - this'll bring your expenses to $125,000.  Having sold for $150,000, you'll keep $25,000 of profit.

    3. If you want, instead of selling the house, you can refinance it. But, with an appraised value of $150,000 and 70% LTV, the most you'll be able to pull out will be $105,000, which is not enough to cover your total costs of $125,000. Thus, in order to do a keeper, the numbers have to be better by 20k - you have to purchase this house for $55,000 ! But, if you can do it, then you can market Cash Purchase on your advertising :)

    2Reply
  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    12y

    Again, didn't read all, my comment has nothing to do with them but to your first assumption. Paying cash doesn't have anything to do with motivation of a seller in selling, it does in which contract to accept. Most motivated sellers get a bit too antsy unless there is a foreclosure just about any seller can close in 30 or 45 days and it's not the end of the world, that's the normal closing period. If your title company is backlogged, waving cash won't get you to closing any faster! Myth!

    Don't read logic into what you might read starting out, it probably doesn't apply and you'll try to look at irrelevant factors to evaluate some aspect and your head will explode or you'll make bad decisions.

    For contracting, you could make a cash offer and after acceptance, borrow to close, but you better know you can get the loan and close on time. :)

    0Reply
  • Account Closed
    Dallas, TX · Member since 2013 · 4k+ posts · 744 votes
    12y

    If a title company cannot close in less than 30 days on a cash deal get a new title company.


    Joe Gore

    1Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    12y

    @Christopher R. 

      those that say they buy for cash rarely have cash as stated above.. Some do and in the super cheap markets in the MId west if you don't have 20k to pop on a house sitting in your pocket then maybe you should look to do something else..

    that said most of these folks use a HML or as stated some private lender they know that's sitting on cash.. friends family etc.

    the folks that send the letters out are taught a script to put on the letter its the same all over the US>.. I have cash I can close quick.. blah blah blah...

    I like the ones that send letters to those in foreclosure and go on about how they were also just like this person down on their luck in foreclosure then some miracle happened and now they are a RE investor who can save the day for them....

    Its just all fluff and puff.. with thousand sending out the exact same letter. with the same message.

    So don't worry about it... If you think you need to have the cash lined up just look up your local HML if your credit worthy enough to get a conventional loan ( which I am sure you are ) then you will have no problem getting a HML for the bridge.. But you will pay for that service.

    @Account Closed 

    "I understand there are a lot of motivated sellers in Memphis, Tennessee looking for real buyers, and I were told there are no real buyers in Memphis"

    Joe what does your above statement mean it was a little hard to follow. I know of many real buyers in Memphis,,,   Curt who responded on this thread is a real buyer.. Memphis Invest certainly is.. OGG from Socal is a real buyer,, The Readys certainly are real.. and a host of others   can you go into a little more detail about no real buyers ?

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  • Account Closed
    Dallas, TX · Member since 2013 · 4k+ posts · 744 votes
    12y

    @Jay Hinrichs

    I have a friend who is an asset manager of a bank in Tennessee that has a lot of REOs in Memphis, but no one could show proof of funds that they have the money to close so he said they must be broker's not real buyers.


    Joe Gore

    0Reply
  • Derrick Craig
    Memphis, TN · Member since 2013 · 969 posts · 524 votes
    12y

    @Account Closed 

    I can show proof of real funds if you don't mind letting your banker friend know...

    I don't have to go through anyone else to show proof all my money is in my own Bank account... No hard money lender or private financier needed that may be the problem your banker friend is running into with others.  You can PM me.

    Thanks

    Derrick

    0Reply
  • James Wise
    Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 31k+ posts · 20k+ votes
    12y

    @Christopher R. 

    Do not get to swept up in all the direct marketing hype. 

    Does it work? Yes. 

    Do I do it? Yes.

    Is this the only way to buy property? No.

    Direct marketing is expensive don't forget about the good old MLS. I think the MLS would be something a person using traditional financing would want to focus on.

    2Reply
  • Christopher R.
    OP
    Rental Property Investor · Cary, NC · Member since 2014 · 89 posts · 10 votes
    12y
    Originally posted by @James Wise:

    @Christopher R. 

    Do not get to swept up in all the direct marketing hype. 

    Does it work? Yes. 

    Do I do it? Yes.

    Is this the only way to buy property? No.

    Direct marketing is expensive don't forget about the good old MLS. I think the MLS would be something a person using traditional financing would want to focus on. 

