Unfortunately, one of the problems with no equity deals with little to no monthly cashflow is that if you can't fill them, your only options are to go back on your word or make the payments on that alligator.
Listing them to sell isn't an option as there is no room for a commission. Cutting the monthly payment you are asking isn't an option as there is nothing to cut. You are barely covering the payment.
God forbid your buyer decides not to pay you and you have a long, drawn out eviction or they trash the house.
Where is the 10k profit then?
I hate to see beginning investors try to do these deals and take all of that risk for only a 10k profit. Just a few payments on that empty house and there is NO profit.
If you back out of a deal with a seller ofter enough, you get a reputation as someone who doesn't perform and that can make it hard to get your business going.
Do yourself a favor and look for deals with equity, especially for your first few. Set yourself up for success, not failure.
How much equity should you look for. Certainly with a lot of equity, there would be too much of a cash outlay for this deal. What is a good number to shoot for?
Let me tell you, I don't buy unless there is equity. I shoot for a minimum of 20% in every deal and like more.
Have i taken less? Sure I have, for the right deal but not very often.
These people that tell you no equity is a good thing? Where will they be when property values drop and you are holding the bag on dozens of houses that you can't give away.
In the right market, no equity may work for a while but it is a big gamble. If you can predict market trends with enough accuracy to keep from losing your shirt I wish you would come pick some numbers for me here for the Fantasy 5 lotto tonight.
I buy my houses where I cannot lose. you should too.
And before anyone tries to say that you can't find those deals in your area, until you believe, you will not succeed.
Tell me if this synopsis is typical of where you are marketing your property?
You are in a rural community population about 30,000, where most of the employment is blue collar farm, most people hunt with a rifle or shotgun. They own a dog, play softball, own a Chevy or Dodge, eat Wheaties for breakfast, like cooked canned hams, watch Unsolved Mysteries, love the Daytona 500 races, read Bassmasters and Country Living?
If I have called this right let me know because I know why you have not gotten the response you want.
Not quite the same as above, what I see is that you are in more of a Blue Collar Service area, your audience likes to fish, spends about $60 a week on groceries, own a camper, eat Kellogg's Corn
Flakes for breakfast, own a Toyota or Buick, like those instant mashed potatoes, watch the Today Show and 48 Hours, read Southern Living and Popular Mechanics.
You have to be real careful when designing an ad for "Message to Market", you don't want to mix up the Kellogg people with the Wheaties people.
The majority of people want the American Dream so, Rent to Own in your area is not a good idea, as a matter of fact not in many areas. You need to sell with a Land Contract where your seller feels pride of ownership versus being a tenant/buyer or renter.
Your newspaper ad should reflect the lifestyle of your buyer, match the property in creative words to the buyer who would live there. The above deal is a $25K deal not a $10K deal structured properly with a Land Contract.
However it is proven that renters T/Buyers rarely refinance, improve the property or feel they own the property. So if you need out of the property in a certain period of time sell on Land Contract.
Get a nice down, raise the payment on top of the existing payment for a nice monthly passive income and add an appreciation percentage to the backend for the length of the contract for a great payday when your buyer refinances.
John $Cash$ Locke
PS: Now that I think about it how good is the fishing where you are?
Please respond to William Tingle's posts in this thread regarding the risks of buying into no equity situations, (which I know you are an advocate of) especially if values decline.
Which course is the best: John Locke's or William Tingle's?
Now from a previous post I read, I assume an investor has acquired a property subject to but can not find a buyer.
Now from reading one of William Tingle's articles, he recommends having at least 3 months of the mortgage payment in reserves just in case it takes some time to find a buyer.
What does John Locke recommend in this situation?
Now what about convincing the seller of a subject to deal to make mortgage payments for a 90 day period (following the date I acquired the property ) or until I find a buyer, whichever comes first?
When I begin subject to investing next month, I was thinking about acquiring property subject to only from sellers able to make mortgage payments for a 90 day period or until I find a buyer. And placing other subject to deals under contract contingent on myself locating an interested investor to assign the contract to within 14 days. What do you guys think?
