Posted by Doug (ON) on September 02, 2001 at 07:58:45:
Oops, I was getting a bit greedy there. You’re right. I could even buy at 85% and sell at the same interest rate I’m paying and still make plenty of money, while leaving the buyer’s payments quite reasonable.
Yes I wouldn’t bother mentioning interest rates to buyers either.
Your Dad sounds much like many of our investors except for being self employed. Retired people wishing they could do better with their savings. If only I was about 30 and knew what I know now.
How do you get those first few investors? HARD WORK! You might have to talk to lot of people. Today, many people would like to be a Tiger Woods. Parents are starting their kids early in golf. But, you know, there will never be another Tiger Woods. Just like there will never be another Elvis Presley or Daniel Boone or Dwight D Eisenhower. First of all, the timing changes … but more importantly, no one will be willing to work that hard.
Imagine the hours of practice and work they invested in their careers at time when their friends were playing. We had an advantage when we started … we thought somewhat the same thoughts as your Dad … everyone should like te idea of investing this way. No one told us any different.
When someone did say “No,” we knew that either they didn’t have any money or the timing just wasn’t right for them. they weren’t really saying “No” as is “NO!” How could they? This was a fantastic opportunity for them.
How to buy properties at 80% to 85% of market value? HARD WORK!
It’s so much easier now … but hasn’t always been that way. We received two referrals yesterday. Both houses we will buy at 85% of value. We bought 2 more on the courthouse steps this week … both at 70% of value. That available cash makes a difference.
How to find people to pay more than rental rates? EASY! Buying a house and renting are two entirely different things. We use an amortization schedule to determine their payments. I don’t recall ever having anyone make that comparison to us. Remember, they are buying the house … not renting. The question is totally irrelevant.
Posted by Doug (ON) on September 01, 2001 at 22:21:58:
Of course, all of your posts help!
I remember reading one of your posts that mentioned over the years you’ve come up with other ideas for finding investors besides the ads you used, but never needed to use them. I’m curious what those were?
I think I should rephrase the concern over finding buyers. It’s more about the sheer payment SIZE. For example, if I sold a property with a $160k FMV (pretty typical for 3/2 homes here) at 11% interest over 30 years with say $4k down, payments covering PITI would be about $1,700…seems kind of steep. Although considering they have no other way of buying and renting a place like that would be throwing away $1,200 every month…
I think people would go for it. I was just giving voice to my dad’s concerns.
I am glad we have more sensible prices here. But, let’s look at your possibilties. The MV is $160,000. Suppose you bought at 80% or $128,000. Your loan at 9% interest only payments would be 960. Rather than 11% inteest, set your buyer’s payment at $1260, plus taxes and insurance. You have $300 per month and their payment is nearer to the rent level. Obviously, you must limit the time for that payment arrangement (say 3 years). For example, you might give them a rent credit each month (if they pay on time) of $200. On a 9% amort schedule, the principal credit is less than $100.
Assuming they pay on time every month and refi in exactly 3 years. You received $4,000 (on that price, I would probably get more) down, $300 per month, and $20,800 at the payoff. That adds up to $32,000 over the 3 year period. You borrowed the entire amount, so your ROI that everyon likes to talk about is an infinite percentage. You average $888.88 per month for 3 years. How many houses do you need to do to make some money?
During that initial 3-year period, you can use any interest rate for your buyer that you want … use your cash flow as the guide, then calculate teir interest rate. We actually don’t even quote interest rates any more. If they ask, we tell them it ranges from 9% to 11%.