All Forum Posts by: Jeff Stephens

Hi @Ethan Mckuhen, and congrats on your entry into real estate! That is exciting, and you're now at a crossroads you will probably face many times in the future during your real estate career.  I think the only honest answer here is, "it is all relative to your goals, and depends on what you'd like to accomplish now and in the future with your real estate."  It's safe to say there are no right or wrong answers here; rather, it's more a question of strategy to help you get where you're going.

[BTW, I assume this is your personal residence--is that correct?]

Here are a few questions to ponder as you consider your options:

• If you were to sell this, where would you live? Would you want to buy again?
  • With your employment and income, would you qualify for a new home loan?
• If you were to sell, how much would you pay in commissions and costs (probably around $8k give or take), as those would eat into your profits substantially
• Are there other ways--like a HELOC--that you could tap into some of the equity you've built?
• What would you do with the "profits" you experienced? Reinvest them in more real estate? Spend it on something else? Reinvest in a different type of asset?
• If it hadn't appreciated, would you be wanting to sell it? Stated otherwise, is this the kind of property you think would be a smart long-term investment (good location, good bones, charm, etc.)?  
• How do you envision your real estate career playing out? Is this just the beginning of a huge portfolio of properties you plan to own? Do you want real estate to ultimately become your primary focus, so you can retire from fighting fires? Do you want to have a small handful of free-and-clear properties, or many leveraged properties? 

In my own personal real estate investing philosophy, I prefer to only sell a property if it's a really strategic move. While it can be tempting to want to enjoy a few bucks of "profit" on a house, I tend to personally take a longer perspective and hold onto things until it's really advantageous for me to sell it and move on.  

Good luck!

This may be a good loan for a private individual as well. A 50% LTV loan with a deed of trust and 4-5% interest could be very attractive to certain people, especially those trying to create income streams from conservative investments (especially considering the rates currently paid on things like CD's).

@Adam R.: In my experience, people who want to do seller financing fall into one of two categories

1. They have their eye on a new property they want to buy, and have to sell something they currently own to buy it
2. They want to sell their current property, and just don't want to pay the tax on the gain now.

Do you know which of these two categories your seller falls into? Knowing this will help you make a more useful proposal.  If the seller is in the second category (and many of them are!), then you can propose an installment sale structure (where you make a downpayment and then payments over time), which--if structured correctly--can also help them greatly defer much of their gain. Of course, every seller's situation is different (their goals, their basis in the property, their gain, etc.) so you have to evaluate it on a case-by-case basis, but this general idea is very powerful.  In my experience, many sellers simply do not realize that a well-structured installment sale can be a viable alternative to a 1031 exchange. Once educated on this, they can find it very attractive.  

Hi @Shannon McKenna, thanks for your post! First, I want to commend you for your entrepreneurial approach to making something happen here! I agree with @Travis Dawson's comments, and want to add a couple things.

With some diligent effort, you can probably learn a lot about her through searching online. I often find interesting little factoids by just using Google and Facebook to look people up.  For instance, is she listed on any non-profit boards?  Has she written any letters to the editor newspapers, etc? 

The other thing you can do is be proactive, and choose to not take the "bank-approved" requirement literally.  You could prepare your own "due diligence" packet of borrower financial information to submit with your offer.  This might include a cover letter, your resume, your recent tax returns, bank statement, credit report, etc.  In other words, you're basically proactively giving her all the same type of info a bank would ask for, and acknowledging "I don't have a conventional bank pre-approval letter, but based on this information, you decide for yourself if you feel I'm credit-worthy." You might be surprised to find she may consider this more than you expect.

Last but not least, one other little [sneaky] trick of the trade would be to get a pre-approval letter from a hard money lender. It's not a "conventional" pre-approval, but it may serve the purpose for you.  

On a side note, ultimately I believe you'll be more effective in your efforts to buy properties with seller financing if you develop the ability to find deals that are off-market.  You'll have infinitely more ability to connect with the seller, get to know them and their goals, help them get comfortable with you, and negotiate terms directly.  I'd recommend learning to do your own marketing, to tee up these opportunities. 

GOOD LUCK!

@Account Closed mentioned, though they didn’t use that technical language specifically). I too am not particularly comfortable with the land contract model, so I gently pushed back and asked a few questions, to see if I could steer the conversation toward a note and trust deed approach (where I take title, and the seller gets a deed of trust recorded against the property to secure their collateral), which is something I do frequently.

