BUY YOU CAN'T DO THIS WHERE I LIVE!!!! - Posted by JohnBoy

Posted by JohnBoy on November 25, 2001 at 24:49:02:

The paper is being carried by the bank that made the original loan to the seller. You are just taking over the seller’s payments. The seller’s original loan remains in place and you make the payments on it until you pay it off! I don’t rent anything. I either L/O or sell on contract for deed. When my tenant/buyer on a L/O exercises their option to buy, or when my buyer I sold to on contract for deed get’s refinanced, that is when the seller’s original loan get’s paid off.

The money that my buyer gets from their new loan will pay off the underlying loan that is still in the seller’s name. The remaining difference from what my buyer is paying me for the house after paying off the seller’s loan will go to me as my back end profit.

If a tenant/buyer doesn’t exercise their option or if a buyer on contract for deed ends up not refinancing to pay off the contract they have with me, I just start the process over again with a new buyer until one of them eventually ends up buying the house! The more I have to repeat the process with a new buyer, the more I end up making off the deal since I get to collect another down payment from each buyer and collect more months of cash flow! Plus I get to raise the selling price as the property increases in value each year, making my back end profit more!

BUY YOU CAN’T DO THIS WHERE I LIVE!!! - Posted by JohnBoy

Posted by JohnBoy on April 15, 2001 at 15:27:39:

This is for all those that live in the more expensive area’s where homes are selling in the $300k + bracket. I had made this post some time ago in response to someone living in CA. that couldn’t figure out a way to buy in this price bracket, get a mortgage, and be able to rent with a positive cash flow! I thought I would repost it since there are so many new visitors here trying to figure out a way to make this stuff work. Maybe this post will help with getting your creative juices flowing!

Metra,

Whether homes in one area are selling for $20k - $40k vs. $200k - $400k in another area is irrelevant. Granted, a $200k house in some areas may not be able to throw off a positive cashflow as a rental, but buying houses to hold as a rental is only ONE way to invest in real estate. Quite frankly, buying to hold as a rental property isn?t the best way for a beginner to get started in this business either. If you are just starting out and have limited capital to work with, you should be focussing on building cash first before worrying about buying rental property. If you don?t have enough capital built up, how are you going to survive the tuff times? Where would you get the capital to cover vacancies, repairs, evictions, pay the mortgage while a tenant lives in your property rent free until you can evict them and attorney fees, etc.???

If you have been focussing on looking for rentals, wondering how you will be able to borrow $200k - $400k on a home with no money and bad credit, you?re approaching this all the WRONG WAY!!!

It doesn?t matter where you live! No matter where you live, SOMEONE is having a problem with their property and they need help with finding a solution to solving their problem! STOP looking for properties or trying to figure out how you can make a positive cashflow and who would give you a loan to buy one of these for $200k - $400k! That?s a total WASTE OF TIME! It ain?t gonna happen that way!

You need to restructure your thinking process. You are NOT looking for properties. You are NOT looking for someone to give you a loan. You are NOT going to buy to hold as rentals. You are NOT to think in terms of you being an investor. You NEED to start thinking in terms of being a PROBLEM SOLVER! You NEED to start looking for people with a PROBLEM!

Become a PROBLEM SOLVER and look for people that are having a PROBLEM! People that are having a PROBLEM, are MOTIVATED! THAT?S WHERE YOU FIND YOUR DEALS!!! Your job is to find the solution to solving the problem! If you find the solution to solve the problem, the deal will practically close itself! People that are having a problem are motivated. They NEED HELP! They don?t know what else to do. That?s where you come in! YOU will know how to come up with a solution that will solve their problem!

So how can you possibly make money on a $400k house when you have NO MONEY, BAD CREDIT and NO ONE WILL GIVE YOU A LOAN??? The answer is SIMPLE! You don?t NEED any of that stuff! The only thing you NEED IS KNOWLEDGE! If you possess the KNOWLEDGE in being able to solve problems pertaining to real estate, you can make money anywhere, anystate, anytown USA!

Lets use an example:

Mr. Downandout is having a problem. He owns this nice $400k home that he lives in. Mr. Downandout had only purchased his home a year ago. He had an excellent job, excellent credit and was able to buy his home with minimal money down. He paid $410k for this with only putting $10k down. His mortgage amount is for $400k at 8% interest on a 30 year loan. His monthly payments are $2,935.06 principle & interest, plus taxes & insurance. You know that even if Mr. Downandout just gave you his property and said here, take it! I just want this headache to go away! You know that you could never get $3k a month for rent when other homes in the area like this are renting for only $2200 a month. So what can you do to make any money off this???

