All Forum Posts by: Art G.

Hello and Welcome!

First of all have you checked the comps to ensure sale price is accurate?

Second you need to check what his purchase price was, and if there was a loan.  You can do that on realtytrac.com Membership is free 1st 7 days, just be sure to cancel on day 6.  If they say a loan was given, you can then go to a mortgage calculator and figure out how much he owes by taking the term of the loan and interest rate and amount and figuring out what his payments would be. Generally speaking the smaller loans are 15-20 years in length.

You MUST know the comps, and how much he owes prior to talking to him.

DO NOT ask him to refi so you can do owner finance... that just wont happen. And from a business sense, you are mandating a VERY high interest rate on your loan from seller just so that it is profitable for him.  But if he does have a loan, and the house needs a lot of work, tell him that you could take over the loan payments while you fix it up, then take out a new loan with the increased value of home and pay him out. If he says how do I know you will pay my loan, tell him you dont want to lose the house or lose any money paid towards mortgage already!

If you find out he is free and clear, then you can discuss seller financing, but not right away.  Walk through the home, point out things you like but dont get excited just polite, then point out areas of concern and dont beat him up just kinda look worried.  Along the way ask about his plans to move. Why Florida? Let him go on and on. Then say, Well why haven't you left yet? I have not sold house. Well I sure hope you and I can work something out! So What are you really wanting to get out of the sale?  bla bla price.... Is that the best you can do? Ok, I could probably take 55k.  Do you need all that cash to buy a place down there or are you just going to keep it in the bank? (if he says all cash to buy then you know you are not looking good.) If he says some to move and keep it in bank.

Now we move in for the deal...  Well I like the house and I want you to get down to the warmth so I know one of us is in paradise.  I am not very fond of banks after what they did to us.  Let him answer and complain too. You know if I got a loan that they would make money off of you from your home?  What if we said no more together, and you be the bank?! We can do seller financing. We set up a payment plan, an agreed interest rate, and a length of time, you make all that extra money from the interest and both of us win by not letting the banks in our deal! If I paid you cash they would charge me 3% and give you .25% to put it in savings.  Well I need money to move. How much? Maybe we could work out a smaller down so I can help you move?  ALSO- if he hesitates on seller finance, tell him you could agree to 60k if he does this with you.

The key to a deal is connecting. The deal will come. Rehearse the key points over and over. Then when you are there, just hang out with the guy. Become friends. LISTEN... LISTEN.... LISTEN to every thing he says. Let him bond with you. If he feels a bond he will want to work with you. If no bond no deal. If you are stressing the whole time in your head then no bond, which means no deal. So relax and chill with the guy. People respond to emotion over logic. You have to connect to the human being in order to get the deal.

Come with a Contract Drafted and ready to sign. Fill in notes like price and amount to give him as down for moving expenses.

This is the payment break down on a 10 year payout. $579.36 is monthly principle and interest. Tell him its like a bonus pension plan for him! Total interest is $9,524 over ten years. So really his sale price to you is almost $70,000.  You talked him down to 55k now you are giving him 70K.

Good luck bud

Bravo good man! Thank you for taking the time to share your success, failure and the derived lessons.  It is appreciated.  It was nice to have my positive actions re-enforced and food for thought on areas I was weak.

I just wanted to respond to 3 points that I totally agree with.

Answering the phone... It is remarkable how many people do not respond to phone or email. I mean I call them so they can make money and they do not EVER call back! That is not a good business model. I always return my calls asap. If I have to wait an hour or so bc I am busy I profusely apologize to the caller. It is important to make everyone you work with feel that they are the only person in the world when you deal with.  It builds bonds, trust and makes them want to respond to you in the same way.

Asking Questions. Such a powerful tool.  Not only can you get info and stop making assumptions but most times you make an ally.  People can sense when you are BSing them. Its not hard to see when someone doesn't know about a topic that you do but act like they do.  Rather, if you tell them, "hey would you mind teaching me about this so I know for the future?" You just stroked their ego that they know more than you and most are more than happy to educate bc you simply asked. You learn info, gain an ally, and dont look like an idiot for BSing them.

Lastly.... wow mind blowing statement, "when they earned that 100k it took them 3 years to do so it means your not borrowing $100k from this person your borrowing 3 years of their life." That was a really heavy reality. Fantastic way to state it. if I may add a bit; It wasnt just three years of work, there was the schooling that went into their profession as well as years of experience to become successful.  And also, they were out cutting back on fun to save that money, while we were out having that fun blowing our cash. They worked extra to even save it.  That statement was the heaviest for me and will stay with me for a long time. Thanks for expressing that thought.

Fantastic post my friend. Thank you for the food for thought and sharing your wisdom. Priceless...

My family has been in the local legal community since the 70s. While I have never worked with Bill Hair, I can tell you he is the most respected man in business/real estate litigation in the county. When looking up his name to get you his contact info, I came across another firm that sounded impressive. You may want to read the article as a back up option.  Finally, there is a very small solo practitioner I know that is a genius and has a passion for real estate and contracts, his name is Matt Auric.

Jillian Sidoti is not local, she is out of San Diego, but I have attended her seminar on crowd funding and she is one of the best in the state at setting up rock solid platforms for investors in the CA.  She has a great deal of experience with all levels of real estate investing. I do not think she would be interested in only contract drafting, but she is a powerful tool to have in your arsenal. 

You gotta give to get. Tell them you will pay off the 300k mortgage, if they deed the house over to you. In exchange, tell them you will grant them a life estate on the property. Its a legal grant that means they have the right to live there no matter what until they die. Even if you sell it 40 times, the new owner cant make them get out.  But here is why you do it... Check out the appreciation on a 900k santa barbara house in 30 years by using an appreciation calculator. You are gonna lose your mind.

