One of the biggest reasons I love real estate so much is because there are countless ways to make a considerable profit with real estate. The questions really are: How creative are you? How bad do you need a deal? And how motivated are your Sellers to sell or just stop losing money each month? Here is a little trick that I have used in the past to make money when I thought there were no deals to be made.
In my last article I wrote about 5 Ways to Make Money with Mobile Homes. This “Partnering with the Seller” technique may be a combination of wholesaling and fast-turning properties. Your goal here is to partner with a seller, assume control of the property, and quickly resell the home for a large profit. Let’s look a bit closer.
How to Purchase Real Estate With No (or Low) Money!
One of the biggest struggles that many new investors have is in coming up with the money to purchase their first real estate properties. Well, BiggerPockets can help with that too. The Book on Investing in Real Estate with No (and Low) Money Down can give you the tools you need to get started in real estate, even if you don’t have tons of cash lying around.
Criteria for Partnering with Sellers on Real Estate Deals
Home requirements: The property can be a mobile home or traditional site built home. The property should have considerable equity (pull comps). This technique works best with more desirable homes. Perhaps the seller has not even marketed the home to properly attract buyers. The property may have cosmetic eye sores. Avoid homes that will require costly repairs, extensive curb appealing improvements, code violations, or other money pits. The property may or may not have a preexisting mortgage. Look for homes that you believe are just a few inexpensive fixes away from a retail sale.
Seller requirements: The sellers are very motivated to sell, but know the value of their home and demand a fair price. Sellers will not have the liquid cash to cover the repair costs needed for a fast sale. Owners may be living out of state. The preexisting mortgage(s) or late lot rents may be in default, this could be a reason for the fast sale. The sellers may NOT continue living in the property once you agree to help. Sellers must be willing to wait until you re-sell the property for their payday.
The Process: Once you have established that the seller and property are good candidates for partnering you must have a meeting of the minds. A specific contract should be created to explain which parties will be responsible for which costs, how profits will be divided and how you will be compensated for your time and experience. Due diligence should be performed before adding yourself to ANY property deed.
I advise using a Warranty Deed to place the home into Land Trust or Personal Property Trust prior to adding yourself as equitable owner. Using a Trust will not cause seasoning issues later down the road when your buyer is attempting to locate conventional financing. It is important that you, or your trustee, are named on the deed before you place any money into the home or start marketing the home for sale.
At this point you should have only spent a minor amount of money adding yourself to the chain of title. The sellers should be moved out of the home by now. Bring the past due mortgage(s) current and/or past lot rent payments to insure the home does not slide into foreclosure while you are trying to sell it (try to split this cost with the sellers). Remove, replace, and repair any cosmetic damages that may detour a potential buyer to pass on this property. Spend a few hundred dollars increasing curb appeal, hire a Realtor, and start marketing the property for sale by yourself.
One important thing to remember is, by adding yourself as part owner you are not mistaking yourself as a Real Estate Agent and practicing without a license. When writing up a partnering agreement always remember to clearly state that; YOU will be reimbursed for ALL expenses you made to property, etc. This total expense will be paid to you from the NET profit of the sale. Only after you have been repaid all monies you have spent on the property, will this new total NET profit amount be split with your seller in any percentage you have previously negotiated.
I started using this technique because I was passing up countless deals that were good, but not great. Even good properties can make you money . If you can risk only a few dollars to make thousands, how many many of these deals would you do? Partnering with sellers allows you to control more properties without spending a large amount of cash to do so.