Written by Tim Randle

Tim Randle bought his first investment property in 1994 and he is a full-time investor in Round Rock, Texas. He licenses his web site, www.QuickOffers.com, to other real estate investors who need a turnkey web site to use in their own investing business. He also owns and operates www.REIClub.com, an online resource for creative real estate investors.

Tim’s informative articles on real estate investing have been published in Creative Real Estate Magazine as well as the Mr. Landlord Newsletter and his counsel is frequently sought by investors around the country.

You can visit Tim online at http://www.REIClub.com

Dear Readers: This month I have been working with Larry and his team in his office buying and selling houses and in this article I am going to be talking about my experiences.

I started working there about a week after school finished. On my first day Larry showed me the manual about his new “Filthy Riches” program. We search for houses that are listed for $25,000 or less. We aim to buy the property at much lower than that and then sell it straight away, as is, with seller financing. This means that you hold the note and essentially become the bank. You can then either keep receiving the payments and earn a huge return on your investment or you can sell the note for cash at a discount for a huge immediate profit.

When you find a house you phone the broker and find out what work needs doing to the property. If a lot of work is required and a contractor is needed, this is not the house for you. You are looking for a property that you can fix up yourself, (that should only be paint, carpet, appliances, and maybe a broken window).

When I talk to the broker I tell them that I am an all cash buyer, I can put up a 100% deposit, I don’t need an inspection or appraisal and I can close in 10-15 days. If you like the house and you can do the work your self make a starting offer of about $4,500. Sometimes the broker is reluctant to submit this offer to the bank. It is up to you to persuade the broker that you are a serious buyer and that most banks will respond. You can always tell the broker that this is an opening bid and that you are willing to negotiate once the bank has responded. Once your offer is accepted you will get the contract from the broker. It is very important to include the following conditions which will allow you to withdraw your offer without penalty:

1.sellers agent to provide buyer + buyers approval of condition of property based on a minimum of 20 photos including each room, interior, any problem areas, mechanical systems, all sides of exterior and street view within 48 hours of acceptance.

2. Sellers agent to verify in writing that there are no existing code violations on the property.

3. Sellers agent to secure the house if needed + place sign in window and a combination lock on the door with key + provide buyer with pictures of the sign and lockbox at closing. (You will need to send the agent the sign and provide the agent with money to buy the lock box or send them a lockbox

The agent will do all of this for you free of charge.

Once you close on the property you don’t do any work on the property your buyers will be doing that. Just send the agent your “rent to own” sign and they will put it in the window for you. When someone phones you for info on the property, tell them how many bedrooms it has, how big the house is, how many bathrooms it has, and then let them know what work needs doing. If that puts them off, tell them that you are offering seller financing with just $1,000 down, that should get them interested again.

It didn’t take long before I got my first house under contract. That was a very exciting day! I got it under contract for about $5,500 in Jackson, TN. When I got the contract I put in my conditions and the agent then sent me the 20 pictures that I asked for, I looked at the interior pictures and saw that the walls in every room needed new dry wall. This is not a job that you can do by yourself, so I withdrew from that deal.

I then found a house in Kokomo IN that was listed for $24,900. My initial offer was $5,500, the bank countered at $16,000, I then countered back at $8,600 and they accepted. I received the contract and once again inserted the 3 conditions.

Now I am waiting for the photos to see if this deal goes through. I will let you know next month how it goes.

Be on the look out for Larry’s new course Filthy Riches which will teach exactly how we do this.

This has been the best summer vacation ever, working with Larry and the team has been a real education and I have loved every minute. Of course, by the time you read this I will be back in school again, just counting down to the next vacation. Happy investing.

If you have any questions please email me at  gregory@mglpropertysolutions.com

Till next month readers,

Gregory

How to Convert a Homeowner into a Real Estate Investor

If you’re a real estate agent with a phone and good real
estate investment software then you already have enough
tools to convert a property owner into a rental property
owner. It requires an amount of determination and true
grit, naturally, but it is possible. You can glean real
estate investors from any list of homeowners at your
disposal if you want to bad enough.

Here’s how you do it.