    Thanks for this! It's hard to sometimes know which direction to go as a newbie.

    1Reply
  • Sam Elder
    Real Estate Investor · Flower Mound, TX · Member since 2014 · 59 posts · 31 votes
    12y
    Originally posted by @Christopher R.:

    But it seems to me that I'm less useful to a motivated seller if I'm using conventional mortgage because I'm not able to close in a couple of weeks and I won't be able to pay them cash, I need to have the property inspected, etc.

    But since I don't have any investment properties yet, I could use conventional mortgages for my first 8 or so properties. With the interest from conventional mortgage being lower than other loan sources, it seems like a no brainer to use it for my first deals. 

    But this leads me to the question: Am I not as "useful" to a motivated seller because I'll go through a conventional mortgage instead of offering them "cash"?

    A rehab-to-perm loan gets you into properties in a very short amount of time and allows you to establish a long-term ownership position with as little as 10-15% of the total deal cost (purchase price + rehab).  Compare this to 3-4 weeks for a mortgage with that will require 20% down and force you to shoulder the entirety of the rehab.  Find a good hard money lender that can also transition you to long-term financing (in-house) upon completion of the rehab.

    There are instances where cash makes the most sense (followed by delayed financing or an eventual cash-out refinance).  There are times when a purchase mortgage makes the most sense (time available and a small rehab required, common on retail properties), and there are times when a rehab-to-perm makes the most sense.

    Know your options, and do not settle for a lender that has one option and forces you into a box.

    FWIW - I am not that person in your market, so please do not construe this as advertising.  I am just trying to provide helpful advice.

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    12y

    @Account Closed 

      your asset manager buddy probably has assets that the bigger players are not interested in.  I know the folks I mention have the means to buy this stuff

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  • Account Closed
    Dallas, TX · Member since 2013 · 4k+ posts · 744 votes
    12y

    @Jay Hinrichs

    I was thinking the same thing that the REOs that the asset manager has is out of the price range for the Memphis buyers.


    Joe Gore

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    12y

    @Account Closed 

      Not likely  unless its high end stuff at the other end of the spectrum  where it makes no sense to buy it from an asset manager when you just wait for it to be listed and all the hair is off it then you negotiate for the buy.. I suspect though its low end dregs

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  • Account Closed
    Dallas, TX · Member since 2013 · 4k+ posts · 744 votes
    12y

    @Jay Hinrichs

    90% of REOs is in the hood or war zone in Memphis so the other 10% flippers and brokers cannot afford to buy. I have taught to a lot of so-called buyers in Memphis, but they were all game players. Like you said there could be some real buyers in Memphis.


    Joe Gore

    0Reply
  • Christopher R.
    OP
    Rental Property Investor · Cary, NC · Member since 2014 · 89 posts · 10 votes
    12y

    @Sam Elder - Hey! What is rehab-to-perm? 

    0Reply
  • Curt DavisBusiness Member
    Flipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
    12y

    @Account Closed

    I think you have been gone a little too long from Memphis as you dont know the movers and shakers in our market anymore.  If its a good deal the cash buyers are here.

    Curt Davis - KAIZEN Realty538 Reviews
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  • Account Closed
    Dallas, TX · Member since 2013 · 4k+ posts · 744 votes
    12y

    @Curt Davis

    There are always good deals in the hood and war zone.

    Joe Gore

    0Reply
  • Christopher R.
    OP
    Rental Property Investor · Cary, NC · Member since 2014 · 89 posts · 10 votes
    12y

    @Ben Leybovich - This is awesome, how you explained this.

    Can you give me tips how to negotiate with someone so they will sell their property at 60 cents on the dollar? Let's say we are talking about a $100,000 house with 50% equity. Does the owner know you are walking away with 40,000 but is okay with it because he is in a bind? Or do you somehow have to convince him his house is only worth $60,000. If so, how do you do this?

    0Reply
  • Account Closed
    Dallas, TX · Member since 2013 · 4k+ posts · 744 votes
    12y

    If the seller has 50% equity, I don't see you buying it for 60 cents on the dollar. Don't lie to the seller or try any shady things like the gurus teach because it could back fire on you. Make an offer and see whether he will accept if not offer him 75%, and you still make a profit.


    Joe Gore

    0Reply
  • James Wise
    Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 31k+ posts · 20k+ votes
    12y

    sellers sell for 60 cents on the dollar for 2 reasons.

    1. They are in a jam.

    2. They are ignorant to the value of their property.

    0Reply
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