Finally what are the reasons why an investor will not be able to find a buyer for a property acquired subject to?
Yes, I think you should have a minimum reserve before holding any property, especially when getting the deed.
Why? Because you are not risking your credit here, but someone elses. That is a big responsibility.
Second, there will be times when you do not find a buyer right away. Guess who gets to make those payments until you do? That's right, you do.
Don't believe that seminar land stuff about how buyers magically fall out of the sky everytime you get a deed. It just doesn't happen. Sure, most times it will be fine but you will run into cases where the buyer that loves the house takes a while to come along. There aren't always going to be many buyers with fistsfuls of cash beating on your door.
Why would you find it hard to find a buyer on a sub2? Same reasons other houses don't sell quickly.
Poor location, odd floorplan, condition of the house, priced too high, monthly payment more than your target buyer can afford, poor marketing.
Sometimes it is just poor luck. The "right" buyer hasn't seen it yet.
Your plan of only buying sub2s where the seller agrees to pay a few months payments going forward sounds good. Just be prepared for the sellers who never send you that payment. That will happen, too. Make your deals using the scenario that the deal is what it is and if they never send you the money it will still be a deal.
Sorry if you think this is negative. It isn't meant to be. It is just reality. Buying sub2 doesn't make a bad deal a good deal.
Real estate is a great way of life for me and many other investors. It just isn't the cakewalk 100% of the time that it can be painted to be.
I am finding sub to very powerful in the rehab market. A partner in Utah is starting to use it to great advantage.
I learned it from John Locke and am still learning it from his manual.
I agree with William. This sounds like a
pretty tight deal. You should shoot for paying around 80% max on properties you buy.
Personally, I would not do this deal but if I had to,
this is what I would do. Do a lease option with someone and make the option price 110% of the current market price. Make sure they have decent credit
which can be improved so that in a year
from now they can qualify for a loan.
Get a good sum of money down on the property which is non-refundable. In a year from now you turn around and have them excercise their option.
This will make the people feel like they are living the american dream.
Too bad you are paying so much for the property. If you could purchase it for around 80%, you could put an ARM on it and have a monthly cash flow as well!
Yes your are most correct. I have just had the great pleasure of rescuing my sons wife from her first little venture into taking over a house in foreclosure.
She made up the 6 backdue payments plus cost and then as it went vacant she was unable to obtain a future buyer who would pay a $100 over the mortgage payment.
Indeed could find no single soul who would even want the house at the price of the unpaid balance of the mortgage.
At least that is what she said thru tears as she sat twisting my cats ears in her dispair.
I examined the property, yes she had gone too close. A recent refinance had swallowed up all the equity for the instant. Who knows what will happen in the next six months. Soooo we did what we always do when we find we did a booboo on the buy.
I set a new record we converted the two car garage into a lovely single with its own fully tiled bathroom. Installed a high oval window for maximum light. Installed an Amana combined aircond/heater in the wall. Drywalled and stuffed insulation as rquired. Installed one of the new European wooden floors that you only tack at the wall line. I rented it to a nice lady with a job and an interest in becoming a movie star. $600 a month. lst and last. We did this remodel in two weeks start to stop, lights on at night.
We then negotiated a land contract to a nice below the line film guy who came up with enough money on the option to pay back the $5,000 we spent changing the garage into a single. His rent is now $300 more then the mortgage payment and the renter of course now pays him. So his payments are in line. When he goes into title my sons wife should pick up about $10,000.
The value of the property has gone up. And best of all everybody is a winner. Except me, I got a kiss on the cheek a promise of a future dinner and my cat back with his ears straight.
This is not the first time I have had to correct an upside down. God knows in the 80's I got caught with a few. But the creation of the additional income is usualy the solution.
Oh yes everything to code and we did add a carport to replace the now income producing ex garage.
The most important thing, is to be ready to jump sideways when you do a booboo and believe me sooner or latter you will do one. Now thats when you get tested.
That's why Mr. Tingle is correct regarding three months of cash. You may need it to pay the mortgage until you find a buyer and/or to enhance the marketability of the property.
If you have acquired a home that has some equity, it will help find a buyer for sure.
