How to Close a Subject-To Deal with No Money Down

There’s really no excuse not to always do no-money down deals. For example, on BiggerPockets alone you have an incredible amount of resources to teach you how to never put money down on properties.

But one of the most confusing things for new investors is how to handle the no-money down situation when it comes to subject-to deals. I don’t know about you, but all of the time I come across a seller who’ll let me do a subject-to but they have a good amount of equity and they want some of it. In fact, I’ve heard stories about a seller wanting $20,000 to do a subject-to, since they had so much equity in their house, and the investor actually gave them the $20,000 by taking out a loan.

If you ever take out a loan to give cash to a seller, you’re nuts. We are creative real estate investors and we make the rules. When I’m dealing with a subject-to seller it is never an option for them to get cash from me and I let them know this upfront.

So how exactly do I handle a seller who wants $10,000 or $20,000 for the deal?

Well, not too long ago this happened to me and the seller wanted $20,000. He had a decent amount of equity in the house and when the negotiations were all done I had agreed to give him $10,000. However, I did not give him cash.

What I did is give him a promissory note that says in 5 years he will get his $10,000. I chose a 5 year time frame with this seller only because that’s what we agreed upon. If you can get a seller to give you 10 or 15 years go for it.

The beauty of this is that you never put down any cash. I’m a firm believer that cash is king and I always keep my cash as a safety measure. Sure, I could easily stroke a $10,000 check today to give to a seller, but I’d be a fool to do it. Because then I might be tempted to write another $10,000 check to the next seller I meet with, and before I knew it I would be out several hundred thousands dollars and broke. (I’ve seen this happen. I know investors who were members of the lucky sperm club and had their parents give them a ton of cash. They never learned how to do creative real estate and burned through the money quickly and are now stuck).

Also, just like all creative investing, this only works if you believe it will work.

I’ve told investors at REIA meetings about never putting money down and how I just give a note, and then when I sell the house down the line, I get my money and so does the seller. A lot of investors tell me they could never do it, or sellers in their area wouldn’t agree to it. Of course, you and I know that’s not true. They just lack the necessary confidence to dictate to a seller how they will do business with them.

Even if you’re rich and have a lot of money I would still make it your goal to never put money down on deals. It’s not necessary and one of the secrets of rich people, as you know, is to always use other people’s money.

Photo: LancerE

This Article is Copyright © 2004-2010 BiggerPockets, Inc. All Rights Reserved.

How to Close a Subject-To Deal with No Money Down

This Article is Copyright © 2004-2010 BiggerPockets, Inc. All Rights Reserved.

How to Close a Subject-To Deal with No Money Down

Source: How to Close a Subject-To Deal with No Money Down

3 Ways to Create a Follow Up System for Real Estate Seller Leads

I’m sure many of you are familiar with the expression “The fortune is in the follow-up.” Follow up is a key to success in any business.  Unfortunately there are real estate investors who are ignoring this critical business activity and leaving money on the table.

We all know that in the real estate business, you can’t get deals if you’re not making offers. If you’re making a lot of offers, you’re also getting plenty of rejections. What are you doing with those leads once the seller says “Thanks but no thanks”? Are you disregarding them and considering them “dead leads”?

If so, don’t! A seller who says no may simply be saying “Not now” or “Not under the current circumstances.” In some cases, sellers believe they can get a higher price so they will wait for other offers. Some sellers simply decide that they’d rather rent it out than sell for a big discount to an investor. You simply don’t know what the circumstances are, but the fact is that circumstances change.

I’m also a firm believer in contacting sellers rather than waiting for them to contact you. If you don’t call them and follow up, you’re missing an opportunity to build a relationship and potentially secure a deal in the future. In order to ensure that you do follow ups, you need to put a system in place. It doesn’t have to be complex or highly sophisticated…it just needs to be a system that works for you and makes it easy for you to make follow up calls an ongoing and consistent process in your business.

