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Gary (MO)

Need some marketing help

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I've got this house under lease that I'm trying to L/O before the lease begins 8/01/04.

 

The yard sign has outpulled the newspaper ad 5:1 - at the very least. What I'm running in to is that the house is less than optimal at an appraised value of 53K (we're asking a L/O price of 59K) and the pool of T/Bs I seem to be attracting have no money saved (or very little).

 

I haven't done the flyers yet or the directional signs but plan to over the holiday weekend perhaps. Does anyone else have any other ideas?

 

Thanks for the help!

 

Gary

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I'd be interested in hearing what others have to say about this, as well.

 

I'm going to call 3 or 4 junker properties I had passed on before, that I intend on offering a CA.

 

Personally, in my area, I'd take $500 down as option consideration...but that's just me and my area. I could do a TON of these, I'm sure.

 

I've also found, in past conversations, that a LOT of folks don't have too much $$$ to put down, but are handy with fixing stuff.

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Gary and Jason,

What a great scenario that gives you the opportunity to be creative and think outside the box and generate some good cashflow!

 

Here's how I'd do it (and I'd also be interested in hearing the input of others)...

 

If your TBs have little money saved, then you can take the option on terms.

 

I have had TBs pay me AT LEAST the first month, plus security deposit before they move in (they'd have to pay this in order to do any straight rental). Take the balance of the option payment over 3-6 months at a 8-10% interest rate. Simply write up a promissory note for the balance. Remind them that their option to purchase contract isn't valid until the full amount is paid. I allow them to pay me this out of their 2nd paycheck each month. I don't lower the option payment, but instead, I take the sweat equity out of the purchase price on the back-end. If I am doing this, I'd ask for the full 5% over time, not 3%. That's the cost of my financing on time---more money.

 

Here's what I tell them:

"Do you like the house? Tell me why this property works for you."

(Make eveyone state why they like it right there on the spot. In doing this, they are selling themselves. If the husband hears the wife state why she likes it, you are half way there...)

 

"If you really like the house, I might have some flexibility to work with you. We don't usually do this, and of course, I'll have to speak with my partner about it. They aren't going to like this... BUT if this is the home you REALLY want, I'll go to bat for you. I'll try to get them to agree that we will finance the option payment for you. I think I can get them to go for it....Understand, we aren't landlords! This is not our business! We are looking for people who genuinely want to be homeowners."

 

Now, the only thing you have to be concerned with is whether this is a CA or a sandwich lease.

 

-If it is a sandwich lease, you are ready to go. You have the choice to do this because you have control over the property.

-If this is a CA, you need to tell the seller that the condition (or location) of the property demands some flexibility in the terms. If the seller is willing to let you take the option on terms (and remember, this is is your fee for services rendered that you are willing to take on terms! You are getting the entire option payment aren't you?) ---you have just generated additional cashflow for youself over the next 3-6 months and as always, the seller got top dollar for the property, has super-tenants who handle the maintenence and they've put their property on auto-pilot.

 

Take the additional step to set the option payments setup on Auto-debit and take the cashflow ride. If, as you say, you have 3-4 of these in your funnel and they are paying $500 addiitonal every month, you just got a $1500-2000 regular paycheck for the next 6 months. I'm sure your bank account could use that that monthly financial boost.

 

Eveyone wins, seller, buyer and you. You just built incredible gratitude from the TB and the seller, if they had a tough property to move. After I set something like this up, here's an additional step I'd take to boost my marketing. While that TB is feeling extremely grateful and feeling that I just executed Herculean jumps thru hoops for them, I'd get the names of 5 other people who need houses AND I'd get them to write me a personal testimonial about what a great service I provided them AND how flexibile and easy I was to work with AND how I got them a house when no one else would. Do the same with the seller....you just negotiated with your fee in order to solve their property challenge so they could get on with their life!

 

Hope this helps...

option8

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Option8,

 

What a great reply!

