All Forum Posts by: Tim Soto

I agree with Jedd. Unless you have a very motivated seller, who just wants out, it'll be difficult to obtain 100% seller financing, but it does happen.  A down payment of any kind shows the seller that you're committed to the deal. But most importantly, you have to be sure that the numbers work on the deal. Even if the seller is willing to carry 100% of the purchase price and considering the terms, will it cash-flow or will you be losing money, and ultimately the property back to the seller?

Hi @Michael King ,

Great job taking action. You're totally right, the more you talk to leads and deal with objections, the more confident and creative you'll become to help the sellers. 

With this situation being your first, just know that being nervous is good. Keep doing what you're doing... Be yourself, honest, and build that rapport. As suggested earlier in the thread, make sure you know what the remaining balance of the loan is or if it's owned free and clear, which will give you an indication if there is anymore wiggle room in case the existing numbers don't work for you. You can find this information by contacting a local title company. Ask to speak to title service rep. Let him/her know that you're in discussion on a property, which you're planning to purchase and that you're looking for a title/escrow company to work with. Request a property profile along with the mortgage history (if you're in a state that uses closing attorneys then get the property profile from the one you'll be using). Local real estate agents can get this info as well. 

Most importantly, make sure the numbers work for you. Just because it's 100% occupied and the price was reduced doesn't mean it'll cash-flow for you. Maybe because it's owned free and clear and the current owner can afford to keep rents low, it still cash-flows for him, but at that purchase price, it may put you in the red. So, make sure the financials work for this deal at this purchase price or negotiate a price that will. 

Based on my personal experience, I would go with seller financing. I don't know how much you could put down but a down payment would help your chances because it shows your commitment. Once you know that the numbers work, you're ready to make the offer, and you could sense that he likes you and wants to work with you, then ask how he would feel about being the bank. I would go with, "You know, I'm really interested in taking this property off your hands so that you can enjoy your retirement as soon as possible, only it might be a little challenging and time consuming to get the right financing for a novice investor like myself from a traditional lender. Would you be interested in being the bank and carrying the note for a very short period of time? I would manage it the way you've managed it, you would be getting a retirement check every month without the management and travel hassles, and after a few months of showing my management efficiency, I can then go to a traditional lender as an owner to refinance and cash you out. And, I'm willing to put (however much you can) as a non-refundable down payment to show my commitment to you and my future." Then listen to what he has to say. 

Remember, he wants to retire, think how you can help him with that, but at the same time, don't set yourself up to fail in the process. Hopefully this was helpful and the deal goes through. Good luck, I'm sure you'll do great!          

Kindest regards,

Tim Soto

Welcome to BP April!!!

This is a great topic with great information. Thanks for bring it up and sharing all your insights.

Tim

Hi Adam, 

I've done seller financing on both sides, just not on raw land. Based on my experience, the one most important thing that I take into consideration is to make sure that the down payment is large enough to hurt the buyer if they default. Make the terms a little more in your favor, seeing as you're taking on most of the risk, but be reasonable enough not to set the buyer up to fail. 

Seeing as you're in California, which is a non-judicial state, it would be a lot easier to foreclose, than if you were in a judicial state. Hope this helps.

Kindest regards,

Tim

There are a bunch of these sites that claim to have wholesale deals but actually don't. They take properties off the MLS, and try to entice you to pay for a premium membership for access. I stay away from that.

I have access to the MLS and when I'm looking for deals for investor clients, I go through tons of listings that we have identified to meet a certain criteria. I contact each of those listing agents to see who's really motivated to sell at a price that makes sense for my buyer, but it's a lot of work. I prefer going directly to a wholesaler, who's dealing directly with the homeowner through his own marketing campaign and has the property already under contract at a great price. I've been inundated with demand so I though of reaching out to the BP community in the SoCal area.

Hi all,

I'm currently seeking an available wholesale SFR deal in the Los Angeles, Ventura County, or Santa Barbara areas. Any wholesalers with inventory please let me know.

Thanks,

Tim 

@Alice B. 

