Just Can't Find Properties in This Market! - Posted by Bill Gatten

Posted by Carmen_FL on October 31, 2000 at 09:48:21:

I happen to agree that getting the calls in first is most important. How the “cash necessary to move into my house” part is explained can come AFTER the telephone is answered. You have flexibility if you don’t state any amounts up front.

If you’ve been dealing with people who have no other choice for financing - and that’s what I do - they are GLAD to pay you 10% - versus the 30% the “non-conforming” mortgage brokers all need from them, plus closing costs and lender fees and points and … well, you get the picture.

And if they’re not, then you are GLAD to give the house to someone else. I don’t think it’s unreasonable to expect someone to come up with a certain amount of money to own a house (despite my weaknesses in this very area, or maybe because of them, I now think cash is king). If they disagree with you – O.K. Guess what? It’s YOUR house, and they’re YOUR terms, and if they don’t want to play, then find someone who does.

Just make sure the phone keeps ringing.

Just Can’t Find Properties in This Market! - Posted by Bill Gatten

Posted by Bill Gatten on October 29, 2000 at 18:35:13:

Little long, but informative…(I hope)

Over the past few years, I have been [one of] the first to jump on anyone who suggests that deals are any more or less difficult in any market. My position has always been that “The Market” is a combination of an “up” cycle and a “down” cycle: not one or the other. In a buyer’s market, investors scream that buyers are too hard to find, even though properties are a dime a dozen; in a sellers’ market, the same folks complain that properties are too hard to come by.

Well, the good news is that there are two infallible, no-brainer, keys to success in any market–

  1. Deal only in that cycle of the market where no one else knows it, but values are about ready to start climbing back up again after a long slump and when there are lots of houses available at reduced prices: pure profit and little risk (…buy low…sell high…can’t lose),


  1. Be versatile enough in your dealings that when the market tide shifts you can travel in the other direction with equal strength and facility (e.g., if you hold on tight, it doesn?t matter which direction the trolley is moving, you?ll go with it). I.e., “If your boat don’t float both ways, you’re gonna be in trouble at tacking time (said best with one hand hand on hip and little finger of the oother dabbing at eyebrow)”.

Now, if anyone has learned how to consistently tap into #1, please let me know, because I haven’t been able to figure that one out yet. But #2? 'Got it down pat.

In California we are currently in a great seller’s market…multiple offers on most listed properties. Buyer’s scrambling to spend money, etc. Now, that?s a good deal if you?re a seller, but not so good if you?re a creative RE investor without a lot of cash or credit. It does pose some problems.

One way to ameliorate the problems (for the newbies, “ameliorate” means make it be all better)?

While searching for the immediately profitable (bargain) properties (flips, assignment, fixers, etc.), consider picking up a few of the properties that no one else wants, along the way. Remember, if you have fresh whole fruit on your tree that?s great. It?s highly salable in season. But when the fruit has been picked over, the smart fruit farmer goes into a different business. That broken fruit on the ground that the birds have pecked a little, that no body else wants, makes great jelly when boiled-down, and Mrs. Smucker says there?s good money in jelly if you do it right.

The overlooked properties I’m referring to are those that may have no equity, marginal or even negative equity); or properties with tax liens, judgment liens, etc.). Most folks in this business stay away from these properties because they don’t know what to do to make them profitable.

Well, consider the deal Jim Pasquini, our marketing director, appears to have picked up for himself this weekend (fingers crossed): the property’s worth $160K with a first on it of $140K and a 2nd of $20K with aggregate payments (PITI) of $1,600. Rent on it would bring perhaps $1,400 at best ('Hope talking about it won’t jinx your deal, Jim).

What Jim did in this case was explain to the sellers and their agent that since the proceeds of their $20,000 2nd had been spent on something other than the property (a pickup truck, I think), it shouldn’t be his responsibility, and that they should continue paying it. They agreed, securing Jim with a filing on another property.

Next, there was the issue of the Realtors commissions and closing costs (we abhor spending excessive cash up front). Jim asked the agent if she would carry her commission on a monthly basis, if he couldn’t get all of it for her up front ($4,800). She agreed (she?ll carry at $200 p. mo. for 24 months if necessary–why not? Otherwise, she?d get nothing–this is a dog listing).

Next step. On Monday, Jim will put an ad in the newspaper advertising a ?Beautiful $170K home only $1370 p. mo + tx & ins (note $10K equity bump) No Bank Qualifying and No Down Payment and as little as $10,000 moves you in."

If he has to negotiate on price, Jim has a $10K buffer (though the $10K is justified, in view of the no-down and no-qualifying benefits); if he has to negotiate on up-front cash he can drop below the 10K if he wants to, because the Realtor will carry $4800 of it if needs be?giving him the choise of paying her or putting it in his pocket and paying her later.