Metra, no matter who came along to buy this house, how much are they going to have to pay in payments every month to own this home? We already know that even if the buyer has excellent credit his payments are going to be around $3k per month plus taxes & insurance. So no matter WHO buys a home in this price range, they will be looking at $3k + per month with excellent credit. Now what about someone that has credit problems? Lets say they are classified as a C, B borrower. They will have to pay a much higher interest on any loan they were to get. Lets say they found a lender that would approve them with some credit problems. They will end up paying somewhere around 10% - 12% in interest. So let?s use the middle and say they will be at 11% interest on a $400k loan. At 11% on $400k their principle and interest payment each month will be $3,809.05 for 30 years, plus taxes & insurance. Since they were approved for the $400k at 11% we know they make enough income to qualify for the loan, otherwise the lender would not have approved them, right? So it would be safe to say that anyone that is buying homes in this price range have good incomes in order to qualify. If they didn?t no one would be buying these homes. But a LOT of people ARE buying these homes everyday! In fact, there are so many people in your area that are buying these homes in this price range, that the market is so hot most homes sell as soon as they hit the market.

So let?s think about this for a second? Hmmmmm??? If there are so many people that are buying in this price range and getting loans to purchase them, I wonder how many people are out there that could afford these payments but they can?t qualify for a loan, or at least qualify for a loan even at 11%??? Do you think there are many people in that area that make the income to afford the payments? You think some of these people have some money in the bank they could put down a house if they found a lender to approve them for a loan? COUNT ON IT!!! THEY ARE OUT THERE!

Now we know Mr. Downandout is having a serious problem. He may have lost his job, he may have been transferred to another state with his job, he may have purchased another home and now he?s stuck with two mortgage payments until he gets his old home sold, facing foreclosure, getting a divorce, incurred to much personal debt, etc, etc, etc.! Whatever the reason is, HE HAS A SERIOUS PROBLEM! He NEEDS OUT!

No problem! Metra to the rescue! Metra is just the person that can help this guy out because Metra is a MASTER PROBLEM SOLVER! Metra can come up with a solution to solve Mr. Downandout?s problem today!

Mr. Downandout just wants out. He knows he can?t even list the property with a realtor because he doesn?t have enough equity in the property to even cover the agents commission! By the time someone comes along and finally makes an offer, Mr. Downandout will be lucky to get what he paid for the house. Then he will have to pay some closing costs, cover the agents commission, and on top of all that, it may take 3 ? 6 months before he finds a buyer. That means for every month he is sitting on the house, he?s throwing away another $3k + each month on a mortgage he can no longer afford! He needs to do something quick! If he doesn?t he?s facing foreclosure or if he has money in the bank, it?s getting depleted rapidly by keeping up with the payments. Then if he finds a buyer he will have to come to the closing table with a chunk of cash just to get the thing sold!

Metra sees Mr. Downandout?s problem! Metra knows there is a solution to solving this problem and at the same time it will save Mr. Downandout THOUSANDS!

After Metra gets face to face with Mr. Downandout and figures out the problem, Metra shows Mr. Downandout a solution to his problem that will work! Metra explains to Mr. Downandout that he can save thousands of dollars and put a stop to his bleeding cashflow problem by agreeing to let Metra take over his mortgage ?subject to?. By Mr. Downandout agreeing to this it will save him from losing additional money each month waiting for a buyer to come along, it will save him from having to go to the closing with thousands of dollars in closing costs and enough to cover the agents commission because he won?t need an agent and won?t have any closing costs and won?t have to take a discounted price to sell his property because Metra will just take over his problem and end his nightmare right now! Mr. Downandout is happy to get rid of his problem. He doesn?t even care about whether Metra has good credit or not, he assumes Metra must be responsible after listening to the way Metra was able to put together a solution that solves his problem so easily! Heck, Mr. Downandout is so happy he?s hugging and thanking Metra for coming along and saving his behind!

Next, Metra runs an ad in the Orange County Register,

OWNER WILL FINANCE
NICE 4bd/2.5ba Home.
EASY QUALIFYING!
Call xxx-xxxx

Metra finds a buyer that has been dreaming of owning their own home for years! The Buyer says they have $15k they can put down. Metra says, ?Well, I was really looking for $25k down, but I might be willing to work with that.? Metra tells the Buyer that house is $435k! The terms are contract amortized over 30 years with a the balance due in two years. So with $15k down the amount Metra would be financing is $420k at 11% interest plus taxes & insurance. So the payment amount from Metra?s buyer will be $3,999.76 per month plus taxes & insurance.

