Rookie Reply: Buying Sight Unseen & Financing Off-Market Deals

Ashley:
This is Real Estate Rookie show number 66.
My name is Ashley Kehr and I am here with Tony Robinson. And today is the rookie reply.

Tony:
What’s up, Ash? How is your day going?

Ashley:
Pretty good. I’m still having major jet lag from Hawaii. Was up until like 3:00 AM and then slept until 6:30.

Tony:
So funny.

Ashley:
And I don’t know what is going on.

Tony:
I was up at almost midnight, my time. I sent you an email and you replied in like two minutes. I’m like, “What the heck are you doing up right now?” So that’s the downside of spending a weekend in paradise.

Ashley:
I’m super productive though during these late night hours. Maybe I need to just change my whole sleep schedule. I’ve been getting so much done. I don’t know if it’s because the house is quiet.

Tony:
Totally.

Ashley:
Even if the kids are at school or my husband’s out in the barn or whatever, I’m still getting texts or emails, but just everything being quiet I can just focus on stuff, I guess. But it’s been fun.

Tony:
Early morning to late nights are the best times for sure.

Ashley:
Yeah. Yeah. So, what do we have? What question do we have today, Tony from Facebook?

Tony:
Today we’ve got a really cool Facebook question. It kind of touches on a few different things, which is why I thought it might be a good one to bring in today. So I’ll read through it and Ash, you and I can share our insights on what we think or what our thoughts are. But today’s question is, “Hey, all. I’m a new investor with two burning questions that are keeping me from getting started. Hoping for some help. So the first question is, I live in the Chicago area and don’t like the market or the landlord laws here. People in general are moving out, not in. I do like the Texas market a little bit better, but my challenge is, how do I close on a property site unseen? My initial thought is to partner with the real estate agents. They could pull comps and visit the property, take pics and videos, et cetera. And then I could call back to handle the closing. Does anyone know of a better way to do this?”
So that’s question number one. So let’s pause on that question first and then I’ll ask the second question next, because they’re slightly related, but not quite. So have you bought a property sight unseen Ash, and how did you get past that mental hurdle?

Ashley:
I have not. And I was just thinking [crosstalk 00:02:39] as you were reading the question, this is totally up your realm. Every property that I’ve purchased, I’ve been, maybe in a property, I couldn’t get into one of the units or something before I put in my offer and closed on it. But yeah, pretty much every property I’ve been able to see, I have put in offers without seeing properties, but actually closing on a property, I’ve been able to go into all of them. So take it away, Tony. This [crosstalk 00:03:08] is your time to shine.

Tony:
I get this question a lot. How do you buy a property without seeing it in person first? Now, I think the person’s name who asked this question, his name is Mitch. Now, Mitch, you’ve never purchased a real estate investment property before, right? You’ve never done a heavy rehab. You’ve never managed a property. You’re new in every sense of the word when it comes to being a real estate investor. So the process that I follow, and I’ll walk you through the process and give you my explanation as to why, but the process that I follow when I was buying out of state and honestly, even now I buy properties that are an hour and a half away from me and I still don’t go see them before we closed a lot of the times. But my process is, once I find a property that I like, I run my analysis and I make some assumptions about the rehab costs might be.
And you can get these assumptions from different places, from other investors. You can talk to the contractors. There’s different ways to come up with your rehab estimates. You could buy the BiggerPockets book on estimating rehab costs. There’s a lot of different ways to make that happen. But I run my analysis when I see the property, and then I decide what my offer is based on the assumptions that I made. If the offer is accepted, anytime you have an accepted offer, you always have a due diligence period to go out there and complete your due diligence on the property. Now again, since I’m in states multiple, multiple states away, I’m not going to go out there and do the due diligence myself. So I send two people, really three people to that property to help me with my due diligence. I send my agent first, obviously because they’re going to see before you even submit the offer and they’ll send me pictures and videos, give me the story behind the property.
Once the property’s under contract, I send a property inspector and then I send a general contractor to walk the property as well. So at the end of this, I get an opinion from my agent who is someone who’s experienced in that market, who’s bought and sold way more homes than I have. I have the actual inspection report from a property inspector whose entire job is to walk through the property and point out things that are wrong. And then I have a general contractors bid, which shows me not only everything that needs to be improved, but also the potential costs to make those things happen. So after I have all three of those people walk the property, if I am someone who’s never purchased an investment property before, how much value will I really be able to add above and beyond what the realtor, what the property inspector and what a general contractor have already provided?
The only thing that I will be able to do by walking through the property is look around, nod my head and make myself feel better for actually seeing the property in person. But I’m probably not going to add any value in addition to the value that those three people have provided already. So that’s always been mindset is that I know what value I bring, but I also know what value my team members bring when we’re trying to buy these properties. So that’s how I approach it, Ashley. So I’ll shut up for a second because I was on a roll there.