Here are 3 quick ideas:

Free or low-cost contact management system:

Using a contact management system is one of the most effective ways to make follow up simple. Depending on the volume of offers you’re making on a monthly basis, it may be your best solution. If your budget is limited, give some of the free contact management systems a trial run to see how it works for you. You typically get what you pay for, but many of the systems are probably more sophisticated than what is necessary for your purposes so don’t get too caught up in all the bells and whistles. I don’t have a specific recommendation for a solid free contact management system yet, but if you have one please add your suggestion in the comments section!

Good Old Fashioned Excel Spreadsheets

These days you don’t even need a copy of Microsoft Office to use Excel. Google comes to the rescue with Google Docs. Google Docs is awesome because you’ll always have your spreadsheets accessible to you as long as you have an internet connection — plus you can share the documents easily with anyone you need to such as a virtual assistant, partner, or whoever may be handling follow up calls to sellers on your behalf.

Your spreadsheet can be simple.

You can schedule standard follow up dates, for example on the 1st and 15th of each month and assign follow up dates as appropriate on each offer that was rejected for whatever reason.  Sort on “Follow Up Date” column and just pick up your phone on your scheduled follow up dates.

Even More Old Fashioned Lead Sheet System

Tech savvy people may groan at this suggestion, but there’s nothing wrong with simply having a binder with all of your seller lead sheets and dividers with a section that is dedicated to leads who require a follow up call after giving them an offer that was rejected.  If you’re dealing with higher offer volume (25+ offers a month), this system can be cumbersome and I’d recommend a technology solution.  Otherwise, if you’re doing things this way, I strongly suggest buying protective sheets from your local office supply store so that your seller lead sheets don’t get destroyed over time.

Whatever method you choose, what is most important is that you have a system and stay consistent.

What other suggestions do you have for creating follow up systems?

This Article is Copyright © 2004-2010 BiggerPockets, Inc. All Rights Reserved.

3 Ways to Create a Follow Up System for Real Estate Seller Leads

This Article is Copyright © 2004-2010 BiggerPockets, Inc. All Rights Reserved.

3 Ways to Create a Follow Up System for Real Estate Seller Leads

Source: 3 Ways to Create a Follow Up System for Real Estate Seller Leads

Conflicting Results: REOs Up, Defaults Down in July

Foreclosure numbers reported by RealtyTrac in July revealed conflicting results as banks repossessed more properties, even while the number of defaulting homeowners declined, reports RealtyTrac Senior Vice President Rick Sharga. At the current rate, the…(read more)

Source: Conflicting Results: REOs Up, Defaults Down in July

Federal funds flow into Oregon in attempt to relieve foreclosure troubles

Federal funds flow into Oregon in attempt to relieve foreclosure troubles September 8, 2010 — The Oregonian Still more federal money is pouring into Oregon in hopes of alleviating the foreclosure problems plaguing homeowners. Maryland wins $6.8M…(read more)

Source: Federal funds flow into Oregon in attempt to relieve foreclosure troubles

Breaking Through the Clutter: Actions to Avoid Disinformation!

I don’t know about you, but I totally dislike the last two months leading up to a national election.  The amount of dis-information and near hysteria almost drives me to drink!

The constant and often meaningless noise coming from every direction makes it incredibly difficult to sift through what is real and what isn’t.  And if you have been following any of my articles, you know that I rely on information from many sources to help me determine how the overall economy and the housing market specifically is fairing now and where it is heading in the near future.

And the amount of noise over the next two months is going to make this task very challenging.

With that as a backdrop, and in preparation for this article, I decided to go back and review a few of my previous articles to determine how those insights would apply to todays’ market.

I found two that I think stand the test of time and still provide meaningful insight that you can use now!

The first article focused on Supply and Demand and was written in early April, just before the Homebuyers Tax Credit was set to expire.  A few of the take-aways from this article which are directly applicable today include… 

1. You had better be prepared for a downturn in demand (assuming the Tax Credit isn’t extended again) starting mid-2nd quarter 2010, and continuing until the unemployment rate drops below 8 percent.
2. If you have been deluded by your market or a real estate agent into believing prices are going to move upward, WAKE-UP and pay attention to what is happening around you!  Prices won’t go up until employment rates increase and the overall inventory (shadow and otherwise) decreases.  Do you know what your absorption rate is in your market?
3. At the risk of sounding like a broken record, some of the best buying opportunities are ahead of us, not behind us.  If you have dry powder (cash for your deals) be ready to use it; if you don’t have dry powder, now would be a great time to learn how to find some!

