All Forum Posts by: Jeff Stephens

Michael, I just wanted to share an alternative idea. Instead of paying for the list, you could probably get a free list from a local title company (that's what I do).  So there's no cost there. Then, you could spend some money on a service to help you find phone numbers, like Spokeo or TLO.  It may come out to be less expensive for you that way, and with potentially more accurate phone numbers.  

Horacio, I'm not familiar with that type of arrangement. But if you wanted the second position lender to be empowered and motivated to make sure the first position loan is getting paid, one idea would be to have the second position lender give you the downpayment NOT in the form of a loan, but in the form of equity instead.  Then they too would be responsible for making sure the first loan is paid as promised and would have the ability to step in and make payments as needed.  

I agree with @Dan Bryskin, this sounds like it has the makings of an excellent deal. You get the opportunity to arbitrage BOTH the price of the property (buy it for 70 cents on dollar and sell it for 100 cents on the dollar), AND the financing itself. 

The only thing I wanted to point out is that another slight variation is you could "sell" it to your long term tenants without "selling" it at all, if you used a tool like a lease-option. That would give the tenant a path to ownership but further protects you because the tenant must follow the terms of their lease to maintain their option in good standing.  

Furthermore (not to make this too complicated), if you're making money each month on arbitraging the financing (the tenant's lease option payment is more than your mortgage payment), you may actually want to make sure the tenant does NOT cash you out too early. After all, that would put an end to your cash flow arbitrage party! So you could set the tenant's window of time to exercise their option as being several years out (for instance, they could exercise their option between the 7th year and the 8th year), so that you'd enjoy that great financing arbitrage for at least 7 years. 

Brett, the most standard way to do this (and the method I use very frequently), is with two primary documents:  1) Promissory Note and 2) Deed of Trust

The Promissory Note is where all the terms of the loan are outlined:  the interest rate, the loan amount, how payments are made, the amortization, the maturity date, what the collateral is, etc.  You are the Maker of that note, and your Seller is the Beneficiary.

The Deed of Trust is the instrument that will be recorded with your County on the title of the property.  It will show that your Seller (now the Beneficiary) has a claim on your property as collateral for the loan they've made you.  

I live in a state with title companies, so all of this is put together by the escrow officer (though I actually draft my own Promissory Notes).  In other states, it would be a closing attorney who does this.  If you give the escrow officer or closing attorney an outline of the terms you and the seller have agreed to, they can create the documents for you.  

With this structure, at closing you will become the owner of the property, and the seller will have a deed of trust.  As @Seth Ferguson mentioned, it's the same structure as most mainstream retail real estate transactions:  the bank loans you the money to buy the property, you become the owner, and the bank has a deed of trust.  

Good luck! Feel free to DM me if you want to chat further. 

Hi Amer, congrats on taking some first steps to get started.  For reverse wholesaling specifically, there are some books on the topic, such as Reverse Wholesaling by Kent Clothier, which you may want to check out (I have not read it myself).  

In my opinion, the bigger and more valuable answer to your question is to step back and look at the bigger picture fundamentals first.  Regardless of your assignment contract documents and whether you're doing wholesaling or reverse wholesaling, it's important to focus on a few of the fundamentals first, because these are the bigger principles that apply regardless of which specific techniques you decide to use:

1) You need to know property values in your market inside and out. If you have a big market, you may want to segment it into smaller sections of town.  But whatever market or submarket you want to work in, you should really know values (prices, prices/ft2, etc.) amazingly well.  

2)  You need to know what retail buyers are looking for in your market.  For instance, in my market, people love remodeled old homes from the 1920s and 1930s; there's very little new construction in my market.  While you personally may not be selling to these buyers, your wholesale buyer clients will...and you need to be able to project what their market will want to buy.

3) You need to know who the most active professional buyers are.  Who are the people doing the projects most consistently?  

4)  Then, once you know that, you need to get to know these people and understand how they underwrite their deals.  It will be different for each person.  Are they targeting a gross profit/deal?  Are they looking at a percentage return?  How do they finance their deals? What are their favorite types of properties? How much work do they like to have to do (cosmetic projects, or structural renovations)?  There are a lot of questions you'll need to answer for yourself with each of these buyers.

Then, once you know these things, you're ready to begin talking to sellers and seeing if you can find something that would work for one of your buyers.  Without the knowledge above, you won't know if you have a "deal" or not.