Ashley:
No, that was really good. And I think that also goes hand in hand with people who want a property in their market, even though they have property maintenance or they have a handyman and it’s like, okay, if the toilet breaks, why do you need to live near that house because you’re outsourcing it anyways. And I think you just gave a great example of that. You have your boots on the ground to take care of it so that your property can be anywhere in the world and you can get pictures, you get all the information from them, you just have to trust them. And that’s why it’s so important to build your team.
So Tony mentioned, you have your realtor, you have your home inspector and you have a contractor. So really vet those people, interview as many as possible, and for the contractors, you can get multiple bids on a property. But my question back to you on this, Tony is, okay, it’s a really hot market. You’re putting in offers and then doing all of this during the due diligence period, or are you sending anyone in before you actually even make the offer? And are you waving inspections … Here, if I was to put an offer on an MLS property, I would have to waive the inspection to really get a great deal.

Tony:
Yeah. My agent’s always going to be the person that sees it before the property closes and honestly, not even always. It depends on the market. In the smokey mountains when I invest, my agent will usually go through and send me some photos and videos first. When I was in Louisiana, that wasn’t the case. So I think it depends on your market and you got to understand how competitive your market is. If I’m buying sight unseen, and it’s my very first investment property, I’m not going to waive the inspection clause. I think there’s just too much risk from … I would feel that that’s too much risk as a new investor to do that. But if you’ve got maybe a partner that you’re going in with, that’s got a ton of experience and they can walk you through the ropes, then maybe you can be in a position to do that. But that’s usually how we played it.

Ashley:
And I think the second part of this question too has to do with off-market deals. So if you’re getting an off market deal too, you definitely have a lot more wiggle room to do an inspection because you’re not going to have a ton of buyers coming at this person hopefully because you found it off market, you’re the only one that knows about it right now. So that’s definitely something to consider. But Tony, take us to the next part of this question.

Tony:
Yes. So the second part of Mitch’s question is how to best to finance off-market deals. He says, “I’ve read several books, listened to BiggerPockets podcast recommending looking at small local banks, but how long does it take for them to close? Has anyone had success using them for your off-market deals or have you maybe lost any deals because they took too long? Most of the information I’ve gathered so far says it will take at minimum two to three weeks using those kind of lending options. Is that what you guys are seeing?”
So Ash, I know you’ve gotten creative with some of your off-market, seller financing type stuff. So I’ll let you take this one first.