Regarding cash flow: Rather than renting or leasing, or lease optioning, Jim will give the acquiring party 100% of all the tax benefits and all the incidents of homeownership in order to get a monthly payment that is much higher (i.e., more commensurate with what a higher mortgage payment might be): I.e., comparable to P&I at 10% or 11% on a 90% loan -$1,370; plus comparable prop. tax of $166; and insurance premium of $45. The total monthly payment being then $1,582 from the resident, plus the $250 per month from the seller (the payment on the 2nd).

Now?the punch line–In addition to the cash up front (minus the Realtor?s commission) Jim will also be receiving 50% of the future appreciation; all of the $10K equity bump; a monthly positive cash flow throughout the next four or five (7?) years; and half of the equity build-up from principal reduction?while someone else pays all the bills and handles 100% of all maintenance, repairs, payments, insurance, etc?.

When the calls come in from the ad, Jim will say: ?Yup, I have this property over there in Corona, and if you can afford the payments of $xxxx and the 9 or 10 thousand it?ll take to get in, I?ll just give it to you. The only thing I want out of it is to have you agree to sell it or refinance in your name in a few years, and at that time, if there?s been any appreciation, I?ll just split it with you.

So far today (Sunday) I?ve taken 10 call on another property I?m running with an identical ad, and said the above ten times exactly as written. Guess how many callers didn?t think this was good deal for them (mine’s a $224K properoty with $2000 pmts). Try ?none.? Three would like a bigger house on the same terms, 4 didn?t have enough money (or enough ‘want-to’) and 2 are going by to look at it when the rain stops. One drove by in the rain and hasn?t called back yet.

With this approach, do you think we put any great stock in whether the market is “up” or “down”? Nope. Don’t care. In an up market there are more buyers; in a down market there are more sellers, but since we can buy them all anyway, it really doesn’t matter much. Candidly, we have so many buying opporutnities right now that we honestly don’t have time to get to them all.


Re: Just Can’t Find Properties in This Market! - Posted by eric-fl

Posted by eric-fl on October 30, 2000 at 11:09:40:

are you screening the credit and payment histories of the buyers, or is 10k down screening enough?

Re: Just Can’t Find Properties in This Market! - Posted by JohnBoy

Posted by JohnBoy on October 29, 2000 at 23:37:06:

I like those property taxes. $166 per month on a $160k house in CA. I pay DOUBLE that for the same value on my house. $330 per month in the Midwest! And they say CA cost more to live there! Hmmmm.

Just curious, how many people call on your ads and ask you, “Hey, your ad says No Down Payment, so why would I need $10k to move in if you don’t need a down payment?”

I know what the $10k is for, but how many potential buyers get confused by this?

Re: Just Can’t Find Properties in This Market! - Posted by Steve in Phx

Posted by Steve in Phx on October 29, 2000 at 19:14:28:

Bill-What is the best way to find opportunities like the one you described in strong markets like Phx.?


Re: Just Can’t Find Properties in This Market! - Posted by Bill Gatten

Posted by Bill Gatten on October 30, 2000 at 12:32:17:

We don’t get $10K down…we get closing costs and 3-4 payments in a contingency fund (a portionof which can be converted to a down later). However, in answer to your question, I?ll usually ask that they bring in a credit report with them, to justify adding a payment or two to the Contingency fund. But, in all candor, in view of the ease of evictions with a PACTrust and my hammer over them re. possible IRS penalties (e.g., recapture of tax write-off for failing the trust prematurely) and my threat of legal action (all remaining payment on the lease agreement), credit isn’t usually an issue. A defaulting tenant. Once they understand the gravity of the default, they?ll usually replace themselves (or cooperate with me in doing so) before they bail out. In these cases, I don?t mind because I get to charge someone else another $10,000 (or more the 2nd time around) and start all over again at higher payments and at a higher price on the property.

However, what is important are major IRS liens, large existing judgments, and unlawful detainer actions The UDT’s I get by calling their previous landlords; not their current one–he’ll lie to you to get rid of a bad tenant (most area have UDT reporting services for landlords that you can subscribe to, but I never have).

If the land trust holds (no failures yet) and the Contingency Fund is adequate, an errant tenant can be booted with haste and with HIS money instead of my own (he can?t claim ownership [equity] to force a judicial foreclosure and Unlawful Detainer judges (so far) always see him as kicking himself out). That’s why ?credit? per se is not that important to us.


