Posted by tampasteph on May 23, 2002 at 01:30:19:
Joseph,
The only dumb person (ignorant is a better term) here is yourself. Please take your negative comments elsewhere, No one here has the time nor the patience for you. We are all here to teach or to be taught. If you can’t understand the concept, you don’t belong here.
Show me the L/O Moolah?! - Posted by jay phx
Posted by jay phx on May 22, 2002 at 15:37:39:
In a L/O situation one of the benefits to the buyer is low down payment right? But if a person has 3-5% for down on a L/O why wouldn’t they just buy a house the regular way?
Also, I think there are more people who don’t have several thousand down for option consideration. How do you work a situation with low downs? The market I work is mid to upper $100’s and most people I’ve talked to that are interested in buying a L/O as T/B usually don’t have the money for down. What do we do in these types of situations? Just move on and wait for the person with the down payment?
I need to move the properties quick because a $900-1000 a month payment hurts my thin pockets severely.
Any advice?!
Also, if I have several of these properties what is the best way to make sure everybody gets paid on time? Escrow services? What ways are being used out there by the more experienced investors?
Thanks for helping.
Jay phx
R. Kiyosaki Says 2/3 Can’t Bank Qualify - Posted by Scott Ashbaugh (MI)
Posted by Scott Ashbaugh (MI) on May 23, 2002 at 17:58:43:
People,
With more and more people living at or above their income levels and the flurishing 100% and even 125% home equity loans people are living on the very edge of going under. One little change and they will or ARE. They mess up their credit, they had a divorce and it takes time to heal that credit problem.
Or the other one I just love about our economy, I WANT IT NOW!!!
People want it now, they may not qualify for it the normal way, or they are expecting a promotion, raise, tax return, what ever, and they want to move up, NOW!
Hey, if they have a clean credit background, a good job, and CASH. They got my house.
I really think we are going to have to be more & more creative as we go forward to help all of these people out. Why do you think there are so many new programs now to help out people, even loaning them their down payment money, (again, only with decent credit)? This just opens the door for us all the more. People need help out there, and that’s exaclty what we are here to offer. Although we do make a profit with all that knowledge.
Re: Show me the L/O Moolah?! - Posted by Mark*MD
Posted by Mark*MD on May 22, 2002 at 20:57:28:
You could always take back a promissory note over the term of the lease as added option consideration as well. Some folks have little down but make decent money and could increase thier monthly pmt if they saw a way to get into a house.
Lots of creative ways to break it down for people who are close to making the cut.
Mark
Re: Show me the L/O Moolah?! - Posted by eric-fl
Posted by eric-fl on May 22, 2002 at 17:51:09:
Q. …if a person has 3-5% for down on a L/O why wouldn’t they just buy a house the regular way?
A. 3-5% isn’t enough down to buy a house the “regular” way. It’s more like 7-8%, after tacking on closing and moving costs. Most people who have 3k to put down have 3k. Period. Not 5, and sure not 7.
Q. How do you work a situation with low downs?
A. In most areas, rent on a $100k home goes for about $800-$1000 a month. First, last, and half a month’s rent in security deposit would run $2000 on the $800/mo house. If they’re not qualified for that, they’re not even qualified to rent (a single family house), let alone l/o. You should be looking at 3-5k down. Now, just because someone only has 2k down, that doesn’t disqualify them. Just tell them, “well, I need to get at least 3k down on this house. I don’t need it all today, but I do need it. Can you pay me an extra X per month until we get the remaining $1000? Do you have any old life insurance policies, or any 401k’s you can borrow against, or a credit card with a cash advance?” Get them thinking in terms of possibilities, and then negotiate whatever you can get, remember that a bird in the hand is worth two in the bush.
Re: Show me the L/O Moolah?! - Posted by JohnBoy
Posted by JohnBoy on May 22, 2002 at 17:03:24:
Just because someone has 5% to put down that does not automatically make them qualified to get their own financing. There are lots of people with money that can’t get loans. Now if you are holding out for the perfect buyer that has the money to put down along with good credit, then those buyers can get loans and you could be waiting a long time to get that type of buyer. Sometimes you do, but those aren’t the types of buyers we mostly deal with. Most buyers have credit problems or no credit or new on the job or self employed or a number of other reasons that would prevent them from being able to get financing at this time. Some buyers just “think” they couldn’t get loan when they really could get financing. It all varies.
Many will call and say they don’t have any money to put down. That’s just part of the business. Those you pass on and tell them to save up some money and call you back when they do and see what you have available at that time. But most you won’t ever hear from again and those are the last people you want to be dealing with anyway.
You want people with some cash to put down. The more cash they have to put down the more forgiveness they can buy with that to get past any issues they have that is preventing them from getting a loan today. Basically, when they call me they can BUY their way into a property by having enough cash to put down to get past any issues they have preventing them from getting financing.