1. Research the money market – Call several lenders or
mortgage brokers in your area and ask them what rates
they’re offering to refinance a home along with rates to
purchase income property. You will probably discover that
rates are extremely favorable. Be sure you ask about the
lender’s terms such as required down payment and loan
points.

2. Research the income property market – Make note of all
the rental properties currently for sale. With your real
estate investment software, prepare cash flow analysis
presentations on each property using the mortgage rates and
terms you discovered. Highlight those properties of
particular interest.

3. Call your homeowner customers one-by-one – Let them know
what you’ve uncovered and suggest that they consider
pulling some money out of their home to make an investment
in rental income property. Back off if the customer is not
interested, but at the same time be prepared to seize the
opportunity to make your presentation when the customer is
interested. Offer to send them an APOD and Proforma you
created on the income properties currently for sale.

Sound overly simplistic, well, it shouldn’t. Remember what
your broker taught you about cold calling—that it
normally requires you to make multiple calls in order to
close one transaction. Well, in this case, being able to
close that one income property transaction can result in a
hefty commission, so don’t get discouraged and keep your
eye on the prize. At the end of the day you’ll be glad you
did.

Who knows, you might even be surprised to receive a great
opportunity as the result of making a simple phone call.

A colleague of mine, for example, ended up listing several
apartment complexes as the result of a cold call to a FSBO
concerning a small plot of vacant land. What she hoped for
was a $50,000 listing; what she achieved was about three
million dollars in listings. I have had similar
experiences. You never know what the needs of a person are,
or how rich the opportunity, until you open up a
discussion. Bear in mind, real estate is called a contact
sport for good reason.

4. Follow up – be sure not to drop the ball; whether by
phone or email, unless you were given an adamant no
response, always follow up your previous discussion. Each
time that you subsequently follow-up with the contact you
narrow the playing field and dramatically increase your
chances to create a rental property transaction.

Okay, here’s one final, important point.

Of course, your success depends on timing, your individual
people skills, and determination. But I would be remiss to
gloss over the importance of presenting clear and concise
income property data to those you contact. Bear in mind
that customers are more likely to respond favorably to
knowledgeable information, than not.

It may sound like a shameless plug for my real estate
investment software, but if you currently don’t own real
estate analysis software, or otherwise have the means to
create cash flow and rates of return presentations, think
seriously about making the investment. It is the surest way
to grab and retain an interested customer’s attention, and
by far, the most beneficial way for you to gain
investor-customers and as a result create the rental
property transactions you desire. I attest to it.

Here’s to your success.

About the Author:

James Kobzeff is the developer of the ProAPOD Real Estate
Investment Software. Create cash flow, rates of return, and
other real estate investing analysis and marketing
presentations in minutes! Learn more at =>
http://www.proapod.com

Whenever I can, I prefer to do a subject-to deal. I only do a lease option deal as a last resort. I usually end up doing lease options with savvy landlords who don’t want to give up ownership of the property (they want to keep all of the tax deductions).

Here are a few of the reasons why I like subject-to’s better. First, I own the property. The deed is in my company name. Second, I get all of the tax deductions and benefits of owning the property. Third, I don’t have to deal with any third parties or sellers because I own the house.

Here’s why I want to do lease options last: Because you only control the property, you do not own it. This means you have to trust the owner and you will never do a lease option deal with someone who is in financial trouble. Of course, you don’t simply trust the seller. You have your ironclad paperwork. You go to the courthouse and record a memorandum of option to cloud the title on the property (so they can’t sell it behind your back). You ALWAYS make the mortgage payment directly to the company (because if you send the owner a check, and they don’t pay the mortgage then you’re screwed).

In some cases the monthly rent you’re paying will be larger than the mortgage payment. Here’s an actual deal of mine: I owe the owner $1,000 a month and his mortgage is $890. So, every month I pay the mortgage company $890 and then I send the owner a check for the difference of $110.

You will also want to run a credit check on the seller. Make sure he’s not in debt up to his ears. And use an authorization to release form to check the monthly payments and mortgage balance. All of these items are so important because remember you’re promising your tenant/buyer that they will have the option to own the home down the line. If your seller goes bankrupt, or puts liens against the property then you won’t be able to sell to the tenant/buyer and you’ll lose your backend payday of $30,000+.

