Contingent Contract

[tgaspard 0]

I've been thinking of a different approach when approaching sellers. Its really nothing new - I seen it here before - just packaged a little different. I'd be interested in hearing what you guys think.

Assumption: You have good credit and can easily qualify to buy an investment property.

 

Approach: Approach many sellers that are selling their home FSBO and offer them the best cash sale price that you can get from them. Sign a standard residential contract with a Addendum for "Contingent" Contract. In the addendum you state that the sale is contingent upon you signing a third party contract (you would sign up a T/:). As long as the property is contingent on you finding a T/B the seller has the right to do as he likes. He could still keep trying to sell FSBO. In exchange for this right for the seller to keep trying to sell FSBO you would pay no escrow money (no money down). Would anyone object to this? Your pretty much saying that you will buy his house if you sign up someone willing to buy from you and Mr. Seller go ahead and keep trying to sell it himself.

 

Accomplishment: Thus what you would have is a contract that states what you would buy the property for if you were to find a T/Ber. You could place your sign on his property and if you find a T/Ber then collect the option fee up front. I don't see many sellers objecting to this approach - you could be placing your sign on many properties. Who ever sells first is the winner.

 

Options: From here you would have several options. You can go ahead and buy with a minimum return on investment of well over 100%. (in other words if I can buy a property with $10,000 up front I'd want to get that back and make at least $10,000 in profit from cash flow and the back-end). Secondly you can sell this package to an investor - just keep option money. (I'd bet many people would buy investment packages with 100% gains on investment). Thirdly, you could sell this back to the seller. (Once you tell your seller that you are ready to buy and have a T/Ber who is paying 10% more than his price, he might want in on the action)

 

Questions: So what you guys think of this? My major question is, on how much of a percentage I should mark up the property when looking for my T/Ber? (10%, 12%, ?).

 

Final Points: I'm strongly thinking about doing this. Please point out the faults of this approach if you think of some. I think targetting sellers with expired listings would be great (that is 6% right there). In-fact you could even do the same thing with realtors (if they were willing to just collect seller commisions that would save 3%). All comments would be very much appreciated.

 

Todd

[Doug Pretorius (ON) 9]

I have a possible lead on a deal similar to this. A guy called saying that he wants to buy the house he's currently renting, but he needs 6-12 months to qualify.

 

The ROI will be 75% at a minimum for an investor, but I will also offer it back to the landlord, which makes the deal easier and faster for everyone involved.

 

Moral of the story:

Market constantly for both buyers and sellers, keep your mind open, and deals will come calling--literally. (this call was the result of a teaser ad I ran for buyers)

[MichaelC 160]

Todd, the approach you are suggesting is a solid and logical one. As you describe it, the seller is in a no lose situation since their property remains on the market. Now, with you "working for them" so to speak, the marketing of their property has just doubled.

As I read your post again, I am reminded of a Pure Option. Isn't this what you are basically doing? Locking in the best price you can negotiate with the seller, and then trying to find a third party buyer or tenant/buyer to facilitate your exit strategy.

Nothing wrong with this approach at all, Todd. As I say, since the Pure Option is non-exclusive, and if you can make clear to the homeowners all the advantages, there shouldn't be too much in the way of resistance or objections.

Personally, I think a Pure Option is a less cumbersome way to gain the same results. Once you have the Agreement in place with the homeowner, you can either assign the Option Agreement for a fee, or exercise your option to purchase and set up a double close. Which way to go would be determined by the amount of the spread in the deal between your purchase price with the seller and your selling price to your buyer or tenant/buyer.

[Doug Pretorius (ON) 9]

Michael, I would think that if you approach it from a "I'll sell the house at no cost to you" angle, the sellers won't much care what paperwork you use, be it a contingent contract, a pure option, or an empty sack of potatos with some handwritten scribblings on it.

 

Sellers are already comfortable with the idea of having someone else market their home (agents) so with the "no cost to you" slant, this is a no-lose situation for the seller.

 

With a pure option (or a condition contract) you can then sell the house however you like (assignment, double close, rent to own), of course if you find a T/B you will either have to bring in an investor to cash the seller out, or talk the seller into holding on until the T/B can cash them out.

 

Correct me if I'm wrong, but wouldn't a CA be an easier sell to the seller once you have the T/B in hand, rather than trying to convince them upfront?