The second article was written in late March of this year, and the primary topic was: Are we going to experience a “double-dip” recession?  Based on the all of the chatter coming from everywhere that question seems to still be unanswered.  However, I believe many markets will experience this so-called double-dip.  With that as a backdrop, here are a few points made in that article. 

The housing market in most areas of the country has not stabilized.  As an investor you need to understand where your market is and how much more of a decline is anticipated.  Below are few things that will help you understand where your housing market is and where it might be heading.

1. Look at your local economy and the strength of your areas employment numbers.  Are they going up, down or have they stabilized.
2. Determine the number of mortgage delinquencies in your area.  The higher the number of delinquencies, the higher the probability that more foreclosures are on the way — with the effect being declining property values.
3. Know and understand how long properties are sitting on the market and what the local absorption rate is.  If properties are sitting longer or the absorption rate is increasing, you can anticipate continued value declines.
4. Develop an understanding of your local rental market.  Know what is happening to rents and the vacancy rates within your community.  Declining rents and rising vacancy rates only support further declines in property values.

All of these recommendations are things that every successful investor should be doing.  The “New Normal” dictates that sitting on your past accomplishments won’t get you a darned thing except maybe a few painful loses.  However, following these recommendations will allow you to better position your business to be in the path of your market — not to get run over — but to maximize your profits.

Bottom line…

Now is not the time to get squeamish. Learn what is going on in your market, develop/revise your plan accordingly, execute with purpose and reap your well earned profits.

Best of luck!

Photo: sandman_kk

This Article is Copyright © 2004-2010 BiggerPockets, Inc. All Rights Reserved.

Breaking Through the Clutter: Actions to Avoid Disinformation!

This Article is Copyright © 2004-2010 BiggerPockets, Inc. All Rights Reserved.

Breaking Through the Clutter: Actions to Avoid Disinformation!

Source: Breaking Through the Clutter: Actions to Avoid Disinformation!

A Dream House After All

The residential market took a hit, but owning a home still makes sense.

Source: A Dream House After All

$92 million foreclosure opening bid on mall in Lake Havasu City, AZ

As another sign of the times, The Shops at Lake Havasu shopping development in Lake Havasu City, Ariz., was recently scheduled for public foreclosure auction with an estimated opening bid of $92,734,713. The estimated opening bid is typically based on…(read more)

Source: $92 million foreclosure opening bid on mall in Lake Havasu City, AZ

How Does Your Bank Define “Performing Loan”?

This week I met with one of my commercial lenders, whom I will refer to as Barry, for lunch.   Barry thought I might be interested in some of the business banking options his bank could offer my law firm.  Essentially, Barry was prospecting for additional banking business.  The services and fees he offered sounded very appealing but I had to ask “would his bank call in a loan if the borrower is current on his payments.” I could tell from the look on his face that this question came from left field.  So I repeated my inquiry by asking why a bank would foreclose on a property if the borrower were performing on his obligations under the note.  Isn’t this considered a “good loan” versus all of those non-performing loans banks keep crying about?  Barry told me it’s “complicated.”  Actually it’s not if you understand what is taking place behind the scenes and why you need to be concerned. 

In today’s crazy lending world anything can happen and does which, for the unwary, can have devastating financial ramifications.  Within the past year I have had several business clients lose their property or end up in litigation with commercial lenders over their “performing” loans.  Typically the scenario centers on construction loans, income producing commercial property or multi family apartment buildings.  In every situation brought to my attention, my client was current on his loan, never missed or been late on a payment, and generally working fives times harder to produce income in a difficult environment.  Then without so much as phone call one of two scenarios occurs:

• Monies on deposit with the lender are suddenly and without notice removed from the borrower’s account(s) (both business and personal); or
• The bank sends the borrower a letter informing him the bank will not renew the loan (remember these are typically 5 year balloon notes) and or may call it into default.