Likewise, I leaning toward purchasing his Sub 2 course over John Locke's tomorrow.
Do anyone have both Tingle's and Locke's Sub 2 courses? If so which one do you like the best?
Since you like to keep bringing my name up in your posts, I thought I would answer your question.
If you have to have 3 months in reserve until you sell the house, you bought the wrong house. Of course if you want to learn how to lose money then follow that method of purchasing properties.
I teach how to buy them right and sell them right quickly and make money.
John $Cash$ Locke
[ Edited by JohnLocke on Date 01/25/2004 ]
You know, I was reading this one guys technique of buying sub2 which I kinda like. In his contract, and he explains it to the seller, he states that the deal won't be complete until he installs a tenant buyer. I guess he just gets an exclusive option or something for a few weeks and starts marketing. When he finds a buyer they just complete the deal, sign the deed and what not and he pays the seller with the money from the buyer. Everyone wins.
Wiliaml, John, what do you think about that? Any good for someone with no money? I thought it was cool anyway...
I just don't like the idea of leaving the seller hanging. If the deal is a deal, you buy it, period.
Would you put up with the seller telling you, "Well, I will sell this to you providing I don't find anyone else who will give me more?" Of course not.
If you want to deal with options that is one thing but sub2 is something else. Most times these people selling are in a bind and need some finalization to this mess. You are it for them.
I am not saying this scenario will not work in fact, I know investors who use it regularly. It's just not how I would choose to do business.
I agree that having 80% LTV is great! 70% is better.
I am risk adverse and don't like to play the edges too much. That said, I personally know several people that have done hundreds of these low equity deals and made outrageous fortunes doing it.
I guess it is your aversion to risk that is the key factor.
I as well bought many houses with low equity and have been able to sell most of them out on a L/O of owner finance in a quick manner.
The problem is the ones that do not go quick. For whatever reason. And it does happen. Too often.
And I have had to rehab, carpet, paint form several that I took back or got back that did not execute the buy.
Getting 3-5% down is nice, more is great if you can find it, but when you have to start over the money is still out of your pocket until you resell it.
Most newbies don't have that kind of money. Sorry, but I didn't. Now I do, but it took me a while.
I can work through it now and get to the final payday. You have to ask yourself, can you?
If you can't look for a little more equity.
I have seen some gurus, not Cash or William, say give the house back. I think that opens yourself up to a major lawsuit. Not too mention your reputation and what your word now becomes...
If I could not meet the reserves I would try and find one with a little more equity and ask yourself a major question, if you have to evict or foreclose, how long will it take where you live?
Terry,
Thanks for the insight. I've flipped one house and am using that as my "seed" money to make the payments on this subject-to deal. That will get me through a few months, and hopefully I will find a tenant-buyer before that runs out or flip another house for more seed money. I'm still doing this part-time and don't want it to impact my real bank account. I'll post more info on this deal when I find a tenant-buyer.
Here's the latest on this. I got someone in the home effective April 1. So I had to make two payments out of my pocket (Feb and Mar) at $1,030 per month.
I got $2000 down from my tenant-buyer, and monthly rent payments of $995. However, our contract says that they will make additional monthly down payments of $255 for 8 months. So, I'll have $4,040 down after 8 months. I'll dip into this reserve to feed the $35 per month alligator. Hope they make the payments......
The lease-option contract is for two years or less with a 3% escalation factor in the sales price, which was initially set to $136,500 as of 4/1/04. If they buy in two years, the purchase price will be about $145,000.
Unfortunately, one of the problems with no equity deals with little to no monthly cashflow is that if you can't fill them, your only options are to go back on your word or make the payments on that alligator.
Listing them to sell isn't an option as there is no room for a commission. Cutting the monthly payment you are asking isn't an option as there is nothing to cut. You are barely covering the payment.
God forbid your buyer decides not to pay you and you have a long, drawn out eviction or they trash the house.
Where is the 10k profit then?
I hate to see beginning investors try to do these deals and take all of that risk for only a 10k profit. Just a few payments on that empty house and there is NO profit.