You are correct, you need to move properties quickly to avoid having to make those payments. This is why we make deals subject to being able to place a suitable tenant into the property within 60 - 90 days before having to commit to the deal. Which means the seller continues making the payments during that time and allows us 2 - 3 months to find a buyer.
Or in some cases we just have the seller make the next 2 - 3 payments no matter what and after that we commit to making the payments no matter what. That allows us 2 - 3 months to find someone before we have to make any payments. And if we find someone right away then we get to keep 100% of the rent they pay us for the next 2 - 3 months since the seller is paying the payments for those months.
If it’s a deal where the seller cannot make the payments and needs out NOW, then we either only do the deal by getting the deed taking over their loan subject to or if the deal will be allowing us to pick up a real nice chunk of equity, then we would consider doing the deal where we start making the payments ourselves right away to solve the seller’s problem and allow us to get the deal. Being able to pick up a chunk of equity can go a long way in justifying for us to make a few payments from our pocket if that is what it takes. Of course this is assuming you have the cash on hand to be able to afford to do that. Otherwise you have to stick to the deals that allow you to find a buyer first while the seller makes the payments until you do.
As far as paying the payments. You either set it up to where YOU send the payments directly to the seller’s bank that holds their loan to insure the payments are being made or you can use an escrow service to where your buyer sends their payment to escrow. Then escrow takes the money from that and sends the bank their payment. Then if the seller is getting anything extra out of this they will send the seller their share and anything left escrow sends to you which is your positive cash flow.
So if you don’t want to be writing checks every month use an escrow service. Or if the seller has a problem with letting you sending the payments to the bank, use an escrow. But under no circumstances, NEVER, NEVER, NEVER, EVER…trust the seller to send in the payments. Otherwise if they get ideas later they could pocket that money and use it for other things and just let the house go to foreclosure. And this does happen and it’s happened to many of people before. Even new investors fell into this trap and came here to this site in the past posting about it happening to them. The problem is that if the seller doesn’t make the payments it could be 3 - 5 months before you even find out about it! The lender normally doesn’t even start foreclosure until after the payments are 90 days past due. So 3 months pass by before the lender takes any action, meanwhile the seller spent the money on other things, and by the time you find out you will be stuck with having to cough up 3 - 6 months of payments plus late fees and attorney fees just to bring the loan current so you can protect your interest in the property. And more importantly, protect your tenant/buyers interest so you don’t end up getting sued by them!
So ALWAYS make sure YOU have control in insuring the payments are being made!
Re: Show me the L/O Moolah?! - Posted by Ellie
Posted by Ellie on May 22, 2002 at 16:57:56:
Jay,
Thanks for asking some of the questions I had! And thanks to Brent for answering them. Thanks to Joseph for reminding me that even on such an open-minded message board, some people will make you not want to ask questions.
-Ellie
Re: Show me the L/O Moolah?! - Posted by Joeseph
Posted by Joeseph on May 22, 2002 at 16:40:59:
too many dumb questions, unbelievable
Re: Show me the L/O Moolah?! - Posted by Brent_IL
Posted by Brent_IL on May 22, 2002 at 16:08:29:
This is really JohnBoy?s métier. However, since I?m on a roll, people who can qualify for a bank loan usually will do so. Your L/O buyers are those who currently cannot. L/O is the doorway to home ownership for them.
Your right that there are more people who don’t have several thousand down for option consideration (called renters), but you need the option consideration in case things go amiss before the option is exercised. Some landlords ask for a security deposit plus the first and last months rent before a tenant moves in. That could easily be 2.5% to 3% of FMV. Average option consideration is around 5%.
Most T/B?s are responsible for maintenance. If they can?t come up with an extra $2,000 for option consideration, what will they do when something breaks? Ignore it until a $50 job turns into a $5,000 job at your expense?
I?d advertise harder and wait for a good T/B. The statement that any tenant is better than no tenant was never uttered by an experienced landlord.
Re: R. Kiyosaki Says 2/3 Can’t Bank Qualify - Posted by Brent_IL
Posted by Brent_IL on May 23, 2002 at 18:57:59:
Paraphrasing another rule, is it possible that all of these people you wish to go forward to help out, who have decent credit, will continue to borrow more and more on their available credit line until their payments exceed their income, at which time they will become bad credit, forever unable to borrow more, and forever unable to service the debt? Is this the category of buyers of whom you speak?
Just idly curious about your mandate to assist the lemmings.
Re: Show me the L/O Moolah?! - Posted by tampasteph
Posted by tampasteph on May 23, 2002 at 01:01:31:
When you say "basically they can BUY their way into a property by having enough cash to put down, how much cash are you referring to? Just curious.