Posted by JohnBoy on July 05, 2001 at 10:58:44:
NO.
It means you profit by buying at a substantial discount where you gain a lot of equity or buying where you receive cash profits up front, or cash profits on the back end, or cash profits from cash flow or a combination of those.
Over paying by $23k - $30k for a property just because you can get it for $0 down and pocketing $4k from a buyer with bad credit and a recent BK and hoping like hell the buyer will perform is not the way to buy.
This doesn’t seem right…but…$$wise - Posted by TroyT
Posted by TroyT on July 04, 2001 at 21:00:56:
Had a call on an ad I placed searching for Lease Optionee Candidates. The ad went “Bad Credit? Bankrupt? Self-Employed? You can still own a home. Call …”
Got a call from a fella who had tried to qualify for a No Money Down, he saw advertised and was turned down for Bad Credit, Bankrupt etc. He said, " could you buy the house for me, I’ll pay.???.."
He is on a long term disability pension, has a $4000 Option Deposit saved up, can easily afford my $300/month mark-up over the payments.
Now… here is the dilema. The seller is selling for $93000 and willing to go NO Money Down. We could easily qualify.
The comps in the area are $63000 - $70 000 range. Did a search and it turns out he bought it for $58 800, exactly one year ago (06/30). NOw he has put new carpet in and new floors and painted the basement (crawlspace really). The house looks very appealing.
This seems to me too high (comps-wise) but I could make some money from this prospective Leasee.
Veterans…Give me your thoughts, suggestions.
Re: This doesn’t seem right…but…$$wise - Posted by Michael (tejas)
Posted by Michael (tejas) on July 05, 2001 at 10:01:45:
Your post isn’t entirely clear, but aren’t you going about this backward? You seem to be advertising for LO buyers, and them looking for a house for them. As has been said many times on the board by the LO pros, buyers are a dime a dozen, motivated sellers are harder to find. Find a great deal and the buyers will be there.
Also I have an ethical concern with your advertising.
One doesn’t want to put people in houses knowing that they have almost no chance of qualifying for it.
The people your are advertising for, especially the bankrupt will need, according to Ed Garcia, 2 years before they can qualify. If you’re doing one year LO, I’d give this some thought.
Really there is no need to even advertise like that at all, just find the deal and advertise “rent to own” “low down” and you’ll get buyers if the rent is not out of line.
good luck
How many houses do you want… - Posted by David Alexander
Posted by David Alexander on July 05, 2001 at 01:31:26:
NO MONEY DOWN…
Here’s a quick lesson…
70,000 dollar house amortized for 360 months @ 11.297, will give you payments of $682.40
But lets say I want to make an extra 23k off someone who wnats a NO MONEY DOWN Deal TODAY… call them a motivated buyer.
I sell you a house for 93k, 360 months at 8%, guess what them, payments are…
YEP… $682.40
But what happens when things get good and you want to pay off your houses… well you have to pay off an extra 23k over market…
As an Investor you make you money when you buy…
You capitalize when you sell.
Now take that same scenario… You buy the property for say 15k below market… You sell for above market at a Great interest rate… like 8%
Here are the numbers…
55k, Hopefully the loan you ahve is around 8% or below… we’ll use 8% in this case. 360 months, gives you payments of $388.90… You sell for that same magic #… but your ad says…
8% interest, 30 years, payments 682.40 plus TI, Low down… You gotta get a down payment.
So when they ask the down payment you say what are you working with, they say something like 5k and you say, I think I can work with that…
You sell with a few dollars down, some closing costs and end up at 93k @ 8%.
How much did you make… And you have cashflow from day one.
David Alexander
Re: This doesn’t seem right…but…$$wise - Posted by JohnBoy
Posted by JohnBoy on July 04, 2001 at 21:12:47:
Forget about it! The seller is way over priced! What happens if/when your tenant stops paying and you get stuck with a house that paid $23k - $30k to much for???
If the property is only worth $63k - $70k then that is top dollar the property is worth, period! I don’t have a problem giving someone retail for their property with the right terms, but I’m not going to pay them above market value to the tune of $23k - $30k!!!
Offer the seller a price based on what the property is worth and if they don’t take it find your buyer another property!
NEVER force a deal just because you can get it! ALWAYS make your profit going into the deal! Hoping some buyer will be able to perform over the long run by buying them a property $23k - $30k above market value is NOT the way to play the game. At least if your goal is to play the game to win!
I wouldn’t - Posted by Rob H.
Posted by Rob H. on July 04, 2001 at 21:07:41:
One question??? when this guys defaults will you be able to re l/o with the terms you are locked into???
Re: This doesn’t seem right…but…$$wise - Posted by J.A. Maye
Posted by J.A. Maye on July 05, 2001 at 13:23:43:
Johnboy:
Concerning the advice you gave on “ALWAYS make your profit going into the deal!” Does that mean to make your money (cash in hand) first or have the contract specify your future profit or does it mean something else?
Re: Profit - Posted by Mark
Posted by Mark on July 05, 2001 at 10:48:56:
JohnBoy,
You say we ALWAYS make our profit going into the deal. Does this mean buying at a substantial discount? Is this all it means?
Thanks,
Mark
Re: This doesn’t seem right…but…$$wise - Posted by TroyT
Posted by TroyT on July 04, 2001 at 21:38:16:
Thanks JohnBoy! This is exactly what I needed to hear. I know the deals are out there.
Re: This doesn’t seem right…but…$$wise - Posted by JohnBoy
Posted by JohnBoy on July 05, 2001 at 14:17:14:
Making your money cash in hand is one way. You may get a deal where you would gain a lot of equity, that would be one way. You may get a deal where you pay full value by buying on terms, but you create your profit by selling at a higher price creating a back end profit, monthly cash flow, and getting several thousand up front from your buyers down payment.
What you don’t want to do is buy a property where you plan to make a profit years down the road by hoping the property will increase in value. That may or may not ever happen, especially if property values go down from a bad economy.
What you don’t want to do over leverage yourself and take on the risk involved by getting a new loan in your name unless the profit is built in by buying way below market value.
If you have a deal where you would need to place financing on it in your name or pay cash for it, you want to know you will be gaining substantial equity in the deal to justify your risk. The more you limit your risk the more you bullet proof yourself against taking a loss.
If I found a property that had no equity in it, but it had a low interest rate loan on it I could create my profit in the deal by taking the existing loan over subject to, then selling it on a L/O or contract for deed at a higher interest, a higher selling price above market value and getting a nice size down payment from my buyer…all without being personally liable for anything! If I’m not personally liable and I can collect $3k - $10k down from a buyer, create $200 - $400 per in cash flow and create a back end profit of $15k - $30k, then where would my risk be??? My profit is built into the deal by way of being able to collect down payment money up front from my buyer (which I can put most of that away to use it to evict my buyer and fix up the property should they default and put the property on the market to start over again with another buyer), collect a few hundred per month in positive cash flow and collect a nice pay day on the back end when my buyer refinances to pay me off! So even though I leveraged the property by buying it at full market value, I didn’t take out any loans in my name…I didn’t sign personally on any contract agreements…I’m not liable to any lenders for any mortgages…therefore I’m not taking any personal risk and I’m not borrowing any money and hoping the property increases in value before I can realize any profit from the property.
For an example on how a deal like this would look see my article in the money making ideas section of this site at:
It means… - Posted by David Alexander
Posted by David Alexander on July 05, 2001 at 13:32:21:
that you can always exit your position with a profit.
David Alexander