Luckily, I have never had a problem with a lease option deal. All of the sellers I have worked with have been honest and very thankful for the help I gave them. In a way, this is just like screening a tenant……you screen the sellers up front that way you know your deals will close and you won’t have any problems down the line.

First Time Homebuyers Profit From the Falling Market

Has the housing market bottomed out? Is it possible that home prices are going to continue falling? Will mortgage rates continue to go down? Will they go up? Aspiring homeowners most likely wonder what the market future holds and whether or not they should buy now or wait a month or longer. It is tempting to jump right in and make a bid on that beautiful – foreclosed – home down the block, but is this really the best time or will the time get even better in a short period of time?

At the heart of this question is of course the other question: is there a bottom past which mortgage rates will not drop? If so, has this bottom yet been reached or is it still being approached? The secondary question that requires answering is whether or not home prices have dropped to their absolute bottom at this time. It is noteworthy that while speculation is running rampant, not even market analysts and those usually not shy to give their opinions about the housing bubble are markedly silent.

What holds true, however, are the facts. Mortgage rates are extremely low, and housing prices followed suit. If ever there was a time for new homebuyers to enter the market it is now. With the governmental incentives for first time homebuyers, the deal is sweetened even further and there truly is no time like the present to buy that first primary residence. At the same time, with home prices further falling, there is the question if it is advisable to perhaps wait out the market to see if another drop in housing prices leads to a further lowering of the interest rates and maybe even further incentives.

Savvy would be homeowners are counseled to research the home prices in the neighborhood into which they are hoping to buy into and see if the current prices are at – or close to – historic values. If so, it is a good idea to take a chance on the market. Moreover, the mortgage rate is unlikely to fall significantly more, and thus now is as good a time as any to get into the market. By the same token, since banks now require a substantial down payment, it is unlikely to be caught up in any further market correction if home prices continue to fall.

Of course, new homebuyers need to come to terms with the tightening mortgage lending practices. For example, zero down loans and stated income mortgages are now virtually unheard of. As a matter of fact, it is now harder than ever to qualify for a new home loan. In this manner those with adverse debt to income ratios and also insufficient income will be kept out of the market, no matter how desperate sellers currently might be. This is also pointing to another interesting bit of market wisdom: if you have good credit and all your ducks in a row, now is a good time to go ahead and make that home purchase. There is no guarantee that in a month from now you will still qualify for a home loan.

In order to compare the lowest mortgage rates, you can visit our site, www.Lender411.com.

ABOUT THE AUTHOR

Krista Scruggs is an article contributor to Lender411.com. Whether you are looking for fixed mortgage rates, variable adjustable mortgage rates (ARM), jumbo loans,interest only or even specialized mortgages such as bad credit mortgage or reverse mortgages, we will match you with up to 4 qualified lenders with 4 mortgage quotes. and any other unique situation you might be in), we will match you up with the right compan

How to Be Creative With Financing

By Ken Rolf

If you are a seller, you need to widen your pool of buyers to people who do not qualify for traditional financing as well. Some options may be the following:

Seller Financing

If you have equity, you may want to offer seller financing. With seller financing, the seller is the bank.

Assumable Mortgage

Other alternatives are checking with your lender to see if the buyer can assume your mortgage. Although most loans are not assumable, today some lenders may offer that as an option to a seller who is about to fall behind in their mortgage payments or who is already in default. It may make more sense for the lender to allow a buyer to take over the loan than have to foreclosure on the property. Average foreclosure costs to a lender are approximately $50,000 per foreclosure.

Lease Options

Lease options are a way to sell your home in a difficult market for a higher price because the buyer enters into a contract to lease your home with an option to buy it at a specific price in the future. Lease options are a great way for buyers who do not have enough cash or who have bad credit to own a home. During the option period, they can work on cleaning up their credit and qualifying for traditional financing or saving more for their down payment. Generally, the buyer pays an upfront option fee to you. A portion or all of the lease payments can be used as credits to the buyer towards purchasing the property. If at the end of the term, the buyer chooses not to buy the property, you just keep the lease payments, and you can continue renting the home to them or look for another buyer or tenant and enter into a lease option with them.

