Need Some MOTIVATION?!!
Greetings fellow investors and observers,
I just wanted to take a minute out of my day to share little bit from my past week, and hopefully get some of you off your duff and doing some deals!
Two weeks ago I put an ad in the local newspaper advertising that I buy houses, blah blah blah. I put my cell phone number in the ad and waited to see if people would call. Nothing. The ad went up on Sunday, no calls on Sunday or Monday. While I was at lunch on Tuesday, my phone rang and the caller ID showed me a number I didn't know... OH MY GOD WHAT DO I SAY?!!!! HOW DO I ANSWER?!!! All of my scripts went out of my brain and I froze up! So what did I do you ask? I didn't answer the phone! Isn't that pathetic?! I am sooo shy it is unbelievable. I came to the conclusion at that moment that creative REI is definately NOT for me. Then a few minutes later, my phone beeps indicating that I had a voice message. HOLY CRAP! I listen to it and sure enough, some guy has TWO houses he needs to sell because he JUST LOST HIS JOB! What are the odds? So, I WRITE DOWN WHAT I AM GOING TO SAY and call him back. I just know that he could hear my voice quivering: "Hello, my name is Jace and I was just returning your call... you have a property for sale? " He went on and on about the property and we agreed to meet that afternoon at his smaller house.
So later that afternoon I go down his street and drive by the house 3 times... I just couldn't get the nerve to get out and go talk to the seller. Well, with my stomach in my throat I finally approach his front door and ring the doorbell. DING DONG! He answers and I can just see it in his face: Who is this young punk? Surely not the investor I talked to?! (Note that I am 23 years old and look it).
Well, he shows me around and we wheel and deal, and the whole time I am talking to him, one thought keeps coming into my mind regarding negotiation: BUILD RAPPORT. Oh, did I ever build rapport! We talked for two hours about cats, pools, painting, cars, and plants, without EVER mentioning the house. It was really kinda wierd. But by the time I made my "move" we were good friends.
I basically asked him what he wanted, and he said that he wanted to get rid of his other house. So, after much more negotiation, I agreed to lease his house for 5 years at his current payment (PITI) and have the option to purchase it anytime during that period for $215,000. The house was worth $230,000 TODAY! PITI came up to $1500/month and I can easily rent it for $2000/month plus an option payment.
The point of telling you this long story is that if I can do it, ANYONE can! That was last Tuesday, and I am going on another appointment tomorrow morning. This guy just got transfered to another city and he can't sell his house. It has been listed for 6 months! He hates his Realtor and told me he would rather give it to an investor for FREE than give his Realtor any commission! So, I will be sure to build rapport with him tomorrow and then help him with his house in the subto way! I'm on my way folks! All you need is reasonable knowledge of your methods, the proper documentation, and get with motivated sellers.
Just always remember to DO THE RIGHT THING, and the money will follow, God willing.
Good luck and God Bless!
iglooman
NICE POST.
Wonderful Post Iglooman!!!!
I need to hear that. Keep up the good work.
Southernbg
GOOD JOB!
Keep us posted on the next deal!
WAY to GO!
Eric & Rosa
[addsig]
While reading that story the whole time it sounded like me! I'm 22 years old and a female so I always feel that people won't take me seriously. But nonetheless, I'm on my way to where you are Jace. Great job!
great job, dude!
could you share with all of us some more of the specifics? did you carry purchase option and lease agreement forms with you to this meeting, fill them out right there, and get the guy to sign? did you give the guy a downpayment or option consideration money? sounds like a great deal! how did you know the FMV is 230k today? did you run comps online before you drove over there? if so, how? MLS? please share!
thanks!
allcash
>>> did you carry purchase option and lease agreement forms with you to this meeting, fill them out right there, and get the guy to sign?
I keep them in my car. Here is how it went pretty much:
Me: "Well, what if I could go ahead and cover your payments for a while, and then cash you out sometime down the road at a price of $205,000 is that something that you would be interested in?" [ Notice the influence of Conti and Finkel, without being so gay.]
Seller: "Well, I was really wanting to get $230,000 from this house, do you think you could get closer to $230,000?"