 

I basically did the same thing that you mention here...but not as smart. I didn't tack on interest for the remainder of the option consideration...hindsight 20/20. Thanks for the great ideas...which I will definately use next time...preciate it!

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Option8, I'll repeat what Mr. Saint said:

What a great reply!
Thank you for sharing that bit of wisdom and out of the box thinking!

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Option8,

 

GREAT reply and solution.

I was thinking along those lines....taking the option consideration in terms (either some now, the rest later OR none now, all later).

 

 

The CA solution is some powerful stuff!

Pretty homes.....ugly homes....top dollar....very little risk.....hardly any competion from realtors and/or local investors......everyone wins.

 

I'm only 22, but I'll go ahead and say I wish I'd started with these earlier. :blink:

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Here's an update on this house:

 

I've got a potential buyer who has been approved for a conventional loan at 80% (presumeably from the appraisal). He wants the seller to carry back a 2nd - basically a 'no money down' deal for him. When speaking about the l/o the 'non-refundable option fee' didn't phase him at all so I'm thinking....

 

Any ideas would be most welcome!

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Gary, one idea has quickly popped into my graying skull........

You have this set up as a CA, and your money in this deal comes from the option consideration you will be collecting. So, with this in mind, "sell' this prospect on the idea that he can save money when he has leverage with the seller. And this leverage can come about if he enters the lease purchase agreement that you have originally set up, and then contacting the seller and asking what kind of discount she'll offer if he exercises early.

If he goes in and makes a few timely payments, cleans the place up, the current homeowner should feel secure enough to at least consider assisting with the financing on a short term second mortgage. And in the meantime, the buyer is in his house and gaining equity through the use of the rent credits, sweat equity, and appreciation.

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Or you can switch hats and be a consultant....show the owner that she can make some cash flow and you also have associates that by notes (at a discount of course)

 

Or to keep the payment down she could go with a interest only note with a 3-5 year balloon. This not only gives her a little cash flow, it gives her/him a nice chunk a change in 3-5 yrs. tell me where she could get a 10-12% return on investment

 

On the buyers side he gets the house, deductions, has no pmi, has time to fix up and gains some appreciation. in 3-5 yrs it may be worth 80-85k So they can refi and still be in at 80%

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Thanks everyone for your ideas! I will keep you posted as to the outcome of this deal.

 

Since the seller has very little equity (she owes 48K and it appraised at 53K) and even with the option price at 59K, there wouldn't be enough in the till (on a conventional 80/20) to clear the first mortgage - even if the seller were willing to take back a 2nd.

 

It looks like the only possible way to move this house with a win/win/win is to stick with the L/O - at least long enough for there to be enough to clear that 1st mortgage.

 

Thanks again everyone!

 

Gary

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Just wanted to update you guys on this deal and it's sister deal (I signed two at the same time from the same seller; this one was the "better" house, signed as a CA, the 'sister' deal was a "fixer upper", a sandwich L/O with a 4 year lease and a sale price below appraised value.) that were signed in May with a lease start date 8/01/04.

 

I haven't been able to market the fixer-upper because she first had to evict the tenant (took 10 days) and then had to haul trash off, clean carpets, etc... With the CA, I finally put the sign in the yard and ran the newspaper ads anyway even though, after a month, she had not done anything to bring the house up to showing speed (painting, cleaning, replacing linoleum, etc... ) as we had agreed.

 

Consequently, I learned that the few folks out of the myriad of calls that we received that did have any kind of option money saved, really weren't interested in spending it on a house that was in such rough shape.

 

The kicker though was that I got a call from the seller on my voice mail yesterday letting me know that she was 'ready' for the fixer upper to show (she got the carpets cleaned finally yesterday) but that she had decided that she had made a mistake "tying up the two properties" like that and that she wanted out of the contract! Can you believe it?! As we speak, there is still linoleum left to be glued in the kitchen of the CA and the yard hasn't been mowed since May, etc...

