If you want to be successful in the real estate business you need to have several niches. These niches include the types of deals you specialize in — whether they be a subject-to, lease option or wholesale. It also includes the types of sellers you target such as pre-foreclosures, landlords, and probates, to name a few.
Personally, I do a lot of subject-to’s and my favorite sellers to target are absentee owners, by far. When I get a landlord who calls me and is sick of their rental property, I already know the conversation is headed in the right direction. However, when the landlord mentions he owns the house free and clear, that’s when I really get excited.
Negotiating with Motivated Landlords
If the landlord is truly motivated, then I know there’s a chance I’m about to get 100% owner financing and I’m not going to be paying any interest either. Let me give you an example. Let’s say you get a call from a fellow who is ready to retire and doesn’t want to deal with tenants anymore. He owns a $150,000 house free and clear and he wants to get rid of it. You tell him that if you were to pay cash you have to buy at a deep discount and that he’d be looking at a cash offer around $80,000.
Once you mention this $80,000 offer he’ll probably say “absolutely not” and then you say “we’ll there is an option where I could pay you close to market value and you could get steady income from the property.” You continue on explaining how owner financing works and you tell him that you could pay him $125,000 for the property and he would get his money in monthly installments of $1,000 over 125 months.
As you can see there is not any interest included in this offer and everything is going towards the principal. Before you think to yourself that you could never do this, it works, and landlords do accept this type of deal.
Obviously, it doesn’t happen often, but I always pitch this type of offer first because you never know when someone will accept it. If a seller doesn’t accept this offer and wants a down payment and interest then we begin to negotiate. However, I never, ever put more than $5,000 down on a property, and if a seller won’t accept that, then I walk away.
Putting any more than $5,000 on a property is a bad habit to get into and it will limit the amount of deals you’re able to go after every year. Also, as far as the interest is concerned, it all depends on the market. In today’s market I wouldn’t pay any more than 5% interest and on a deal I’m doing. Right now I’m getting ready to submit a revised offer to a seller at 5% interest and payments over a period of 120 months.
Just make sure you never, ever start off offering to put money down or to pay interest to a seller. These should always be your final offers; your first offer needs to be zero interest paid and 100% owner financing.