At the very top of your screen there is a tab "Marketplace" place your curser over that, a menu will drop down, you will see "Properties for Sale"... and there you go! I have never posted one for sale in there, but that is where you do it.

As for how to advertise them. Well... again have never tried to sell one. But I have tried to buy a few. In negotiations on one right now actually.  It takes a ton of work to investigate land from a buyer/builder perspective.  If I were to advertise my vacant land, I would do that ground work for them (but its time consuming) Call the utilities and ask how much each one costs to connect, then get estimates to put a gravel road/ asphalt road/ cement road.  Then get estimates for a slab to be poured.  Finally there are lots of really gorgeous kit homes for sale out there, this site has gorgeous ones.  The actual cost of construction is about 3 times the kit price, when you include labor and finish work.  But as a buyer that makes it really easy to say oh look honey, we could build a home on this lot and the total cost is only $XXX...., he looks over and sees estimates for each critical portion of construction, and even a blue print and picture of what the home could look like.

I know that sounds like a lot, but that is what the buyer has to do.  Also, consider connecting utilities to the land, it is a HUGE sale point and increases the value of the land bc it is now ready to build.

As far as where to advertise... Craiglist, on here, local paper... or sites like these. But those you have to be researching and looking for land.

Hope that helps

@Jacob Pereira Well those increases are pretty nominal in the grand scheme and wont change your important results significantly, and could very well be offset by the increase in rent (which appears to be very reasonable given your market). Its a pretty stellar deal! 

Re-did the numbers with the new tax rate and 10% for OPEX (combined $8,300), of course there was a drop but still numbers a bank would love to see.

NOI= $36,600; DCR=2.62; BER=52.25%; Cap Rate= 11.03%; Loan Constant= 5.63%; Spread= 5.4%; ROI 27.3%; Actual Cash in Pocket at end of year= $17,478

Ok, so by the fact that you say he put 11k down then he financed it with a bank?

If so you cant owner finance with him.  The bank would freak out if title changed names, plus he doesnt own it free and clear.

Your best bet based on these facts is a wrap or sandwich.  You can get his property with a lease option to buy as is, agree on the price, you cover his loan payment plus something bonus, then you turn around and advertise that you are lease optioning a home as a handyman special.  The actual occupant pays you a couple hundred above your lease amount, you agree to a higher price than your initial price with seller.  Google how to structure "wraps" and "sandwich" deals.  This gets you income from the property, someone to fix it up, gets seller loan covered and he gets down back in a year with no expenses plus some bonus income per month.

As to your refi, you only need to put 20% down if you are paying retail price. Lets say retail is 110k, and you buy it for 75k, you are at 68% LTV. So a down would not be required assuming that the home is repaired and worth 110k. You can get it to 110k value by having your tenant fix up the place. He pays for repairs, and gets to pay full price... assuming he can qualify. If he cant you get to keep the rents from him, and you can refi house as stated above.

The key is to have rock solid lease option contracts. Hint, the lease agreement never mentions the option. The option only states that buyer will receive a CREDIT for $XXX/mo (negotiated amount) and credit for repair expenses IF he elects the purchase option and qualifies. Be specific when that option date is to be made on.  If he doesn't elect or qualify then he fails the terms of agreement. And you are not bound by it.

I am finding that a quality produced hand written letter with a sincere message works best.  My assistant writes out my drafter message in hand writing, she has better writing than me, I then scan that into the computer and send to my printer to print on quality stationary. Same with envelopes. Then she hand writes on each address.

I get people calling me to say, "I am so sorry but we dont want to sell our home."  The letters are very sincere.  This is my best method, allows me volume, and frees up my time.  By targeting our letters with research ahead of time, we are only sending out to ones that have deal potential.

Here is my break down given your numbers-

170k 25% down 4.65% interest fixed over 30 yrs.

42,500 down; loan for 127,500

taxes 800 annual, prop manager 10%= 2400

($1k/unit) 2k/mo x 12= 24k gross

24k - (800tax, 2400 PropMan,= 3200)= 20,800 NOI

20,800/170k= 12.2% Cap rate

Loan Constant 6.19%

Spread 6.01%

Annual Cash on Cash return 30.38%

Annual debt service= $7889.24

Break Even Ratio= 46.2%

Debt Coverage Ratio= 2.64

Actual Return after all expenses= $12,910.76/yr

(900/unit) 1800/mo x 12= 21600

800 tax, prop manager 2160/yr= 2960 expenses

18640 NOI

Cap Rate 10.9%

Loan Constant 6.19%

Spread 4.71%

Annual Cash on Cash return 10.96%

Annual debt service= $7889.24

Break Even Ratio= 50.2%

Debt Coverage Ratio= 2.36

Actual Return after all expenses= $10750.76

Not factored into this is any repairs (but given the remodel it should be nominal) and vacancy. Your monthly loan payment is $657.44. Given that it is a slow rental market I would factor in 6 months vacancy fund.

Your numbers look ok, safe enough to continue. But with a slow rental market those are factors the calculations can’t take into account.

My pleasure :) Also, try shopping around for what kind of loan you can get on it. Even a 50% LTV would greatly drop your risk and free up cash to buy a second unit.

Look at the math like this: 

Cash for a 100k home that makes 1k per month. you make 12k a year.

Use that same 100k cash to put 20k down on 5 homes with five 80k loans. Mortgage is $500/mo or 6k per year, times 5 = 30k annual mortgage but you are also profiting 30k per year from the remaining 500 off each  units monthly rent ($500x12mo.x5units=30k).  Obviously there are other expenses and issues to factor, but this was just a quick way to show you that leveraging your cash with loans is the way to acquire more units and thus more profits.