If you back out of a deal with a seller ofter enough, you get a reputation as someone who doesn't perform and that can make it hard to get your business going.
Do yourself a favor and look for deals with equity, especially for your first few. Set yourself up for success, not failure.
Remember, you make your money when you buy.
WilliamGA
William Tingle
How much equity should you look for. Certainly with a lot of equity, there would be too much of a cash outlay for this deal. What is a good number to shoot for?
Boss,
Let me tell you, I don't buy unless there is equity. I shoot for a minimum of 20% in every deal and like more.
Have i taken less? Sure I have, for the right deal but not very often.
These people that tell you no equity is a good thing? Where will they be when property values drop and you are holding the bag on dozens of houses that you can't give away.
In the right market, no equity may work for a while but it is a big gamble. If you can predict market trends with enough accuracy to keep from losing your shirt I wish you would come pick some numbers for me here for the Fantasy 5 lotto tonight.
I buy my houses where I cannot lose. you should too.
And before anyone tries to say that you can't find those deals in your area, until you believe, you will not succeed.
WilliamGA
William Tingle
redcanoeproperties,
Glad to meet you.
Tell me if this synopsis is typical of where you are marketing your property?
You are in a rural community population about 30,000, where most of the employment is blue collar farm, most people hunt with a rifle or shotgun. They own a dog, play softball, own a Chevy or Dodge, eat Wheaties for breakfast, like cooked canned hams, watch Unsolved Mysteries, love the Daytona 500 races, read Bassmasters and Country Living?
If I have called this right let me know because I know why you have not gotten the response you want.
John $Cash$ Locke
sounds like where i am at.........lol............what do i do Mr. Locke
pdcoles,
Glad to meet you,
Not quite the same as above, what I see is that you are in more of a Blue Collar Service area, your audience likes to fish, spends about $60 a week on groceries, own a camper, eat Kellogg's Corn
Flakes for breakfast, own a Toyota or Buick, like those instant mashed potatoes, watch the Today Show and 48 Hours, read Southern Living and Popular Mechanics.
You have to be real careful when designing an ad for "Message to Market", you don't want to mix up the Kellogg people with the Wheaties people.
The majority of people want the American Dream so, Rent to Own in your area is not a good idea, as a matter of fact not in many areas. You need to sell with a Land Contract where your seller feels pride of ownership versus being a tenant/buyer or renter.
Your newspaper ad should reflect the lifestyle of your buyer, match the property in creative words to the buyer who would live there. The above deal is a $25K deal not a $10K deal structured properly with a Land Contract.
However it is proven that renters T/Buyers rarely refinance, improve the property or feel they own the property. So if you need out of the property in a certain period of time sell on Land Contract.
Get a nice down, raise the payment on top of the existing payment for a nice monthly passive income and add an appreciation percentage to the backend for the length of the contract for a great payday when your buyer refinances.
John $Cash$ Locke
PS: Now that I think about it how good is the fishing where you are?
John,
Please respond to William Tingle's posts in this thread regarding the risks of buying into no equity situations, (which I know you are an advocate of) especially if values decline.
Thanks,
Adam
Ok I'm about to buy a Subject To course.
Which course is the best: John Locke's or William Tingle's?
Now from a previous post I read, I assume an investor has acquired a property subject to but can not find a buyer.
Now from reading one of William Tingle's articles, he recommends having at least 3 months of the mortgage payment in reserves just in case it takes some time to find a buyer.
What does John Locke recommend in this situation?
Now what about convincing the seller of a subject to deal to make mortgage payments for a 90 day period (following the date I acquired the property ) or until I find a buyer, whichever comes first?
When I begin subject to investing next month, I was thinking about acquiring property subject to only from sellers able to make mortgage payments for a 90 day period or until I find a buyer. And placing other subject to deals under contract contingent on myself locating an interested investor to assign the contract to within 14 days. What do you guys think?
Finally what are the reasons why an investor will not be able to find a buyer for a property acquired subject to?
Thanks
[ Edited by redcanoeproperties on Date 03/21/2014 ]
ghangis1,
Yes, I think you should have a minimum reserve before holding any property, especially when getting the deed.