Here’s the lesson I learned, that I wanted to pass along:I had incorrectly assumed from their initial approach that they were adamant about using the land contract model.In reality, they just didn’t know any other way existed! It wasn’t that they rejected the note and trust deed, they just hadn’t been educated about it, and had [understandably] assumed that the only legit way to protect themselves in a seller financed sale was to not let title transfer until it was paid off.With some friendly conversation and gentle education, they changed their minds and ultimately did the note and trust deed with me.

The takeaway? Maybe try going back and seeing if you can steer the negotiation toward a note and trust deed—they may be more amenable than you think.Good luck!!

@Caleb Webster Thanks for your response! Yes, I'd love to grab a beer or coffee soon and talk shop further.  PM me and we can find a time and place!

If you decide you want to explore Spokane, I've got a real estate contact there and would be happy to introduce you.  

One assumption I will challenge you on (in an encouraging way!) is that mailing, driving, etc are only for wholesalers. I disagree; I believe those are the strategies of committed real estate entrepreneurs, whether they wholesale or not. I'm a buy and hold investor, and every single deal I buy is from those off-market strategies. I only occasionally wholesale deals, and I consider wholesale opportunities to simply be the by-product of being good at finding off-market leads for my own portfolio.  

Hi @Aloma Murray, it's good to meet you. I'm writing from just up the street in Portland.  It sounds like you've got an interesting opportunity here, and are off to a good start with it.  I think the most important thing here is that you've done an excellent job securing a relationship with her, and connecting on that emotional level.

There are lots of ways to go about deals like this, and I think there's an opportunity for you to gather even a little more information from her about her vision for her life moving forward, so that you can craft the perfect plan for you both. For instance, I'd want to know:

• where exactly does she want to move? Does she already have a place picked out, and does she want to buy it (rather than rent it)? Have her paint a picture for you of her vision
• when exactly would she like to make that move? Often moving out of a 5,000 ft2 house doesn't happen quickly; what would her ideal timeline look like? You can add value to her by giving her the flexibility she needs
• exactly how much cash will she need to make her move, and when will she need it? It sounds like she is implying $90k will do it, but is that just her estimate or is that based on something specific she's got her eye on?

I like your thought on deferred payments, and I think that one of your points of leverage/argument for that would be that it needs work. She may understand that you need a few months to fix it up a bit before you can live there.  

Keeping her mortgage in place is certainly possible, but adds a little layer of complexity.  One structure that might work well for you both would be a lease-option structure. In this case, you would lease the house from her, with the option to buy it.  This would get you into the house for an affordable upfront cost (you'd make a payment of 'option consideration' to her) and start living there, while having the time to sell your other house.  Then, once you sold it, you could exercise your option and buy the house from her with a new mortgage, and take our her existing mortgage.  

Whatever you decide to do, I'd recommend you frame it as a "proposal" to her rather than an "offer."

Good luck!!

Hi @Cindy Kao, thanks for your post! Here are a couple questions that come to mind as I read your post:

1. If you got your cash back, do you have something productive planned to do with it?
2. To defer taxes, many people do 1031 exchanges--have you looked into that?
3. Another way to defer capital gains is to sell via an installment sale--have you looked into that?
4. Last but not least, rather than sell the properties to extract the equity, have you considered trying to place a second loan on the properties? It might be difficult via a financial institution, but potentially possible with a private lender.  

All that said, I'm not as big a fan of owning out-of-market properties, but that's just my own preference.  That would definitely impact my own decision-making process on this one. 

@Caleb Benedict I'd recommend you connect with @Neal Collins and check out his company, 45 Main Properties.

Hi @Caleb Webster, good to meet you. I'm in NE Portland, and replying to you from just about a mile from this property. The first property I ever bought was straight down Holman at 28th (and I still own it and rent it)!  I am constantly working this neighborhood, and have a pretty good feel for it. Here are a few thoughts:

• Generally speaking, it's going to be very difficult to make any MLS-listed properties in NE Portland work well from a cash flow perspective...unless you significantly change the picture of the property (make it something different than it is now). Adding a bathroom could do that somewhat, but probably not enough to really change the income stream.
• Personally I wouldn't consider this Alberta Arts; I'd consider it Concordia, edging toward Woodlawn.  Not to split hairs because those are all good neighborhoods, but if it was 8 blocks south it would be a different story.
• From my experience with our current market, it may be unlikely to get the sellers to accept a $300k cash offer. Sellers in this part of town are fairly optimistic and I would be surprised to see them go for that.  You won't know if you don't try, though!
• All in all, it seems like you could make it work, but it feels to me like a "single" (baseball metaphor). I'd encourage you to spend some time and energy doing some off-market marketing and see if you can create a deal where there is more room to add some value.

Good luck!