Me: "Well, if you sold this house through a Realtor at $230,000 you would only be netting about $216,000 and that is if you get full price. Add in the time it would take to sell and you are down to at most $210,000 plus closing costs. What if we agree on a term for 5 years, if you can agree to a term of 5 years I could probably go with $215,000 which is more than you would get through a Realtor."
Seller: "$215,000.... that sounds fine."
Me: "Well, let's go ahead and put this down on paper, I think I have an agreement in my car, would that be okay?"
Seller: "Yeah, that would be fine."
Me: "Great, I'll be right back..."
>>> did you give the guy a downpayment or option consideration money?
Nope, their cash comes when I sell the house (they get $14,000 plus equity paydown). My agreement does not have any place on it for earnest money. The consideration is my promise to take care of minor repairs which is spelled out in the agreement. Note that what was really attractive for them with the lease option is that they can claim all of the interest paid on their loan on their taxes, which gives them like $300/month. They can only do this because they remain owners. I tried "subject to" but they were not interested at all. Lease Option was my second choice, and used as a last resort.
>>> how did you know the FMV is 230k today?
I didn't until after the deal and I did some research. I used their loan balance as a guide to what to offer them.
>>> did you run comps online before you drove over there? if so, how? MLS? please share!
I didn't know anything about the house or the neighborhood, my goal is to sign up a deal and THEN do research. I have a clause in my L/O that enables me to walk if the deal isn't worth it.
Hope this helps. Thanks for the complements guys.
iglooman
Igloo –
Congratulations – that is fantastic
The old owner still has the loan in place, right?
1. How do you get past his worry about having his credit tied up in old loan.
2. Does he make the loan payments or do you?
3. If he makes them, how do you know that he doesn’t just stop – take your money till they foreclose?
4. If you pay them, how do you get the payment vouchers and receipts from the lender? For example if taxes go up you must know so you can pay more? Do you tell the lender that you are making his payments?
Again – keep it up and keep telling us how
Jay
Nice going Jace. Once you got a face to face interview with this guy you handled the rest like a pro. I imagine that a few more deals under your belt and you'll probably end up owning Texas.
I once saw a demo by Finkel. You're suppose to lower your voice, drop your shoulder, scrunch up your face----then use reverse psychology. Did you do that?
Iglooman,
Dude, what you described in your post about being SOOO shy, reminded me of how I was when I first started. I am 22 now.
I didn't know what exactly to say eventhough I have about 30+ REI books, a handful of courses, and a whole lotta downloads.
That stuff kinda leaves your noodle once that phone starts to ring.
One thing that helped me overcome this was that I was pretty sure I knew more about how to solve their problems than they did...and besides, THEY CALLED ME FOR HELP....so 1 word -----> CONFIDENCE.
Besides, how much $$$$ are you gonna make if you DON'T answer your phone?
I see you post over @ John's subto website. His script in his manual has increased my confidence exponentially.
The root of my fear(s) was that I didn't know what to say....the course takes care of that....so read up <IMG SRC="images/forum/smilies/icon_wink.gif">
I also noticed from your responses on this thread....sounds like you did a pretty good job with your negotiations with that seller....the yellow pad works, yes? <IMG SRC="images/forum/smilies/icon_biggrin.gif">
I am sure you will have many more in the days to come....
Congrats and let us know when you get another one.
All the Best,
Jason
_________________
With the proper motivation, the right amount of drive, and a pack of Mentos (R), you can accomplish anything.[ Edited by Ichabod on Date 11/14/2003 ]
>>>The old owner still has the loan in place, right?
>>>1. How do you get past his worry about having his credit tied up in old loan.
Through networking at my local REIA I found a mortgage broker who will approve a new loan when they already have one. It is just considered a rental on the books. In this case it doesn't matter though because these people are just going to move into their other house, which they already own.
>>>2. Does he make the loan payments or do you?
I will always make the loan payments. I use a loan serviceing company and have an escrow account with 2 months payment in it. The new tenants pay the LSC, and the LSC, sends one check to the mortgage company and the difference to me. I don't handle anything except cashing my check. This is described in detail in John's book.
>>>3. If he makes them, how do you know that he doesn’t just stop – take your money till they foreclose?
see #2 above.