Creative Financing Options for Investors/Buyers

Finding traditional financing for your deals is getting tougher because banks have tightened their lending guidelines. So here are a few options that are available for getting financing if you don’t have cash:

Private Investors or Hard Money Lenders

Private investors are individuals or companies that will loan you money on a short term basis quickly. They don’t have to follow any strict lending guidelines like traditional lending institutions must do. Most are interested in the equity of the property and how quickly you can pay them back. You will have to pay a higher interest rate and points upfront, but the advantage is you don’t have to fill out a lot of formal paperwork, go through credit checks and you get the money quickly so you don’t lose your opportunity to buy the investment property you have found.

Seller Financing

You may want to have the seller finance the transaction if they have equity.

Assume Seller’s Loan

Another option is to assume the seller’s loan if the lender will allow it. This way you can save on some of the costs associated with a traditional mortgage.

Wholesaling

Wholesaling real estate means putting a piece of property under contract and assigning it to another investors/buyer. You receive an assignment fee from your investor/buyer for finding the property and securing the contract. The advantage is you don’t have to close the deal yourself, and you make a quick assignment fee of approximately $5,000 so you can move on to the next project.

Being creative and thinking outside the box is what makes today’s investor successful. Once you do enough deals and accumulate some cash, financing won’t be an issue for you. But if you are just starting out or short on cash, you will need to secure financing ahead of time in order to do your deals and stay in business. Compiling a list of private lenders is a smart thing to do so you can contact them when you find a good deal and jump on it.

Today is the best time to buy real estate and take advantage of the buyer’s market. So having financing available is critical to your success. Just taking the time to plan ahead and get your financing ready will allow you to continue to grow your investment portfolio and give you the financial security and long term wealth you hope to achieve.

We see them all over the roads today.  Growing in popularity, Hybrid vehicles are beginning to offer an enticing option to dependence on foreign oil supplies.  Similarly, the Buy Low, Rent Smart, Sell High lease/purchase model offers investors a Hybrid of the “buy and flip” and “buy and hold” investment models.

Most residential investment models resemble and can be grouped into one of two general categories.  Each has a major flaw that concerns many investors who consider or invest in each model.

The “buy and flip” model by definition is for the investor who seeks to purchase property at a discount, oftentimes improve the property, then sell the property quickly for immediate gain.  This model is ideal for investors who have no interest in landlording, as the “buy and flip” investor does not intend to seek a tenant for the property in advance of sale.

The main problem with the “buy and flip” model is that if a buyer does not come by quickly, then the investor is faced with discounting the property and/or involving a real estate agent in the marketing of the property.  Due to this possibility, most “buy and flip” investors need a discount of 25% or more even after adjusting for the necessary repairs and improvement.  With such high investor discounts, the pool of properties available with such significant discounts is often small.  Simply put, the higher the discount the investor needs to make his or her model work, generally the fewer properties available at such a steep discount.

The “buy and hold” model by definition is for the investor who seeks to hold property for the long term.  Many “buy and hold” investors envision funding their retirement years by selling the properties once the notes have been paid off, sometimes thirty years after purchase.  A key benefit for these investors is that the need to acquire these properties at a significant investor discount is minimized, as the investors are seeking their primary return many years into the future.  Thus, the supply of homes that meet their long term investment model is often plentiful.

There are two main issues with the “buy and hold” model.  First, there are no opportunities for “cash windfalls” from the real estate during the “hold period”.  Without the cash windfalls, funds to expand the portfolio generally must come from the investor’s day job, other investments, and sometimes partly from positive cash flow.   Because of such “slow growth” characteristics, it is rare to find a pure “buy and hold” landlord with much more than five or six properties.

Second, many “buy and hold” landlords burn so much time, effort, money, and energy taking care of repairs, maintenance, and high vacancies common with pure rental property (some investors delegate this to a management company, and while this may save the investor time, it cuts into the profits as the management company must be paid for their work).  The time, effort, money, and energy spent dealing with landlording issues often serves to minimize the investor’s ability to grow his or her portfolio to any reasonable size.  Worse, troublesome landlording experiences often sour new investors on real estate.

