You say: “There has to be a way to sell them on the idea… .” Well, I suppopse it is good to be optimistic. However, what makes you think it is possible to sell them on your plan. If I came to you trying to sell you on going to Julliard to study music, paying your own way, would there have to be a way I could convince you?
So, how do you plan to sell something to people when what you want to sell does not fit their needs?
I think being optimistic is good. Being realisitic is probably better. Learn to screen for the deals where you can get what you want. MOST sellers will not be interested in what you have to offer. That is why people on CREONLINE.COM spend so much time talking about Marketing to find the few property owners who give them a good deal.
How do you convince someone to sell to you on l/p if they are about to close on a new house and need some cash out for a d/p?
I have told people that they can refi or take a 2nd out… most people don’t like that and they have to check with the lender they are already committed to on the new home… When we get to them checking with their lender… it seems to be the kiss of death for the deal… I can’t get them to sign because I can’t convince them that it can be done.
The Seller can sell the note you have given to them for their equity to a note buyer. There are many of them in the world and they will give them cash in the hand for the note you gave them. You will then pay the note buyer under the terms of the note.
However, please note that note buyers buy notes at a discount. Thus for a $10,000 note they may pay $6,000-$8,000 in cash.
Re: Seller wants equity in cash for dp on new home - Posted by Frank Chin
Posted by Frank Chin on March 24, 2003 at 16:55:00:
Hi John:
Ron already gave you good advice.
The key to REI is solving the seller’s problem. Are these folks jumping thru hoops because:
a- They can’t sell their homes conventionally??
or
b- You can’t buy their home conventionally, meaning you don’t have the down payment.
If these folks can sell to anyone BUT YOU conventionally, take out the money to put down on their new home, then they should do so. Otherwise, you should concentrate on those motivated sellers who can’t sell their homes conventionally or quickly enough.
And if these folks already went thru the mortgage application process for their new home, they already told the mortgage company:
i- The downpayment is from the sale of the former home.
ii- The old mortgage will be paid off, thus will not be counted in the new DTI.
To do what you want them to do, these people would have to submit a whole new mortgage application where none of the above is true. Not only that, the rate on their new home may be much larger because of DTI and down payment issues, should they decide to accomodate you.
So are you really solving their problem, or creating one??
What made you think a lease option would work in such a situation? Be realistic, no approach is going to work with all situations. Needing cash from the sale of the old property to buy the new property is the NORM, not an aberration. Why do you think experts advise SCREENING before going to look at a property? You screen out the types of situations you describe.
However, here are a couple of ideas.
Offer a lower all-cash purchase price, one that allows you to make money on a retail resale.
Work with the sellers of the house your sellers want to sell. See if you can get them to do some creative financing, so that your sellers don’t need cash. How about a new second loan on the house you want to purchase, with the lender being the seller of the house your purchaser wants to buy. Not going to work often, unless you are super salesperson. But it might allow you to occasionally make a deal which you would otherwise not not get.
P.S. I am pretty much of a two trick pony right now being a newbie. I know how to offer someone all cash and flip a deal or l/p. What purchase methods other than l/p would work for such a situation?
I didn’t know that it would (or wouldn’t work) because I haven’t done it before (I’m a newbie groping my way thru the dark to my first deal… fake it until you make it). I have read on this site and in some of the courses that this is a common way to address the refi cash out issue. I am getting alot of these type of leads where someone is building a new house and their listing on the old one expired leaving them in a sticky situation. There has to be a way to sell them on the idea (l/p allows me to offer them a higher price than my 70% cash offer (which repulses them and sells them on the l/p idea all the more))… Just thought there might be someone out there cashing in on these types of deals.
I don’t know. There is one person who does know: the property owner. Don’t approach an owner with some gimmick. Talk to the owner and ask what s/he wants to accomplish. Talk about the the things you know about. Ask them to suggest something that will give you what you want and at the same time what they want. Who knows, you may come up with a completely new way nobody else knows or tries to do.
As I said, the vast majority of sellers will not be interested in a technique that does not give them immediately all their equity from a market-value sale.
Buying bargain deals works with maybe 0.25% to perhaps 2% of all property sales. You have to find the few golden nuggets in the piles of rocks. Thats why you get paid the big money. Most people cannot see the gold nuggets.
I just want you to know that I disagree with Ron, about there being very few sellers that are interested in our kind of deals (especially for Lease Options). As a new investor I was able to tie up about 6 properties in the Chicago suburban area under lease options in less than 3 weeks. Not difficult at all. I simply went through the newspaper ads in the houses and town houses for rent section. I called all of those that said rent with an option to buy.
Though I agree that 85% of the market is traditional and only about 15% is open to real creative stuff, you simply target that 15% and within them there are plenty of deals to be had - especially in L/O’s (in that case many times people don’t even have to be in desperate straights and can still utilize your help - it opens up even more of the market).