My First Call

[Frank (OH) 0]

And I was nervous as hell. Criticism and suggestions please....

 

A woman calls that I e-mailed on craigslist(thanks Bev). She wanted to rent the home or have a roommate to help with the mortgage. Her engagement didn't go so well and he left. She/They own the home- 3 bed- 1 bath- garage. Refinanced 2 years ago with a 3 year prepay penalty. $605/mth. mortgage payment. Owe $84K. Appraised when refinanced 2 years ago at $86K. Bank of America eval site says $85K for the high side.

I sent her more info about L/O's and set it up to call back in a few days after she looks the info over. I am setting it up as a CA.

Did I mess this up??? You can lay into my ass if you need to.

[Doug Pretorius (ON) 9]

Sounds fine to me. Now do 99 more just like it and you should have yourself at least 1 deal.

[Frank (OH) 0]

Sounds fine to me. Now do 99 more just like it and you should have yourself at least 1 deal.

<{POST_SNAPBACK}>

 

Sarcasm is just as well Doug. The B of A site comps the home at $80K. I don't think there is any money for a deal here, even with a CA. You agree? Would you suggest I tell her to just try and rent it to cover her mortgage payments?

 

This is good experience

 

Thanks

[Doug Pretorius (ON) 9]

I'm not being sarcastic, I'm giving you a realistic number of how hard you have to work to find a deal. I called at least 100 sellers before I got my first CA.

 

Worth $80k, owed $84k? I'll take that as a CA or even a SLO any day of the week!

[JerseyJeff 0]

Frank,

 

And I was nervous as hell.

Check back at some of my threads and you'll see this isn't uncommon...

 

I'm not being sarcastic, I'm giving you a realistic number of how hard you have to work to find a deal. I called at least 100 sellers before I got my first CA.

I'm close to 250 calls and still searching for my first. (Hello, anyone out there???)

 

I sent her more info about L/O's and set it up to call back in a few days after she looks the info over. I am setting it up as a CA.

Did I mess this up???

The best time to sell is when you have them on the phone. Did you try or did you just say I'll send you more info? If you tried, then I don't see anything wrong with what happened.

Follow-up with her but don't be discouraged if she says she's not interested. As Doug stated, there's value in numbers (at least that's what they tell me) so keep calling.

 

I don't think there is any money for a deal here, even with a CA. You agree? Would you suggest I tell her to just try and rent it to cover her mortgage payments?

Gotta agree with Doug on this one too. You don't need a spread to work a CA. If your area is appreciating, and you lock a 3-year SLO, that $80K now could be worth $100K in three years. Besides, there are many benefits to a Tenant/Buyer that allow you to ask more than the home may be worth.

 

Jeff

[Doug Pretorius (ON) 9]

Hey Jeff, if sellers are saying no on the phone you might want to give this a try, it's a bit more time-consuming but it should (theoretically) have a better chance of success.

 

First, start off by calling and saying: "Hi, my name's Jeff and I'm a real estate investor. I noticed you have a house for sale in the xyz area. I so happen to be buying in that area and I would be willing to pay your full price in cash, in exchange for 2 weeks to show the house to prospective tenants."

 

The idea here is to bypass all of their potential objections. We're not trying to screen anybody just yet. BTW, the "full price in cash" is cash-at-closing, not cash-upfront.

 

Next we head over to their house (or have them send us photos) to decide if the house fits our criteria.

 

Finally, plunk down (or fax) your short offer and force them to consider a real live offer. This should be harder for most people to say no to then it is to say no to a strange voice on the phone.

 

Like I said, more time-consuming. But making 250 written offers to the decision-maker should yield better results than 250 phone offers. If it does, then all you have to decide is whether the increased effort is worth it.

[Craig 0]

Doug:

 

Good points you bring up. You are being very realistic with very real numbers.

 

If people know that up front they are much better off. They will not set unreal expectations on themselves.

[Craig 0]

And I was nervous as hell. Criticism and suggestions please....

 

Did I mess this up???    You can lay into my ass if you need to. 

<{POST_SNAPBACK}>

 

 

Welcome. We have all been there. Each call gets better. Just keep doing it. Its when you stop doing the calls you are guaranteed one thing, NO RESULTS.

 

Craig

[Frank (OH) 0]

OK guys, help me out here. How would you structure this deal?

 

Appreciation in Toledo,OH is very low. Maybe 2-4%. That only adds about $3200 for one year. So I still don't have the mortgage covered. Well maybe close with the paydown after a year.