A properly implemented “buy and lease/purchase” model takes the best of the “buy and flip” and “buy and hold” models.  It also minimizes each model’s most glaring flaws.

First, most investors who use the lease/purchase model are able to “flip” some of their properties and sell others to their lease/purchase tenants.  This allows the investor to generate the “cash windfalls” necessary for portfolio expansion, without the pressure of having to sell that is specific to the “buy and flip” model.  Additionally, the investor should be able to make purchases work with as little as 10% investor discount (much less than the typical “buy and flip” model), because the pressure and risk associated with having to sell fast is no longer present.

Second, on the landlording side, most lease/purchase agreements transfer the repairs and maintenance responsibility to the tenant, as the tenant is not a typical renter but rather a “future homeowner”.  The typical lease/purchase agreement can also be signed for significantly longer terms.   Both these factors save the landlord much of the time, headache, and cost associated with upkeep and turnover common with most rentals.  A final bonus is even when the tenant does not exercise the purchase and vacates either voluntarily or involuntarily, the properties generally are in much better condition than had the tenant been a typical renter.

What do we mean by “fair” lease/purchase as noted in the title?

Sadly, many investors have given lease/purchase a bad reputation by offering restrictive terms designed to minimize the lease/purchasers probability of exercising the purchase option, while “supposedly” maximizing the investor’s return.  We have found a correlation between offering attractive and reasonable option terms, and the profits available to the investor, our “win/win” philosophy.  People are not stupid, and if the terms are not attractive demand for the investor’s lease/purchases will be minimized.  By making the terms especially attractive, there should be higher demand for the lease/purchase, and the investor can be more selective among the available candidates.  Carrying this supposition further, higher quality tenants placed in the property mean less money and time spent landlording.  That time and money can then be better spent expanding the investor’s portfolio to truly significant levels.

Does this “buy and flip” and “buy and hold” hybrid model work in practice?

Indeed one must allow for variation as no model is implemented exactly the same by any two investors, and markets across North America can be incredibly different.  However, implemented correctly and in the right market, we can attest that an investor can manage a large portfolio of properties with minimal management time with the Fair Lease/Purchase Hybrid.  We have, and we’ve been able to do this while maintaining full-time day jobs.

If Hybrids are the automotive future of our country, perhaps the Fair Lease/Purchase Hybrid will be the perfect model for investors concerned with the flaws of either the “buy and flip” or “buy and hold” investment models.

Andy Heller is co-author of the Fortune Magazine recommended book “Buy Low, Rent Smart, Sell High” and together with his partner, Scott Frank, have approximately 40 years of combined real estate investing experience and have purchased, rented and sold approximately 100 residential properties.

To sell a house quickly, it must be attractive and so should the terms.  By fixing your home to present it in the best light and offering flexible terms as well, you have in fact given your buyer an “offer they can’t refuse.”  When offering your house for an all-cash purchase only, you limit your market.  If you’re flexible on the financing terms of the property, you increase your pool of buyers and thus the demand for your house

Let’s discuss the mechanics of the owner financing, which is different if the seller has existing financing on the property.

1. Property Owned Free and Clear

Let’s begin the discussion with a simple explanation of owner financing with a property that is owned free and clear of any mortgage liens; that is, there is no debt owed on the property.  Let’s say Sally Seller owns her home “free and clear” – that is, she owes nothing to the bank and there are no mortgage liens on the property.  Sally agrees to sell her property to Barney Buyer for $100,000, with the terms of 5% down and owner-financing for $95,000 (95% of the purchase price).  At closing, Barney tenders $5,000 in cash and signs an I.O.U. (known as a “promissory note”) for $95,000.  Sally executes and delivers a deed (ownership of the property) to Barney.  The promissory note is secured by a mortgage that is recorded against the property as a lien in favor of Sally.  In this case, Sally is essentially acting as a lender to fund part of the purchase price of the house.

