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!