 

Of the folks that didn't have the option money, they weren't really interested in financing the option money over a period of time; most weren't sure they could afford the $550 a month lease! One guy that called last night was calling from a pay phone :D

 

I'm going to need some time to sort all of this out. I'm not sure what to totally make of this whole scenario but I'm sure there are MANY lessons here for me. I guess this post is mostly vent but also, I'm thinking that this experience might also help one of you guys too...at least that's my wish.

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Guest spiderwoman
Take the additional step to set the option payments setup on Auto-debit and take the cashflow ride. If, as you say, you have 3-4 of these in your funnel and they are paying $500 addiitonal every month, you just got a $1500-2000 regular paycheck for the next 6 months.  I'm sure your bank account could use that that monthly financial boost.

Hope this helps...

option8

option8

This is a very good idea and I'm thinking of doing the auto debit on a prospect next week and have no idea how to do it, could you please share on how this can be done? My prospect is willing to go on the auto debit but I don't know what forms or agreements I would need from whom and for what... can anybody that have done this please share the steps needed from both ends (start to end) to auto debit on a monthly basis? (3 - 5 months), thank you, spiderwoman

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Hi!

 

I think you should be able to have an escrow company set up the auto-debit for you. This would mean paying them a small monthly fee. Call or visit a local escrow company.

 

Hope this helps!

 

 

Alice

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I don't know what forms or agreements I would need from whom and for what... can anybody that have done this please share the steps needed from both ends (start to end) to auto debit on a monthly basis? (3 - 5 months),

 

Spiderwoman,

 

The process is pretty simple and you don't need to pay anyone to do this for you.

 

You need a software package called VersaCheck and some blank check stock.

 

VersaCheck is a check printing software package that is pretty inexpensive. I think it retails for about $49.00 at any office supply store. (I did a quick search of ebay and it is there at a substantial discount.) This tool allows you to print your personal and business payment checks directly out of any financial package like Quickbooks, Quicken, Peachtree, etc...

 

You know how Intuit charges for your custom printer checks---not any more! You know those ubiquitous adds for designer checks that you find in your advertising circulars---They don't have any special tricks! This company even sells the tools to bind checkbooks and sells registers.

 

I have been using this software for many years. I don't know when I have paid Deluxe or any other check printer a fee for purchasing checks. There are others out there, but I know from experience, that VersaCheck and the VersaCheck blank stock are useable with out any special magnetic ink or special printers. I believe the software package comes with a substantial quantity of blank checks to get you started. It is important that you acquire a package that is for both business and personal use---these packages are the ones with the bank drafting capacity.

 

With this software tool, a signed Bank Draft Authorization from your tenant/buyer and a voided check from the account they want you to draft, you can print 12 months worth rent payments in the form of checks, put them in a bank deposit file sorted by month and be ready to go to the bank with your deposits, on time, every month.

 

The voided checks are used to get the routing and account numbers formated and lined up correctly. It takes a little work to get the software aligned to print the checks correctly the first time, but once it is done you are ready to roll.

 

Here's the marketing spin to sell it to your TBs:

 

Help me help you get funded for this property. The lenders will need to see documented on time payments in the form of cancelled checks. We can put this on auto-pilot for you by setting up Auto-debit. The process is simple, then you never have to worry about writing the checks, mailing on time or paying for postage.

 

You can even print this stuff up on behalf of your seller in your CAs .

In other threads, we've discussed taking your option payment on terms out of the alternate paycheck. Here's a way to get your payments drafted directly to you, if it is a CA.

What about charging higher rent with no drafts, discounted rent with auto-pay.

 

I can't take total credit for this idea...Lynn Hahn from Investor-Pro made this suggestion in his customer newsletter. This was just one of the benefits of being one of his clients. Fortunately, I already had the software and was able to implement the idea.

 

Here's 3rd way you can use this tool. You can use the blank check stock in your marketing efforts, mailing to your potential sellers using a non-negotiable check in a window envelope. This ups the chance they will open your envelope!

 

Hope this helps.

Let me know if you have any questions.

 

option8

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Option8/Natalie,

 

You never cease to amaze me. :D;)

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