>>>4. If you pay them, how do you get the payment vouchers and receipts from the lender? For example if taxes go up you must know so you can pay more? Do you tell the lender that you are making his payments?
All that is required to make a payment on a loan is the loan number and the banks mailing address. The LSC takes care of these details.
I don't know if I mentioned this in my first post, but I went on another appointment today and I signed an agreement to purchase a condo subject to the existing mortgage! That is my first subject to deal ever! Now I have to get all of my paper work together and close the deal.
I can't believe how quickly this stuff can happen.
iglooman
Again – congratulations – pretty soon you’ll be rich and we’ll say we knew you when.
Imagine that when the tenant is ready to buy the owner refuses to go through with the deal. Maybe he claims some bullshit like you misled him.
What happens in that situation? Are you able to force the owner to perform?
I’m not suggesting this would happen but I’m curious to know how you’re protected.
Jay
>>>Imagine that when the tenant is ready to buy the owner refuses to go through with the deal. Maybe he claims some bullshit like you misled him.
>>>What happens in that situation? Are you able to force the owner to perform?
We sign all of the closing documents ahead of time (like next week) including a Limited Power of Attorney, a Performance Mortgage and a Warranty Deed. The Warranty Deed transfers ownership from the seller to the buyer (me) and the Limited Power of Attorney allows me to sign the seller's name to any document related to this property. Once all of the documents are signed, they are put in escrow with a title company. The escrow officer will then do what my directions indicate: if I want to exercise my option then I get the warranty deed and other docs; if the option period passes, then the seller gets a Quitclaim deed from me (also escrowed if seller wants it). I will also record the Performance Mortgage which will put a cloud on the title and will allow me to actually forclose on the property against the seller if they do not perform their obligations. This protects me from the seller getting a second mortgage, or other lien on the property. It is a little more complicated than that but you get the idea.
iglooman
igloo - incredible
What if he fails to pay his taxes and the IRS issues a lien - is that covered also?
You've really got this worked out.
Jay
>>>What if he fails to pay his taxes and the IRS issues a lien - is that covered also?
Yes, the taxes are escrowed with the LSC if they are not already escrowed with the mortgage company. The point is that once the deal is signed, the sellers will not have to worry about one more thing until I exercise my option. This is a greate selling point and it is easier to explain this to the sellers than something like : "Well, I escrow all of the taxes and record a performance mortgage because, frankly, I don't trust you." No, I don't think they would appreciate that. What you tell them is that all of the taxes and mortgage payments are escrowed with your loan serviceing company so that the new buyers can develop a payment history with a bonded company, and so that the sellers don't have to worry about this property ever again. This sounds better to the sellers.
iglooman
Igloo -
Im not asking about property taxes. If the owner fails to pay his US Federal income taxes to the IRS, the IRS puts a lien on all of his real estate.
I'm asking how you protect yourself from that.
Jay
Man, you are one paranoid dude. At some level, there are always risks. Just realize that I gave the couple not one penny, so all I have invested in this deal is time. I am also learning a lot. If the IRS comes and takes my investment property away, then I guess I am SOL. This is a good reason to try to acquire the deed instead of a lease.
iglooman
Congrats on your first house Jace. I'm glad things are going well for you
-Chris
[addsig]
Igloo -
Dont mean to be paranoid - just trying to understand. It seems to me that if the IRS messed it up then the guy who had been paying you to buy the property would be able to sue you for all his payments or something - and I assumed you had a solution.
Sorry - dont mean to rain on your parade.
Jay
Let me chime in here,
JayLevin,
As Igloo said, like any investing REI has some risks. You can limit there to a great degree, but there will still be some, no matter what.
As to your question about owner not paying income taxes. This is a possible risk, tho improbable. The owner called igloo about selling because he didn't want his credit messed up with a possible foreclosure. I doubt that he would suddenly decide that bad credit was okay and not pay income taxes.
If on the out chance that something like that happened, the end tenant/buyer could (and should) get back his option deposit and any rent paid over and above fair market rent and security deposit for the area. Of course, a prudent investor will have this spelled out in his contracts.
JayLevin, not trying to be rude, but if you're going to try to think of every possible problem that can arise with a deal and not do it because of it, then perhaps REI is not for you. Your risk level can't handle it, and that's okay. It's not for everyone.