My recommended approach--what I call the Thoughtful approach--is very relationship oriented.  While many people recommend building a huge buyers list and treating it like a database, I recommend having a smaller list and knowing those people really well.  That way you can really dial in your understanding of exactly what they are looking for and do repeat business with them, rather than starting over with different people each time.  

Feel free to message me directly if you'd like to discuss further.  

John, I'd recommend seeing if you can connect with @Chad Carson--I believe he would be an excellent resource for this question for you.  

Troy, it's good to meet you, and congrats on getting started.  I'm happy to share my two cents with you.

Buying rentals and doing wholesale deals will deliver you with two very different types of results.  I'm overgeneralizing here, but rentals are about building wealth slowly, while wholesale deals will never make you rich but will give you an infusion of cash.  If your goal is financial freedom [depending on how you define that] it will much more likely come from building a portfolio of long-term rental property holds over a longer period of time.  Some wholesaling may be useful for getting started and giving you a little capital to work with, so you may see a synergy between pursuing both of those for now.  

As for getting your real estate license, it's not necessary for what I've described here (I don't have one, either).  However, it could be useful for generating some income as you learn the landscape of real estate and investing. 

Lawrence,

I'm interpreting your question to mean (paraphrased), "what are the top few most important things you do to make deals happen?"  I hope that's an accurate interpretation; here's my answer:

1) Get to know values in your market, like the back of your hand.  Get a list of sold comps, drive by them, study the figures and burn them into your mind.  Average prices, prices per square foot, average sizes, etc.  You want to get to the point where you can estimate value very intuitively.  This may not seem like "income producing" activity at the moment, but it's critical for putting yourself in a position to generate revenue.

2) Get to know the buyers in your area.  As you drive around town, stop every time you see a porta-potty at a significant job site.  Look up the owner of the property, and (unless it appears to be a homeowner), reach out to that owner and introduce yourself.  Take these people to coffee or lunch, talk on the phone, etc and get to know their business as well as you can.  That way, you'll know exactly what they are looking for, how they evaluate deals, etc.  

3) Lastly, do some respectable marketing. I'm a fan of simple--but thoughtful--physical USPS letters. I don't recommend "yellow letters," postcards and all the other mass marketing. I simply recommend writing a nice, sincere, non-threatening letter and getting it out to the homes in your market you feel would be a fit for wholesaling.  You can create your list through visual identification, and/or through getting lists from your title company.  I personally avoid all the "fast-close, all cash" messaging that's in most letters, and instead I simply introduce myself and ask them politely to please contact me if they would consider discussing a sale to me.

Good luck!

JWS, The Thoughtful Real Estate Entrepreneur

I am going to be closing on my purchase of this house soon, and will be planning to resell it.  It's a standard ranch-style house, with 3 bedrooms and 2 bathrooms, including one master bed/bath.  It has a small shed and large yard.  We will be conducting a formal inspection shortly and I will be happy to provide that as soon as we have it.

If interested, please call 503-488-5837.  Thank you!

Hi Chris, thanks for sharing your responses.  I have a few thoughts to share:

--I think by writing your response, you've identified one of the key issues yourself:  it's important not to make assumptions about your seller, their motivations, and what they may say yes or no to.  

--I'd recommend sitting down informally with your seller, maybe over lunch or coffee, and just having a casual conversation. In that conversation, you can ask some of these important questions in a very conversational manner (so that it doesn't feel like an interrogation).  Ask friendly, chatty questions like "So, tell me what your original vision for the property was--what did you see in your mind when you bought it?"  "Nobody knows this property better than you....If you were to keep it, what do you think would be the best thing to do with it?"  

--You can also use this conversational manner to learn why he's thinking about selling it.  It might be his stage in life, it might be that he's lost the vision, it might be that he's got something else he wants to do, or it might be any one of a hundred other things. Heck, he might just be tired of paying the tax bill.  I think you can ask him in a way that he won't feel interrogated.  

--One of the huge assumptions to identify is the assumption that he's too old to take a promissory note.  There are lots of reasons why he actually may love a promissory note.  Older people in their retirement phase often love income streams, which you could provide. Hey may also want to defer some of his capital gains, which you could definitely help with if you structure the note correctly.  He may also feel like if he got cashed out, he wouldn't know what to do with the money (other than put it in a bank at 1%), which you could help him with. In short, a note could possibly be great for him; you just need to learn more about his situation. 

If I could wave MY magic wand on your behalf, you'd buy this property with about $5,000 down, and the balance on a note at 4% with a balloon payment due in 5 years. :)