Sally can set a balloon date in the promissory note by which the loan has to be paid in full, at which time Barney must either sell the property or get a new loan from a traditional source such as a bank or mortgage lender.  When the new loan is obtained, the loan to Sally is paid off and the mortgage lien is removed from the property.  In some states a different form of mortgage called a “deed of trust” is used.  A state-by-state list can be found in the resource directory in the appendix of this book.

2.     Seller Has a Mortgage, But Some Equity

The preceding example is for illustrative purposes only, because if you’re reading this manual you probably owe money to a lender secured by a mortgage lien on your property.  Let’s consider a more common example – a house that has some equity because it has appreciated since it was purchased, or was purchased with a sizeable down payment.

Let’s say Sammy Seller owns a property worth $100,000 that’s encumbered by a mortgage of $80,000. Sammy agrees to sell the property to Betty Buyer for $100,000. Because there’s $20,000 in equity ($100,000 value minus the $80,000 loan), Betty offers to pay $10,000 down and borrow the balance of the $90,000 from Manny Mortgage Lender.   At the last minute before closing, Manny decides that Betty Buyer’s eyes are the wrong color and refuses to fund her loan.  Instead, Manny offers to lend $80,000, which is $10,000 short of the amount Betty needs to close.  One choice is for Sammy to drop the price of $90,000.  Another choice is for Sammy and Betty to part ways and for Sammy to put the property back on the market to find another buyer.

A third choice is for Sammy to accept a promissory note for $10,000 as part of the purchase price.  At closing, Betty will pay Sammy $10,000 down, borrow $80,000 from Manny and give Sammy a promissory note for $10,000.  Sammy signs over to Betty a deed to the property, and Betty signs a mortgage lien for $80,000 to Manny, who will possess a first lien on the property.  Betty also signs another mortgage lien to Sammy, who will have a second mortgage on the property.  In a year or so, Betty gets a new loan for $90,000, paying off both the first (Manny’s) and second (Sammy’s) mortgage liens.  In the meantime, Betty can make Sammy payments of interest on the $10,000 promissory note, which is a nice income stream for Sammy.

3.       Seller Has a Mortgage, and Little or No Equity

If the seller has little or no equity but a reasonably low payment on his note (whether a fixed-rate loan or fixed for a few more years), he can sell the property by using a wraparound transaction.  A “wraparound” or “wrap,” is an arrangement wherein you sell a property encumbered with existing financing by accepting payments in monthly installments, leaving the existing loan in place.  The seller uses the payments he collects from the buyer to continue making payments on the underlying mortgage note.

For example, Susie Seller owns a house worth $100,000 and she owes $90,000 to First Federal Financial on a favorable 6%, 30-year, fixed-rate loan.  Her principal and interest payments on the loan are roughly $600 per month. She can sell the property for $100,000 for cash, but this might take a few months and $6,000 or more in broker fees and concessions, leaving breadcrumbs on the table after Susie pays off her loan.  Susie advertises the property as for sale by owner (FSBO) with owner financing and sells the property to Barry Buyer for $100,000, taking $5,000 down and carrying the balance of $95,000 at 8% for 30 years.  Susie doesn’t pay off her underlying loan, but rather collects payments from Barry (roughly $700 per month) and continues to make payments on the underlying loan (roughly $600 per month).  Susie collects $100 per month cash flow on the “spread” until Barney refinances.

Mechanics of a Wraparound Transaction

A wraparound is commonly done with an installment land contract.  The installment land contract is an agreement by which the buyer makes payments to the seller under an agreement of sale.  The transaction is also known by the expressions, “contract for deed” or “agreement for deed.”  The seller holds title as collateral until the balance is paid.  In many ways, the installment land contract is similar to a mortgage, in that the buyer takes possession of the property, maintains it and pays taxes and insurance.  However, the deed remains in the seller’s name until the balance of the debt is paid by the buyer.

An installment land contract usually contains a forfeiture provision, under which a defaulting buyer may be evicted like a defaulting tenant.  Under the contract, legal title remains in the seller’s name until the purchase price is satisfied.  When the buyer satisfies the indebtedness, legal title passes to the buyer.

Learn more in William Bronchick’s
Owner Financing Home Study Program