There's still a lot of opportunity their in Las Vegas. You should study and get to know your market very well before jumping into this type of commitment to minimize your risk. Network with area brokers, investors, and other professionals in the industry to get their insights on your market as well. Like Kelly & Jon mentioned in their response, your other option could be in the commercial sector, i.e. small retail center, office building, multifamily, self-storage. Think about what type of investment property you would feel more comfortable learning about and investing in, then network and learn from other investors or brokers in your area, who are doing those transactions and are successful at it. Good Luck!

Tim

Hi Leo,

I did the exact same thing for my parents when I first started out. If I'm able to pay PITI on my own, just in case I have to pay it, then I would do it (just because it's for my parents). Based on my experience, this property won't be looked at as an investment property if there is no income when the time comes to buy a home for yourself, more like a second home. Or they'll ask for a copy of the lease agreement, which you can easily draft up. And make sure to keep records to show that you're not paying the mortgage so that the bank knows that you won't be paying the two mortgages on your own. I don't think it'll hurt, more likely help your credit.

Talk with a seasoned and knowledgeable lender, who'll give you the rundown on the best mortgage to use for this type of situation. If I'm not mistaking, if you're going to put the required 3.5% down payment on an FHA loan, remember that now the mortgage insurance for an FHA loan stays on for the life of the loan, and in Ventura County, that's like $300+ a month. There's the 5% conventional to think about as well, but I would ask a good lender, because they're always changing and I'm not a lender... I'm just going off of my own experience or past client buyers. Hope this helps.

Good Luck!

Tim

Hi Gerald,

I'm buying commercial and multifamily, but not always at wholesale prices. I pursue these properties through direct mail campaign. I have access, through my title company relationship, to obtain the information for my letter campaign. I target 5+ multifamily units and commercial buildings in the greater west Los Angeles and Ventura County areas. If you live in a larger metro area, you may want to filter the list more. I personally sign the letter in blue ink and handwrite their name and address on the envelope to make it look more personalized. 

I'm going to generalize the pros and cons of this sector because there's so much more that can go into each pro or con I cover. I'm sure you'll get the idea of the impact this type of investment can catapult your business.  

Pros 1. Scales of economy: Fore example, if you have a 20 unit apartment building, you have 20 units paying you rent and only have to worry about one roof, one plumbing system, and one electrical system. This decreases your expenses per unit, and when managed efficiently, gives you higher return per unit. If one or two tenants vacate, you still have the other tenants paying you rent and helping you pay down that mortgage while you get the vacant unit(s) ready for occupancy at increased market rate. When it comes to retail, office, and warehouse, you're dealing with square footage, and increasing rents 10 cents per square foot can dramatically increase the value of a commercial property.

Pros 2. Forced appreciation: You can also off-set your expenses onto the tenants to decrease your expenses more, which in-turn, increase your Net Operating Income, and ultimately increase the value of the property. With retail, office, industrial, you can have tenants pay their portion of the taxes, insurance, utilities, and maintenance based on each tenants percentage of square footage they occupy. 

Pros 3. Value-add opportunities like vacancies, deferred maintenance, and mismanagement: These are opportunities to acquire these properties at wholesale prices. For example, if you're looking at a property that is 50% occupied, then you should be offering 50% of the stabilized value, giving you a 50% upside.

Cons 1. Tenants and vacancies: You're going to see more vacancies than if you had a SFR. You may have problem tenants, but if you screen your tenants thoroughly or can afford a property management company to do it efficiently, you should have less tenant and vacancy problems.

Cons 2. Escrow is more expensive: Your fees for closing on these properties can easily be more than $10,000, but if you can get a property Subject-to the existing financing (take over mortgage payments) or Wrap-around seller financing, then that will decrease your out of pocket expenses drastically.  

Cons 3. In some cases, these types of properties require higher down payment, & you definitely have to have reserves, just in case sh*t happens. 

I'm sure there are other pros and cons that I didn't cover. I hope what I generally covered was helpful. Good luck!

Tim