Re: Just Can’t Find Properties in This Market! - Posted by Bill Gatten

Posted by Bill Gatten on October 30, 2000 at 11:03:59:

Good question. 'Comes up in our seminars all the time.

Remember No Money Down and “No Down Payment…closing costs only” are two different things. A down payment is typically that amount paid on top of closing costs to reduce the seller’s equity (or buy it out). If my ad said no money down, that would be intrue; but “No Down Payment, As Little As 3 Payments and Closing Costs Moves You In” works quite well.

Over the thousands of times this ad has run, there has never been a single person who indicated the were perplexed by it, or who took exception to it (…that we know of–maybe some were and didn’t call as a result). But it has never failed us, and no one has ever brought up your point when they responded to to the ad.


Share your info with the group - Posted by Rudy Aviles

Posted by Rudy Aviles on October 30, 2000 at 24:17:54:

I don’t know what its for either if its not for a down payment!

So what’s it for?

I’m sure others want to know as well! We are all confused, so please enlighten us.

Rudy Aviles

Re: Just Can’t Find Properties in This Market! - Posted by Bill Gatten

Posted by Bill Gatten on October 29, 2000 at 19:49:07:

Get foreclosure lists, get tax lien filings, send out flyers and brochures; drive around with a magnetic “I Buy Houses Full Price, Cash or Terms” sign on each side of your car. Put an ad on the radio; put a post up at the unemployment office; put up cards on the bulletin boards at super markets; advertise in the bulletin board at the local car wash; buy spaces on the plastic seats of shopping carts; do a mailing to rental property owners (non owner occupied’s) that you get from a title company (farm report); put flyers on windshields in ride-sharing centers and drop-off points; drop a million I Buy Houses cards on the city from an airplane (well, maybe not that one…danged near got me sued…?forgot to take the cards out of the shipping containers and almost killed two midgets and a Mormon missionary on their way home from a Briss).

Bus bench ads, billboards, investor clubs, tip clubs, put signs in front of the properties your are selling or leasing out. Rent space at the local movie theater (you know, those slides they show before the movie starts)


Re: Share your info with the group - Posted by Bill Gatten

Posted by Bill Gatten on October 30, 2000 at 11:12:27:

Rudy, my answer to Johnboy may have cleared it up, but in the event it didn’t, our ad says, “No Bank Qualifying, No Down Pmt: 2 payments and Costs moves you in.”

The closing costs referred to are (can be) Escrow, title, Insurance, Notary, Recording, Trustee Acceptance, Faicilaition, Accounting Fee, Prorations (p. tax and isnurance); first payment, Contignency Fund…my my “carrying fee,” etc. However, during the negotiations if the respondent would like to convert my so-called “carrying fee” into an equity buy-down that’s OK too…then it becomes a down payment: though my advertised intent was not to charge one.

If the ad has said “No Bank Qualifying, $10,000 moves you in” I would end up with the same money, but would have gotten fewer calls and would be forced to have been less choosy.


Re: Share your info with the group - Posted by JohnBoy

Posted by JohnBoy on October 30, 2000 at 24:38:18:

Most people know that a bank requires the buyer to put up a down payment. In addition to putting up a down payment to buy a property, the buyer will have closing costs that need to be paid. The $10k in this case is needed to cover the buyers “Closing Costs”. They just don’t need a down payment for obtaining the financing.

Re: Just Can’t Find Properties in This Market! - Posted by tb

Posted by tb on October 30, 2000 at 02:26:28:

Hi Bill,

What an incredible list, it really got me thinking. I`m new at this game and was wondering if you could expand on this technique from your post :

“do a mailing to rental property owners (non owner occupied’s) that you get from a title company (farm report)”

Could you get into the specifics of how to go about this one?

Thanks in advance!

Re: If you can’t run with that list… - Posted by Lori Samson

Posted by Lori Samson on October 29, 2000 at 23:10:45:

…give up real estate! That was a rather good list Bill I had to sit and think if I could come up with one that was not on the list…Oh! I’m too tired to try! I’ll just let you be King of Locating for now!:slight_smile:

It was good to see you in Dallas!
Lori Samson

Re: Share your info with the group - Posted by Mark (SDCA)

Posted by Mark (SDCA) on October 30, 2000 at 10:40:39:

6% in buyer’s closing cost where there is no institutional lender involved? That is WAY high. 100% high I would say…


Re: Just Can’t Find Properties in This Market! - Posted by Bill Gatten

Posted by Bill Gatten on October 30, 2000 at 12:10:01:

Call a title insurance company. Tell them you’re a real estate investor and would like to get a farm report for all non-resident owners of properties valued over XX, and under XX, in the following zip codes, who bought or refinanced within the past XX years. Ask for “6 line” report (that will ofteninclude phone numbers…otherwise you get the #'s from 411 information).