 

 

Finally, if the seller refuses to wait for their cash, or refinance, but you have a T/B ready to go which makes the deal an attractive one for an investor...what marketing would you use to attract prospective investors to assign the deal to?

[Golflover 0]

What happens if you use the line "i can sell your property at no cost to you"? Im sure that most people out there are thinking its too good to be true? Whats the catch?

 

Has anyone come across that before and whats the answers that was given?

[-Tony- 0]

i can sell your property at no cost to you

I wouldn't use that terminology, sounds like you are setting your self up for a brokering without a licence issue.

[Doug Pretorius (ON) 9]

Tony, that's precisely why I said: "I'll sell the house" not "I'll sell your house for you". As you know, once you have an interest you're free to sell it. I'm thinking the term Co-Seller might be appropriate, if asked.

 

Golflover, answer: "I'm paid by the buyer."

[-Tony- 0]

Co-seller I like that

[Gene 0]

Todd:

 

I like your thinking! How about advertising for the tenant buyer first? Have the tenant buyer find the house he wants. You would know up front what the T/B could afford and be able to tell if there was a chance of developing a workable deal. You then go in and negotiate with the seller. It seems to me that with this approach you would have more negotiating power and thus a better chance of obtaining the best price from the seller.

 

I wonder if this is similar to Adam’s locator program that he has mentioned a few times.

 

Gene

[Doug Pretorius (ON) 9]

Gene, I really thought finding the buyer first was the way to go. On paper it looks really good, the buyer finds the house that they want, you walk in and have the negotiating power of a ready buyer, etc.

 

But my experiences over the last couple of months are totally opposite to this. Most buyers don't have the drive to find their own house. And when you offer them the opportunity to choose ANY house, you lose virtually all of your negotiating power with them. Instead of viewing an RTO house as a great opportunity that they need to jump on. They figure they can take their sweet time and get back to you whenever, because obviously you're so desperate for business you'll give this RTO opportunity to anyone.

 

There's a saying among realtors: "If you control the inventory, you control the buyers." I see now that this is 100% true. If you have the properties the buyers will come to you, you don't need to go to them.

 

So the goal (for all of us) should be to make it as easy as possible for sellers to contract with us, so that we control the inventory. Non-exclusive pure options are probably the most powerful tool available to us because they're absolutely zero-risk for the seller.

 

The other thing we all need is to maximize our exit strategies. That means having access to the widest variety of financing options possible. If you can finance nearly anyone who walks through the door, you'll be unstoppable. If our focus is CA/flips, we shouldn't limit ourselves to sellers who are willing to wait for their money. We should have access to lenders who will finance many of the buyers we attract, and investors/notebuyers who will purchase our owner financed/RTO deals.

[tgaspard 0]

Doug, Gene, MC

 

Gene, I agree with Doug. I love that quote Doug - I had not heard of that before.

 

"If you control the inventory, you control the buyers."

 

One more problem with getting buyers first. I've heard the argument that you are now behaving as a realtor. Especially with a CA, you are putting a T/Ber and the seller together upfrount before you sign anything. Yes when it is time to sign you may be the princible, but one could argue that being a principle for 60 seconds is really skirting around the problem of what your are really doing - that is behaving as a realtor.

 

I am reminded of a Pure Option. Isn't this what you are basically doing?

MC - I never thought of it that way, but your right. What I described is basically a non-exclusive pure option.

 

What I'm thinking of doing is to actually outright buy a property or two. Once I have a T/Ber on a pure option property (or contingent contract) I would just go ahead and buy it myself and sell it when the T/B is ready to buy. This would be an investment for me, but would also demonstrate to future investors that I'm doing the exact same thing with my money of what I'm trying to sell to them. I really don't think it would be hard to sell 100% gains on investment to investors. As Doug has said on a previous thread, even if the T/Ber does not buy on the investors property they still come out with huge gains.

 

So the goal (for all of us) should be to make it as easy as possible for sellers to contract with us, so that we control the inventory. Non-exclusive pure options are probably the most powerful tool available to us because they're absolutely zero-risk for the seller.

 

The other thing we all need is to maximize our exit strategies. That means having access to the widest variety of financing options possible. If you can finance nearly anyone who walks through the door, you'll be unstoppable. If our focus is CA/flips, we shouldn't limit ourselves to sellers who are willing to wait for their money. We should have access to lenders who will finance many of the buyers we attract, and investors/notebuyers who will purchase our owner financed/RTO deals.

Doug - Nicely said - I agree with you 100%

 

Todd