Real Estate Investor · Williamstown, NJ · Member since 2011 · 29 posts · 5 votes
My last question of the day. If a house has a mortgage on it regardless if its paid or unpaid, how do I negotiate a deal? I dont understand what happens to the mortgage. Who pays the mortgage? Does it get paid? Can someone please give me a scenario of how to deal with a house that has a mortgage, paid and unpaid? Please help me out with this mind boggling question. Thank you.
I will have to respectfully disagree with Manny. Many motivated sellers have a mortgage. Life problems (job loss, back taxes, etc.) and the pressure of making the mortgage payment is often what is driving their motivation. Free and clear owners do not have the stress related to monthly mortgage payments and they're typically less motivated to sell at a steep discount.
To answer your question:
The mortgage must be paid in full at the closing.
Your offer price must cover the mortgage or your seller will need to cover the difference between your offer and the mortgage. If your offer covers the mortgage, your title office will use your end buyers funds to payoff the mortgage. It's that simple.
Please don't discount the chances of a home owner bringing cash to the table. If they can afford it and they're motivated enough (divorced, moving, inherited); they will do nearly anything to get out of the house.
Hey Gary,
If a motivated owner who owes a mortgage you have to find out what they owe on it first. Then analyzing the numbers find out where the price has to be for this to even be considered a good wholesale deal. If your offer is lower then what is owed on the mortgage then it may not even be a good deal depending on the condition of the property and the difference between your offer and the mortgages principle balance. Chances are you have to do a short sale in order to make it work as a wholesale deal but this takes time about 6 months or longer just to negotiate this, the home owner has to be in default for this to even be considered by the bank, and the home owner will take a hit to there credit on this deal. Since they are try avoid foreclosure and save there credit they may not like that idea but it all depends on there level of motivation.
To answer you question the mortgage is usually payed by the off by the owner once the house is sold at closing, you sell the house and the title company divides the money, it shows as if the home owner payed off his loan. It depends how you look at to if you buy the house then you payed the cash that payed the mortgage.
Home owners who have mortgages typically do not have any equity so they would make for better short sale flips
I will have to respectfully disagree with Manny. Many motivated sellers have a mortgage. Life problems (job loss, back taxes, etc.) and the pressure of making the mortgage payment is often what is driving their motivation. Free and clear owners do not have the stress related to monthly mortgage payments and they're typically less motivated to sell at a steep discount.
To answer your question:
The mortgage must be paid in full at the closing.
Your offer price must cover the mortgage or your seller will need to cover the difference between your offer and the mortgage. If your offer covers the mortgage, your title office will use your end buyers funds to payoff the mortgage. It's that simple.
Please don't discount the chances of a home owner bringing cash to the table. If they can afford it and they're motivated enough (divorced, moving, inherited); they will do nearly anything to get out of the house.
Regarding "The mortgage must be paid in full at the closing." This is true, unless you find a buyer who you can wholesale to and that buyer can take the property "subject to" the owner/seller's existing mortgage. It all depends (just like almost all deals;) on the numbers, the motivation and willingness of the seller, your end buyer.
@stinson Whats confusing me is that when we say i buy houses cash, I'm thinking we pay them something for the house even if they have a mortgage. It sounds like to me we're gonna pay your mortgage off OR we gonna take the house off you hands and you just pay some of the mortgage. Now do most sellers normally owe more than the house is worth?
Chris is correct about buying subject-to but it sounds like the OP needs to understand basic RE and wholesaling transactions before he explores creative financing options.
To the OP, if you're interested in these creative options; I'd search BP for basic information and talk to you attorney and title office about structuring a deal. Many title offices that I spoke to wouldn't touch sub2's, so it's important that you have an investor friendly title office.
We make cash offers to buy their house. Where that cash goes depends on each individual situation. They may owe mortgages, taxes, liens, HOA dues , etc.
Every deal is different... The numbers must work! I aim to buy at 65% of ARV minus the cost of repairs. This gives me enough spread to sale for profit and negotiate with my end buyer if needed. My initial offer is typically much lower than 65% to test the waters.
IMO, getting the home owner some cash makes for a much easier sale/close. When I know that I can get my seller cash, I focus on that number rather than my offer price for the house. I talk about the cash in their pocket after I relieve them of the stress related to the house.
Well I see alot of vacant houses in my area. arv are about 125k to 225k. So if I get a seller, I just dont want to say, oh I cant help you because you have an outstanding mortgage. I would like to know how to structure the deal. Thats all. To Stinson, Chris, and Manny, thank you very much for your input. If the arv is worth 150,000, they owe 40,000, how would you structure that deal? And what would you sell it for?
This was posted in the 'wholesale' category so ... are you going to wholesale this? Many of the answers depend on your end buyer needs. For sure, you need to get a much better handle on valuation and verify the mortgage numbers and basic information (liens, state of title, payment current?, etc.)
My highest offer would be $97K minus the cost to rehab. I would start lower than $97K ($90K) and I'd probably over estimate my repair cost (I'd estimate for a really nice rehab).. I would then try to wholesale it at $106K minus the cost of repairs.
The two most important things you need to understand before you start making offers are the following:
ARV - How are you determining the ARV? You must have an accurate ARV to be successful.
Cost of repairs - Do you know the cost associated with repairing a home? Your end buyers will know these cost and they'll expect you to give them accurate estimations.
@Stinson thanx alot. I get it now. im sorry I forgot to put the repair costs in it. And I apologize that this subject may not be a Wholesaling subject.
