Part 2 of 2
In Part 1 of this article you discovered the first 3 methods for collecting cash when buying with no money down:
- Over borrow with no bank qualifying when paying all cash.
- Over borrow with no bank qualifying when buying with owner financing.
- Over borrow with no bank qualifying, buy with owner financing and substitute other equity as collateral.
Let’s look at a few more strategies…
4. Close only when you find your buyer
If you’ve noticed a slow down in your housing market, or found it’s taking longer to get your houses occupied, then be more cautious and buy better.
In fact, you can buy with no risk when you find the right type of house and motivated seller…
EXAMPLE:
“I appreciate the fact that you’ll sell me your house for what’s owed plus $1,000 in moving money, but with the way things have been going, I cannot commit to taking over your loan until I line up my occupant. Your house has too much owed against it. Now, I do have a program to help homebuyers get into a house when they need some time before getting a bank loan. And 60% of the general public is in that position. This gives me a strong marketing advantage when I buy houses. I can offer to finance my buyer myself or rent the home until they close later. Therefore, I’ll agree to buy your house if you can give me some time to find a buyer. Once I do, I’ll give you your $1,000 and start making the loan payments, getting that debt off your back.”
When they agree, I advertise the house with “Owner financing” or “No bank qualifying” or “Rent-to-own.” We get at least 3-5% down from a tenant buyer as a non-refundable purchase deposit. This works the same as option consideration on a lease option.
If I’m selling for $179,500 then I’ll get at least $5,000 plus the 1st month’s rent. Then I can complete my deal with the seller, and enjoy the difference ($4,000) immediately.
Be careful to use this only if the seller doesn’t care what you sell it for, or use it when they have already vacated the home. Sometimes I’ll have the seller show the house for me!
You can also use this strategy if the seller’s payments are behind, and then use your new buyer’s money to cure up the default.
5. Require the seller to pay you when buying the house
An important lesson here. For years I did not do this.
I think it’s critical to always tell the seller what you are willing to do, even if (in your mind) it’s unlikely they would ever accept your offer. You’ll never know ALL their underlying motivation, so don’t make decisions for them.
When you’re not EXCITED about the deal, consider what price or terms WOULD get you excited.
CASE STUDY #3
I had a couple call off my marketing. They owed $147,000 and wanted to sell for what they owed. I did comps and determined it was worth $147,000 and I could sell for $157,000 with easy terms. At the time I needed a minimum $20,000 spread between my buy price and my sell price. These days it’s a minimum $30,000 or 10%.
I told them they owed too much, and thanks for calling, but there was nothing I could do.
They called me back one year later after listing it for $159,500. It didn’t sell because it was overpriced to cover commissions and closing costs with a retail buyer. When they called the second time it was still the same situation. But this time I said…
“The only way I can buy your house is to take over your loan and have you come up with $10,000 in cash at closing. Are you in a position to do that?”
Apparently they were going to raise the cash anyway to get the house sold through another agent at a lower price. The house was now vacant and they were getting desperate. They got a signature loan not secured by the house and brought $10,000 to closing one week later. Three weeks later I found a buyer with $13,000 to put down. When occupied, I had already collected $23,000 of my $20,000 spread! I knew I’d have to bring some money to closing once my new buyer refinanced down the road. But that was OK. I could have paid down the mortgage by $3,000… but I decided to keep the cash.
6. Simultaneously buy and sell for cash… Bonus Strategy!
Need cash to get started in real estate investing… or pay some bills? Find a deal and sell it the same day you buy it. No cash needed, no holding costs and no landlording. This is called flipping and yes, it’s legal.
There are several ways to do this. I use this strategy only when a seller must have all cash, but more cash than I can raise using a hard money or private lender.
“Retailing” for me is when you sell a house for cash or new loan for market value. I hate retailing. I prefer to be offering a great price or great terms. I need a marketing advantage to resell. Otherwise I’m not interested in the deal.
I can still offer terms to a buyer who is getting a new loan by taking up to all my profit in a second mortgage. I’d be willing to do this rather than lose the deal.
CASE STUDY #4
Recently a seller called me. Sometimes I get so many leads I don’t have time to call back everyone, as in this case. He called several times which forced me to respond. This is a lazy way of prescreening leads… but to works!
His house had gone to foreclosure. In my state, he had a couple months to redeem the house by coming up with the auction sale price in cash. I agreed to buy his interest (get the deed) and then look for a new buyer. I made no guarantees. He had nothing to lose. If successful, I’d get the first $10,000 in profit and then we’d split any profit over that. He agreed. He was about to get nothing.
I placed a sign in the yard, ran a classified ad and added the house to our website. I said “owner can finance” since I’d be willing to take my profit in a note.
Bottom line: The neighbor bought the house with a new loan, did not ask me to carry a note so we got cashed out. I made $18,000 and the seller got $8,000. My only risk was the cost of marketing and a little time. I also created the equity by getting the second lien holder to take a huge discount. The bank was happy to get $4,000 for their $40,000 mortgage because they were about to be wiped out after the redemption period. I forgot to ask the first mortgage holder to discount!
Conclusion:
There’s no limit to the number of houses you can “invest in” when you buy AND collect cash at the same time.
The top reason real estate entrepreneurs sell off a house is for cash. Use these ideas when you have the opportunity to supplement your monthly cash flow needs. Then you can keep more houses, enjoying additional real estate benefits including depreciation, appreciation and principal pay down… helping to build a bright financial future for you and your family.
July 16th, 2009 at 4:54 pm
this is really works!