Igloo,
Congratulations on your first deal. You've answered everyone's questions with professionalism. You're on your way.
With your L/O, remember that your end buyer will have to be able to qualify for a no seasoning loan in order to buy from you in a double close type transaction (unless you get the seller to SUB2 before the final year ).
Roger
Quote:If on the out chance that something like that happened, the end tenant/buyer could (and should) get back his option deposit and any rent paid over and above fair market rent and security deposit for the area. Of course, a prudent investor will have this spelled out in his contracts.
One could also spell out that the seller's final payoff will be reduced by the amount needed to clear any liens chargeable to him. That's proabably already in the boilerplate there somewhere.
The IRS lien, should any arise, will likely also be junior to that performance mortgage, so the risk from that possibility is limited also by the IRS's priority.
Additionally, one might create a small escrowed holdback in the payments the seller is currently receiving. They would be funds to take care of a lien, or liquidated damages for the other two parties in the event the lien couldn't be taken care of.
Finally, the IRS does have procedures for releasing and subordinating their liens ... see pubs 783 and 784 at their website. They're not out to screw people who bought from a tax deadbeat, but they do need to verify that there weren't any games going on to try to cheat them out of their $$$.
Quote:
On 2003-10-12 07:34, rajwarrior wrote:
...
JayLevin, not trying to be rude, but if you're going to try to think of every possible problem that can arise with a deal and not do it because of it, then perhaps REI is not for you. Your risk level can't handle it, and that's okay. It's not for everyone.
...
Roger
Roger - I thought the idea here was for people to learn. I learn by asking questions. Your answer seems like a put down because it implies that if I ask a question about something then because I asked I will be afraid to go ahead based on the answer. Seems to me that I need to educate myself on what can go wrong so I can balance the risks against the gain.
Would it be better if I just said rah rah and pretended that these obvious questons didnt pop into my head?
Are these techniques so shakey that people need to be propped up rather than be engaged?
Enthusiasm is good at football games but it seems to me that careful thought is whats needed to make money. NO?
JayLevin,
I apologize. I did not mean to offend nor for my statement to be viewed as a put down.
Questions are always good. Your's is a valid question, and I hoped I answered it in the above post. As Igloo said, L/O was his fall back plan because it is not as secure as a sub2, or straight purchase deal.
The way I viewed your question was it was a reason to not do a deal because a future tax lien was a possibility. As said, while it's a possibility, it is unlikely. In fact, there are many possible, though remote problems that could arise with any RE transaction.
The point I was trying to make was that you can look for ALL the possible problems with a deal and ALL the possible ways to protect yourself, but the deal will likely be gone once you finally decide to do something.
Again, no offense intended and keep posting the questions.
Roger
Jay,
I meant no offense by my response. But as Raj said, if there weren't any risks involved then this wouldn't be "investing". It is, as you mentioned, a risk versus reward question, and for me the risk is worth the reward. I believe that Raj had a valid point. I think he was talking in general terms that if you can't sleep at night because you are going to be worried about your investments then a different line of work should be pursued. Whether this is you, or someone reading this thread, is up to you or them, respectively.
At this point in my life I have nothing to lose, so I feel that this is exactly the right time to get into this business. I KNOW that I will succeed, it is not a question anymore. I wrote a list of goals, a business plan, and a marketing plan with a budget and all I have to do now is read it and follow it. If I follow my plans I KNOW THAT I WILL SUCCEED. It is not if, it is simply when.
My main objective is to HELP the sellers that contact me, and HELP the buyers that contact me. If my programs are not their best option, then I will tell them so. Even if that means less (or no) money for me, so be it. What goes around comes around and I don't want to live in fear or shame.
I do think the tax issue is a good point and should be addressed at some level. But, I don't think that it is a deal killer. These folks are really nice, and they just need a little help right now. I can do that for them, and so can you.
iglooman
Congrats Jace, please keep us posted on the next deal!
the Mrs
excellent blow by blow igloo! this is the kind of help i prefer (and i'm sure others as well). i don't only need high level ideas, i need actual details of an actual deal as my script - then i can work it from there.
congrats! keep rolling ...
WOW! great job!!