Make sure the mortgage is super low. So low that even if you get the home for what is owed on it, you will still make a decent profit when you sell it to your buyer. Its been done before. IF to much is owed, forget about it my friend, more deals out there to mess with.
Gary I see you are from Jersey. I might be up there in about 3-4 weeks. I am doing a mentor session with a student of mine that lives there. I know the market is hot there. High profit margins.
In another thread you mentioned that you couldn't afford the cost of an LLC. If I were you I'd focus on learning all you can for free. There is a ton of great info here on BP.com and I'm sure there are local REI meetings in your area.
Save your money and avoid gurus trying to sell you their expertise. A good mentor will charge you time, dedication, loyalty, and hard work. Attend your local REI meetings and show your willingness to LISTEN, LEARN, and WORK... Someone needing help well give you the opportunity.
I went to Mark Whittens seminar and I didnt connect with alot of people because I didnt have any business cards. I have a Reia meeting this tuesday, I dont know what to say, because I dont have any business cards to give out I feel like no one will want to work with me because I'm a newbie.
Indeed. With all the free information out here, you can make it on your own with that info alone.
Some people just want you to hold their hand, and have deep pockets to do so. In your case you were asking me a question. Gary that my content is with out sales pitch. But because you charge for your time, that does not make a you a guru. It makes you smart and realizing the value of your time.
Gary when wholesaling I never mark up higher than $5,000 you have to keep the deal as appealing as possible over time if the deals are right you could charge more is the numbers are right. I also learned to always talk as if I have closing on the property to who ever I talk to. It has help me to a lot to not let people know I am a wholesaler with no huge cash reserve looking to play middle man. And when I market the deals I always get a quote from a contractor to present and show my deal is good, reason being that contractor quotes are usually on the high side and seasoned investors usually are hand and could cut cost which means if the equity I am advising is good then after them cutting cost the equity will be great.
Don't worry about business cards they are not important but if you are really worried go to vistaprint.com you could get 250 cards for the price of shipping approximately $5.00
Gary when wholesaling I never mark up higher than $5,000 you have to keep the deal as appealing as possible over time if the deals are right you could charge more is the numbers are right. I also learned to always talk as if I have closing on the property to who ever I talk to. It has help me to a lot to not let people know I am a wholesaler with no huge cash reserve looking to play middle man. And when I market the deals I always get a quote from a contractor to present and show my deal is good, reason being that contractor quotes are usually on the high side and seasoned investors usually are hand and could cut cost which means if the equity I am advising is good then after them cutting cost the equity will be great.
Don't worry about business cards they are not important but if you are really worried go to vistaprint.com you could get 250 cards for the price of shipping approximately $5.00.
Indeed. With all the free information out here, you can make it on your own with that info alone.
Some people just want you to hold their hand, and have deep pockets to do so. In your case you were asking me a question. Gary that my content is with out sales pitch. But because you charge for your time, that does not make a you a guru. It makes you smart and realizing the value of your time.
Good day.
Dee
From your landing page:
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No Houses To Clean Or Fix Up. Wholesaling not rehabbing.
Easily Attract Cash Buyers To Your House Under Contract.
Little Or No Risk At All. None Of Your Cash Is At Stake.
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Looks like straight sales pitch to me. I'm sure if I signed up I'd get many emails with more pitch about your mentoring services.
I personally feel that many rockie REI's lose their ability to be successful because they waste to much time and money on over hyped junk... When they should be studying free info like BP.com or flippingjunkie.com and investing their hard earned money into marketing for motivated sellers.
The vast majority of these coaching programs (yours may be different) are regurgitated info that's found all over the net and pitch a no cost system for investing. Everyone that has success in this business knows that it takes money to make money. Some basic cost: biz cards, biz entity, and marketing cost to name a few..
There is a great benefit to a quality mentor but they are not needed for success. I truly believe you can not buy a real mentor on the internet, they must be met in person and there must chemistry. Dee, this is not an attack towards you... It's an attack aimed towards Internet gurus that market towards novice investors. I hope that your mentor services are beneficial and affordable for your "students".
Gary,
Youve expressed concerns about cost. You should definitely learn more about the industry before buying into any system, mentoring program, or training bootcamp. I'd also recommend you visit the guru section of this site and decide whether or not the service is something you want to invest in.
Education, hard work, working capital, belief in yourself, and dedication will bring you success!
@Manny I'm going to check out vistaprint now, thank you for the info.
@Stinson You da man!!! I completely 100% agree with you. I've been in the sales business pretty much all my life but who hasn't. I've done business to residential and business to business. So trying to get them to sell and to buy I'm not worried about. I have the basics down pat, at least I think so. As a newbie I don't want to come off unprofessional. I checked out your facebook page and your looking for wholesalers in your area. I'll add you to my cash buyers list, and when I start wholesaling out of state Ill give you a call or shoot you an email. Sound Good?
I went to Mark Whittens seminar and I didnt connect with alot of people because I didnt have any business cards. I have a Reia meeting this tuesday, I dont know what to say, because I dont have any business cards to give out. I feel like no one will want to work with me because I'm a newbie.
Vista print was a good suggestion, nevertheless I wouldn't get hung up on not having business cards.
People need to have a reason to call you (business card or not). If you want to connect with people beyond that meeting, get their card or contact info, ask if you can call them (think of a reason), then call them.
As for being a newbie, it's nothing to be ashamed of. Those that do this for a living day in and day out will know you are a newbie anyway. Knowing that, would you rather be sincere or try to blow smoke....
@Carlos You're right, most likely they will know I'm a newbie anyway. As long as I talk professional they will take me seriously. Thanks for the encouragement.