Discover Profitable Real Estate Investing Strategies, Tactics And Techniques |
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Create Good Financing, Flip For Cash To Another InvestorIn the last issue we talked about making money without maintenance and management. That is still our working model. Management is hard, maintenance is expensive. If you can, try not to get involved in projects which have either one. At least, not until you've accumulated some cash reserves and high cash flow to carry you during the bad times. If you remember, in the real estate investing strategies reviewed in the past issues we were looking for fixer-upper properties, possibly foreclosure properties, searching foreclosed homes, etc. The key was - we should get our hands on them at a very low price. Then we'd either remodel them ourselves and sell retail for cash, or (if faster profit is desired) we'd just flip our position for cash to other investors who want to deal in rehab properties. Today we are going to discuss the importance of financing. Good financing is an extremely valuable commodity. It's important as much as the price, and sometimes even more than the price. Why? Because a large number of home buyers (owner occupants as well as real estate investors looking for good deals) are not able to obtain conventional mortgage loans and finance the purchase of the homes. It could be because of the credit issues, self-employment, lack of down payment, or just plain unwillingness to go through a tedious loan qualifying process. Because very few homes are offered with owner financing terms, you are in a position of offering a high demand and low supply commodity. Very often,
if you offer a property with attractive owner financing
terms you can: As you can see, offering properties with owner financing creates an outstanding opportunity for smart real estate investors who understand how to take advantage of if. Let's look
at a few examples to illustrate the point. Real Life Example:I found a pre-foreclosure property in a predominantly rental area. It was a 4-unit apartment building of which 3 units were empty and only one occupied. The property has been neglected and needed a lot of cosmetic repairs, but had no serious problems. It was just a matter of repainting, re-carpeting, cleaning, etc. If cleaned up, the units would rent for $550 each, offering an excellent cash flow to a prospective investor. The owner had 7 liens on the property with the total balance of $350,000 in addition to the $60,000 mortgage. The property value in a repaired condition was about $110,000. Because of the liens the owner has given up and didn't want to deal with it anymore. I signed a contract to buy the property for the loan balance ($60,000) if I could negotiate a release of liens. In about 2 months period I was able to obtain releases of liens from all of the lien holders. The total cost to me was ONLY $5,000. I arranged for a $70,000 loan from a private investor at 12% to cover the pay-off of the $60,000 mortgage, $5,000 lien releases, closing costs, prepaid escrows for taxes and insurance. I had no out of pocket costs in the property. However, in truth, I didn't want to mess with the clean up, so I decided to look for a buyer who would be interested in purchasing it for investment purposes, even before I closed on my purchase. I ran an ad in the paper: 'El Cheapo 4-plex. Way below market fixer-upper. Great potential cash flow. Non-qualifying. Assume $70,000 loan. Must have $20,000 cash down. You pay closing costs.' My phone rang off the hook. Even though most of the callers weren't serious, I only needed one that was. In a few days a Realtor called me saying he had just the client. We agreed to split the 3% real estate commission with the buyer. In about a week I was walking out of the title company's doors with the $20,000 cashier's check - buyers down payment. Turned out I had a credit of $1,500 for the money financed into the loan's pre-paid escrow account which Buyer reimbursed me for. In this transaction, the attraction to an investor was the non-qualifying loan with very little closing costs and the opportunity to buy a fixer property at a slightly below market value. With potential rents of $2,200/month and loan payments of only about $900 the buyer had an excellent monthly cash flow from the property. Another twist on this strategy would be to sell a home to an investor into single family houses. This is a
different strategy that's totally cool... and we'll review
it in the next issue. Be sure to check your e-mail tomorrow.
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