Metra?s payments that were taken over ?subject to? are $2,935.06 plus taxes & insurance.

$3,999.76 - $2,935.06 = $1,064.70 per month in positive cashflow!

The home was only a year old when Metra picked it up. So at the end of 2 years Metra?s loan balance will be around $389,120.55

Metra?s buyer will owe around $416,000.13 at the end of two years when the contract comes due.

$416,000.13 - $389,120.55 = $26,879.58 additional profit to Metra at closing.

So Metra would have made,

$15k up front from the buyers down payment
$1,064.74 x 24 months = $25,553.76 in positive cashflow
$26,879.58 at closing when Metra?s buyer refinances to pay off the contract

$15,000.00
$25,553.76
$26,879.58

$67,433.34 total profit over 2 years from buying a house with no equity, no money, no credit and reselling it on contract!

That?s an average monthly profit of $2,809.73 over 2 years!

So you see Metra, you don?t have to just look for properties to hold as a rental. If you read this site everyday, the ?how to articles?, ?money making ideas?, ?success stories? and the newsgroups, you will discover many other ways to buy property no matter where you live and no matter what price range the homes are in. The price range only reflects a number. Those numbers are the affordable prices that property is selling for in that area. It doesn?t matter how many zeros you ad to the numbers if those numbers reflect what that market is getting. Forget about the numbers and focus on people that have a problem. Forget about thinking in terms of becoming an investor, think in terms of being a problem solver! Search for the problems, figure out a solution to solve the problem and the deal with practically fall in your lap and close itself, as long as YOU know what you?re doing and have the knowledge to get it done!

Now get busy and EDUCATE YOURSELF! Then take ACTION and GO GET A DEAL!

Re: BUY YOU CAN’T DO THIS WHERE I LIVE!!! - Posted by Ann

Posted by Ann on April 19, 2001 at 24:13:04:

Hi,
I am new to Real Estate and I am looking further down the road. What happens if the people you sold it to, didn’t pay, either thier monthly payments or payup at the end of the 2 years? You would be stuck with these huge payments until you could find someone else. I could never afford payments like this. I wouldn’t even be able to afford the first one…lol I guess that is the real reason why I haven’t really put much effort into this area. Any suggestions?

Re: BUY YOU CAN’T DO THIS WHERE I LIVE!!! - Posted by ruben

Posted by ruben on April 18, 2001 at 15:03:16:

that was a very motivational post johnboy,you make it seem so easy.

Re: BUY YOU CAN’T DO THIS WHERE I LIVE!!! - Posted by JohnBoy

Posted by JohnBoy on April 19, 2001 at 01:30:49:

That is the reason you need to put the cash away that you get from your buyers down payment money! When you’re just starting out with little to no cash you need to build up cash to cover anything unexpected! If you were to use that money you got from your buyer on other things before building up cash reserves, you could very easily end up in BK City!

As far as when the two years is up and if your buyer doesn’t refinance, their contract is up! You either evict them or renew another contract with them. If they move out you just get another buyer, which means MORE cash getting another down payment from them and adjusting the purchase price for any appreciation in the property value which would mean more cash flow coming in.

The idea here, isn’t to just do one deal and sit on it. You get out there and do LOTS of deals, socking away the down payment money you get from your buyers until you build up a decent amount of reserves to cover any deal that “might” go bad with getting a non-paying tenant. Then you can use THEIR money to get them out of the property and advertise to get another buyer! You just repeat the process until someone eventually refinances and pays you off!

Where some people just starting out get into trouble is they spend any cash they get in the beginning to pay for other bills or buy toys. Then when something does go wrong they’re stuck because they don’t have the funds to get the buyer out, cover any mortgage payments and/or any repairs to the property until they get another buyer. SAVE that cash until you build up a decent recerve fund to take care of any of the unexpected!

Re: BUY YOU CAN’T DO THIS WHERE I LIVE!!! - Posted by James Blake

Posted by James Blake on November 20, 2001 at 14:56:01:

Who is carrying the paper? It is not clear to me when the original note is paid off? I know I can rent my house out after a year, but you didn’t mention anything about renting…you mentioned buying.