If you eyes are bulging out of your head as your reading this let me tell you it can happen to you at any time.  Why – because it all has to do with the federal regulators and auditors definition of a “performing loan.”

Being current on your payments is only one facet of a performing loan the other is adequate security!

As many of you know commercial loans typically require 20% to 30% down and additional security (this has to do with the property’s general liquidity versus residential property.)  When values decline the commercial loans become less secure and the banks are forced to bring these loans back into line despite the payment history by the borrower.  To meet the regulator’s security guidelines banks can take your deposits (you grant your lender in the loan agreement the right to these deposits as security for your loan) and/or force you to bring additional collateral to the table.  If you cannot meet the banks demands, then unless you can find other financing, your loan will be reclassified as a non-performing loan and subject to foreclosure.

To protect yourself I recommend you never keep personal or business accounts with any bank where you have a commercial loan, do not allow the LLC that holds your commercial property to build up cash reserves, and protect all of your investments with LLCs.

P.S. – Barry told me his bank has never done any of the above but he did concede that federal regulators could force his bank to take similar action.

Photo: Sookie

This Article is Copyright © 2004-2010 BiggerPockets, Inc. All Rights Reserved.

How Does Your Bank Define “Performing Loan”?

This Article is Copyright © 2004-2010 BiggerPockets, Inc. All Rights Reserved.

How Does Your Bank Define “Performing Loan”?

Source: How Does Your Bank Define “Performing Loan”?

Fannie Mae tries to stimulate market for foreclosed homes

Fannie Mae tries to stimulate market for foreclosed homes September 5, 2010 — Los Angeles Times If you're a buyer with little cash or a small-scale investor looking for a deal on a foreclosed house, a little-publicized national lending program…(read more)

Source: Fannie Mae tries to stimulate market for foreclosed homes

6 Ways to Sell a Home FAST!

What seller doesn’t want to sell a home fast and for top dollar?  It is hard to get both but here are 6 creative techniques to help sell a home FAST! 

1. Round robin auction – Market and hold a one day open house.  Get initial starting bids then call them in round robin style bidding up the price until there is only one person left.  You can get a quick sale, sometimes for a decent price and can even get backup offers.
2. Lower the price a very small amount every week – Small weekly price reductions will keep your listing at the top of buyers agent searches with the hope the exposure will get you your fast sale.
3. Price at the top then huge price discount – Let’s assume your property is worth 110K with comps ranging from 100-140K.  List first at the highest comp 140K for 2-4 weeks such as during rehab.  Then drop to 110K and promote this huge 30K price discount, seller motivated, bring all offers.  It creates a lot of exposure, buyers think they are getting a deal and it can result in a fast sale sometimes at or higher than value.
4. Find top selling agent – Contact title and get agent sales numbers in the last 1-3 years in the zip code of your property.  The top listing agent may be able to sell your home fast and the top buyer’s agent may have your buyer.
5. CA value range drop – Some areas of CA have value ranges for their asking price such as 400-440K with your true asking price 400K.  Do weekly reductions to the top number.  Your property will show up in the top of agent searches, can result in a quick sale and you are not even lowering your true asking price.
6. Give free stuff - Everyone remembers the home that comes with the free furniture, flat screen television and/or entertainment center.  Giving free stuff to buyers can sell homes fast and give you more bargaining power.  

The downturn has created a buyer’s market.  Sellers often experience difficulties selling and long market times.  These creative techniques can be utilized to help sell your home fast.  Can you see any of these working for you and in your market?  Please share your techniques for selling homes fast.

This Article is Copyright © 2004-2010 BiggerPockets, Inc. All Rights Reserved.

6 Ways to Sell a Home FAST!

This Article is Copyright © 2004-2010 BiggerPockets, Inc. All Rights Reserved.

6 Ways to Sell a Home FAST!

Source: 6 Ways to Sell a Home FAST!