If they won’t cooperate (they usually will), you get a friendly Realtor, attorney or escrow officer to get one for you.

If that doesn’t work, you can go to the county court house and do it yourself ('don’t advise that unless all esle fails… the TI co. and give you a thounsnd names in the time it will take to to get two on your own).


Re: Share your info with the group - Posted by Bill Gatten

Posted by Bill Gatten on October 30, 2000 at 11:49:57:

Mark, Mark, Mark (again)… Sure, it?s too high if you?re someone who can afford a down payment, has great credit, and can qualify for a loan. However, think about it…if you’re someone who wants to buy your dream home and you have limited cash and marginal credit?would you rather pay 10 or 20 percent down AND 1.5% in closing costs: or might you prefer just paying 6% in closing costs total?

Remember, too, that a portion of that 6% you?re referring to can be converted to an equity buy-down (down payment) if they so choose?and they always do: I just don?t want to have to advertise that a down payment is REQUIRED (get more calls that way). Furthermore, when my ad says 3 payments and closing costs moves you in–how much is that? There is no figure attached to it until they call and ask: and when they do I can get a feel for what they can afford, and can adjust my requirements accordingly.

Also note that in this ad there is nothing said about whether the first monthly obligation is a part of the closing costs or not. That?s ?my? choice and will be determined when I?m confronted with the ?give and take? part (I?ve done both, and ?take? is better). If the payment?s are, say, $1,000 p. mo. and they think they’ve beaten me down by a thousands dollars in up front costs, then suddenly the first payment is not included in the closing costs. If they are no negotiations and they?re ready to pay it all, and I know they have plenty of cash and can afford it, then perhaps the first payment will be made in addition to their equity buy-down, closing costs, and Contingency Fund.

The Contingency Fund? Well, I end up agreeing to pay that out of their equity buy-down. That way I can put in as little as I choose, or pocket as much of it as I choose (though I never post less than 1 full payment in the CF).

What if I wanted there to be ‘no closing costs at all,’ but wanted the same amount up front? In that case, I could advertise, “No down payment, No closing costs”: 7 advance payments moves you in. Why don’t I run that ad? Because “3 pmts and clos. costs moves you in” gets more calls."

Mark, I really have to get you out of that Vanilla box. We have Neapolitan Ripple and Chunky Monkey now. We?ve been set free!!


Re: Share your info with the group - Posted by JohnBoy

Posted by JohnBoy on October 30, 2000 at 10:47:10:

Hey, it’s not my program, maybe Bill can give us a breakdown on what these costs are for? But whether they are WAY high or not, if you can’t qualify for your own financing, I guess as the alternative with NO QUALIFYING, it’s WAY cheap, assuming you DO want to OWN a home vs. WAY high rents that are just thrown out the window every month!

Thank you Bill Gatten! (nt) - Posted by tb

Posted by tb on October 30, 2000 at 18:55:03:

Bill, thanks for the detailed explaination.

For newbies like me its this kind of information that makes starting out a whole heck of a lot easier! Ive been studying the “Sub-to” route of investing and have read your book on PacTrusts. I can`t wait to start doing business together!

Thanks again Bill!

Re: Share your info with the group - Posted by Mark (SDCA)

Posted by Mark (SDCA) on October 30, 2000 at 13:44:13:

Ummm… .ok… How about this ad?? No down payment, only 20% in closing costs!! See my point??
Call it a down payment.
Call it junk fees.
Call it “closing costs”.

But if it quacks…

Re: Share your info with the group - Posted by Bill Gatten

Posted by Bill Gatten on October 30, 2000 at 19:01:54:

Mark, my dear friend.

I theenk you might be meessing the point just a leetle bit here??? (??? denotes perplexidation on my part).

Which of the following ads will generate more interest (assuming each of them requires the same amount of cash up front):

1-10% Down moves you in
2-10% Closing Costs and No Down moves you in
3-Three advance payments and closing costs move yous in

On a house I’m advertising right how I want 5% ($10,000) I don’t care what it applies to, I just want the most callers possible to choose from. My Add doesn’t say I wont take less, or requite more if their credit really sucks, or that they have to come up with the full $10,000 right now…that’ll be determined by me with all extenuating circumstances are on the table.

Like I said, with this latter one (#3), I NEVER have anyone who complains or misunderstands. Those who don’t have the cash I need? TWell, they go on my list of people who want the next house I acquire…I find out how much they CAN afford up front, how much monthly payment the can handle, and (if its worth it to me) I go find 'em a house and put them in as co-beneficiries with me (Remember, I’m the PACTrust guy).