Why? Because you are not risking your credit here, but someone elses. That is a big responsibility.
Second, there will be times when you do not find a buyer right away. Guess who gets to make those payments until you do? That's right, you do.
Don't believe that seminar land stuff about how buyers magically fall out of the sky everytime you get a deed. It just doesn't happen. Sure, most times it will be fine but you will run into cases where the buyer that loves the house takes a while to come along. There aren't always going to be many buyers with fistsfuls of cash beating on your door.
Why would you find it hard to find a buyer on a sub2? Same reasons other houses don't sell quickly.
Poor location, odd floorplan, condition of the house, priced too high, monthly payment more than your target buyer can afford, poor marketing.
Sometimes it is just poor luck. The "right" buyer hasn't seen it yet.
Your plan of only buying sub2s where the seller agrees to pay a few months payments going forward sounds good. Just be prepared for the sellers who never send you that payment. That will happen, too. Make your deals using the scenario that the deal is what it is and if they never send you the money it will still be a deal.
Sorry if you think this is negative. It isn't meant to be. It is just reality. Buying sub2 doesn't make a bad deal a good deal.
Real estate is a great way of life for me and many other investors. It just isn't the cakewalk 100% of the time that it can be painted to be.
William Tingle
WilliamGA
I am finding sub to very powerful in the rehab market. A partner in Utah is starting to use it to great advantage.
I learned it from John Locke and am still learning it from his manual.
John,
We must go fishing sometime
Randall
Redcanoeproperties:
I agree with William. This sounds like a
pretty tight deal. You should shoot for paying around 80% max on properties you buy.
Personally, I would not do this deal but if I had to,
this is what I would do. Do a lease option with someone and make the option price 110% of the current market price. Make sure they have decent credit
which can be improved so that in a year
from now they can qualify for a loan.
Get a good sum of money down on the property which is non-refundable. In a year from now you turn around and have them excercise their option.
This will make the people feel like they are living the american dream.
Too bad you are paying so much for the property. If you could purchase it for around 80%, you could put an ARM on it and have a monthly cash flow as well!
Best Riches
Jeffrey Adam
Hi Mr. Tingle,
Yes your are most correct. I have just had the great pleasure of rescuing my sons wife from her first little venture into taking over a house in foreclosure.
She made up the 6 backdue payments plus cost and then as it went vacant she was unable to obtain a future buyer who would pay a $100 over the mortgage payment.
Indeed could find no single soul who would even want the house at the price of the unpaid balance of the mortgage.
At least that is what she said thru tears as she sat twisting my cats ears in her dispair.
I examined the property, yes she had gone too close. A recent refinance had swallowed up all the equity for the instant. Who knows what will happen in the next six months. Soooo we did what we always do when we find we did a booboo on the buy.
I set a new record we converted the two car garage into a lovely single with its own fully tiled bathroom. Installed a high oval window for maximum light. Installed an Amana combined aircond/heater in the wall. Drywalled and stuffed insulation as rquired. Installed one of the new European wooden floors that you only tack at the wall line. I rented it to a nice lady with a job and an interest in becoming a movie star. $600 a month. lst and last. We did this remodel in two weeks start to stop, lights on at night.
We then negotiated a land contract to a nice below the line film guy who came up with enough money on the option to pay back the $5,000 we spent changing the garage into a single. His rent is now $300 more then the mortgage payment and the renter of course now pays him. So his payments are in line. When he goes into title my sons wife should pick up about $10,000.
The value of the property has gone up. And best of all everybody is a winner. Except me, I got a kiss on the cheek a promise of a future dinner and my cat back with his ears straight.
This is not the first time I have had to correct an upside down. God knows in the 80's I got caught with a few. But the creation of the additional income is usualy the solution.
Oh yes everything to code and we did add a carport to replace the now income producing ex garage.
The most important thing, is to be ready to jump sideways when you do a booboo and believe me sooner or latter you will do one. Now thats when you get tested.
Cheers Lucius
That's was a great idea.
However, that takes money.
If money's tight, I guess that screws up the whole thing?...