 

What about rent credits? I see no room here for them, do you?

 

Would you suggest a longer lease of 2-4 years to make it work? That's the only way I could see it work.

 

Am I missing something here?

[Doug Pretorius (ON) 9]

Frank, yes, you're missing the fact that easy financing comes with a premium price completely separate from appreciation.

 

You should add at least 5-10% per year onto the price to compensate for the risk of staying in the middle (whether it's your risk or the seller's).

 

Now you say it's worth about $85k so you add say 7.5% = $91k + 4% appreciation = $95k.

 

The T/Bs payments (guesstimating here) are about $800/mo. Give them 50% credit if you find that moves houses faster. That brings your (or the seller's) net down to about $87k after the consideration and legal fees.

 

This would be a great SLO for you. $2.5k upfront, ~$200/mo cash flow and $7k on the backend. That's how fortunes are made

[Frank (OH) 0]

Doug,

 

MC's manual has no reference to the numbers like you pointed out. That seems aweful high for a house worth only $85K by market value in the area. Are people that desperate to pay prices like this?

 

I guess I'm being too modest.

[JerseyJeff 0]

MC's manual has no reference to the numbers like you pointed out.

Because it would be hard for him to cover every situation and he knows if you come here, you'll get 10 different ways on how you can structure the deal...

 

Are people that desperate to pay prices like this?

If I could get a mortgage right now and had 20% for a down payment, would I pay Doug's price? Probably not.

 

If you told me for only a few grand down, I'd have the opportunity to move out of an apartment and into a house with 50% of each rent payment lessening the purchase price and a year to save up more money or get financing, would I pay Doug's price?

 

Market the home and you'll find out.

 

Don't over-analyze it. The seller may not even be interested and you're racking your brain over here.

 

Lock up a deal with the owner for the best terms you can get, lowest monthly rent and purchase price, and longest lease term, and then market the home with a sign in the front yard, flyers on cars, super markets, on some free websites, etc. All of these ways are very inexpensive so if you don't get a TB you won' have lost anything.

 

Take the chance. What do you have to lose?

 

 

Jeff

[Doug Pretorius (ON) 9]

Not charging for the privilege of easy financing is something I will never understand, but plenty of "investors" do it. MC is most likely just being conservative in the manual, and just to be sure I'll check...yup as I thought, the manual is printed on paper, not stone.

 

Answer this: If you charge LESS than the house will be worth next year (appreciation minus rent credits) then what is the purpose of doing an RTO in the first place? You're taking on unnecessary risk with no financial reward.

 

Rule #1: T/Bs don't buy price, they buy time.

 

As Jeff said, sign it up and market it, you'll find out in about 2 weeks whether there's interest in the house with those terms.

[Frank (OH) 0]

Thanks Doug and Jeff,

 

Now I understand. Inflate the price of the home to cover the option $$ and the rent credits and market it for that price. After the option $$ and rent credits are deducted, you arrive at the sellers asking price. Correct?

 

I do have to be careful here. If after 12 months, the appraisal for the T/B'ers conventional financing needs to at least be the negotiated price of the home. If the appraisal comes in lower than what was negotiated, then no mortgage for the T/B. Correct?

[JerseyJeff 0]

Now I understand. Inflate the price of the home to cover the option $$ and the rent credits and market it for that price. After the option $$ and rent credits are deducted, you arrive at the sellers asking price. Correct?

When setting up terms for potential deals, I usually incorporate what I figure to get in option money into the price so I can sell "a no cost transaction to the seller." If I can factor rent credits in, great, if not, I just tell the seller that the rent credits are what allow him/her to get above market value purchase price AND rent. I also remind them that it is an incentive for the T/b to pay on time, because if they're late, they lose the credit, and also, the rent credits are non-refundable if the T/b doesn't purchase.

 

I do have to be careful here. If after 12 months, the appraisal for the T/B'ers conventional financing needs to at least be the negotiated price of the home. If the appraisal comes in lower than what was negotiated, then no mortgage for the T/B. Correct?

This really isn't your concern. The T/b knows what the terms are when he/she signs the agreement, and it is their risk that the home will appreciate the difference. But, if it helps you to sleep at night, we're not talking about a $50K spread here; it's only going to be a few grand so I doubt it's going to be a problem with the lender.

 

Call the seller and set up a time to sign the agreement.

 

Jeff