Yeah Esuccess,
That's why Mr. Tingle is correct regarding three months of cash. You may need it to pay the mortgage until you find a buyer and/or to enhance the marketability of the property.
If you have acquired a home that has some equity, it will help find a buyer for sure.
Likewise, I leaning toward purchasing his Sub 2 course over John Locke's tomorrow.
Do anyone have both Tingle's and Locke's Sub 2 courses? If so which one do you like the best?
ghangis1,
Glad to meet you.
Since you like to keep bringing my name up in your posts, I thought I would answer your question.
If you have to have 3 months in reserve until you sell the house, you bought the wrong house. Of course if you want to learn how to lose money then follow that method of purchasing properties.
I teach how to buy them right and sell them right quickly and make money.
John $Cash$ Locke
[ Edited by JohnLocke on Date 01/25/2004 ]
[ Edited by redcanoeproperties on Date 03/21/2014 ]
[ Edited by redcanoeproperties on Date 03/21/2014 ]
You know, I was reading this one guys technique of buying sub2 which I kinda like. In his contract, and he explains it to the seller, he states that the deal won't be complete until he installs a tenant buyer. I guess he just gets an exclusive option or something for a few weeks and starts marketing. When he finds a buyer they just complete the deal, sign the deed and what not and he pays the seller with the money from the buyer. Everyone wins.
Wiliaml, John, what do you think about that? Any good for someone with no money? I thought it was cool anyway...
Mitchell
King,
I just don't like the idea of leaving the seller hanging. If the deal is a deal, you buy it, period.
Would you put up with the seller telling you, "Well, I will sell this to you providing I don't find anyone else who will give me more?" Of course not.
If you want to deal with options that is one thing but sub2 is something else. Most times these people selling are in a bind and need some finalization to this mess. You are it for them.
I am not saying this scenario will not work in fact, I know investors who use it regularly. It's just not how I would choose to do business.
William Tingle
WilliamGA
From the sidelines,
I agree that having 80% LTV is great! 70% is better.
I am risk adverse and don't like to play the edges too much. That said, I personally know several people that have done hundreds of these low equity deals and made outrageous fortunes doing it.
I guess it is your aversion to risk that is the key factor.
I as well bought many houses with low equity and have been able to sell most of them out on a L/O of owner finance in a quick manner.
The problem is the ones that do not go quick. For whatever reason. And it does happen. Too often.
And I have had to rehab, carpet, paint form several that I took back or got back that did not execute the buy.
Getting 3-5% down is nice, more is great if you can find it, but when you have to start over the money is still out of your pocket until you resell it.
Most newbies don't have that kind of money. Sorry, but I didn't. Now I do, but it took me a while.
I can work through it now and get to the final payday. You have to ask yourself, can you?
If you can't look for a little more equity.
I have seen some gurus, not Cash or William, say give the house back. I think that opens yourself up to a major lawsuit. Not too mention your reputation and what your word now becomes...
If I could not meet the reserves I would try and find one with a little more equity and ask yourself a major question, if you have to evict or foreclose, how long will it take where you live?
Terry (Houston)
Terry,
Thanks for the insight. I've flipped one house and am using that as my "seed" money to make the payments on this subject-to deal. That will get me through a few months, and hopefully I will find a tenant-buyer before that runs out or flip another house for more seed money. I'm still doing this part-time and don't want it to impact my real bank account. I'll post more info on this deal when I find a tenant-buyer.
Here's the latest on this. I got someone in the home effective April 1. So I had to make two payments out of my pocket (Feb and Mar) at $1,030 per month.
I got $2000 down from my tenant-buyer, and monthly rent payments of $995. However, our contract says that they will make additional monthly down payments of $255 for 8 months. So, I'll have $4,040 down after 8 months. I'll dip into this reserve to feed the $35 per month alligator. Hope they make the payments......
The lease-option contract is for two years or less with a 3% escalation factor in the sales price, which was initially set to $136,500 as of 4/1/04. If they buy in two years, the purchase price will be about $145,000.
No risk, no reward, right?
Congrats! Does that monthly cover your mtg/T+I?
Down here, property taxes will KILL your profit margin, particularly if the home isn't homesteaded...