Ashley:
And Mitch, the first thing I have to say is it really depends what market you’re in because in New York state, you’re not closing for at least 30 days anyways. So two to three weeks to get your money is not bad at all. So definitely this will vary upon market, but you can look for lenders that aren’t actually banks. So in Texas, I know there’s one called a Noble Mortgage and they just do lending and they do hard money, so you can go there and you can get a loan within one to two days on a property. You bring them the deal. They’ll vet you. They’ll vet the property. They’ll give you the money. You close in cash. Then after you’ve rehabbed the property, you can go and refinance with them and get the long fixed rate, the 30 years low interest.
So definitely look for places like that. I know there’s one in Buffalo too. I think it’s Nickel City Lending. So definitely just do a Google search of lending companies in your area. A lot of these focus on investors, they’re very investor-friendly and you may be paying really high interest rates to get that cash offer upfront, but definitely worth checking out, especially if that’s your only option. And you know what? If you’re paying 12% interest and your numbers still work, do it. Do the deal then. Just make sure that it will still work into your numbers and you’re not going to lose money and you’re not going to be able to afford, and also that you still have cash reserves in place. That’d be my first recommendation is looking for those local lenders, not even local banks, but local lenders in your area because they have a lot of creativity in their financing that they can offer too.
And then the next thing would be is just asking those small local banks, what can you offer me? I had one that gave me a 90 day unsecured loan before to do a cash offer on a property. And then there’s private money. Is there anybody around you that would be interested in investing in real estate, but maybe doesn’t have the time? And Brandon Turner gave me this tip, instead of asking the person, “Hey Tony, do you want to let me borrow money to buy a property?” You can say, “Hey Tony, I’m looking at buying this property. Do you know anyone that would be interested in lending money on this deal?” So you’re not putting the pressure on them to answer right away, and it’s not uncomfortable for you because you’re having a heart attack waiting to see if they say yes or no. So I really liked that is how it brought it up to their attention, but wasn’t directing it right at them and putting them on the spot.
And then the last thing is if you can get a line of credit from somewhere. So if you have a primary residence, do you have some equity in it that you could put a line of credit on that property and use that line of credit to purchase. And then Tony, you had mentioned seller financing. That’s always a great option and always ask. Doesn’t hurt to ask anybody who’s selling a house if they would be interested in doing seller financing. That’s one of my top three questions I ask the seller or I ask the realtor and then I know what my options are. And you can always come to the table with different options. So an off-market deal, I usually do a letter of intent. You just Google letter of intent, you’ll find a million samples and basically it’s just saying, “My name is so-and-so. I would like to purchase this property at this address for this amount. It will be a cash offer, close in 30 days,” any contingencies, any clauses or anything special in there, you go to add that in there.
And also, this is contingent on an attorney’s approval. But you could do two options. You could do a seller financing. “Hey, I would be willing to pay you $100,000, but I’d put 10% down and you would hold the mortgage on the rest. And I would pay you 8% interest,” or “You can take my cash offer where I’ll pay you a different amount of money and I’ll get the cash.” And then third option, “I’m going with the bank financing. This is what it is.” And you can tailor them to make them beneficial to you and then you give them those options and then let them pick what is beneficial to them too. [inaudible 00:13:19].

Tony:
Ash, that was like a master class in creative finance. I’m going to call you the creative finance queen from now on. You hit on everything. The only thing I’d add, I purchased a property from a wholesaler once using a line of credit against some equities, some stocks that I owned. So E-Trade, Fidelity, a lot of those places, if you have enough stocks will allow you to pull the line of credit against 40, 50% of whatever that value is. And that works just like cash as well. And the interest rates are actually pretty low.

Ashley:
I’m so glad you brought that up because that is a really great tool. My one partner, his wife did that on her investment. She got a line of credit and it was crazy low interest rate. And it’s different than getting a 401k loan where you’re actually pulling your money out. So your money is no longer earning on those investments, where this, your money is staying in your investment account and you’re just getting a line of credit. And then investment is the collateral instead of a property per se. Great point on that.

Tony:
Because if your stock is gaining seven or 8% per year and you’re only paying two and a half percent on the loan, it works out pretty well still.

Ashley:
And then there’s self-directed IRAs and there’s all these other different rabbit holes you can go down. But I think the ones we mentioned are the easiest to get started into, but definitely lots of options out there. Go to the BiggerPockets forums, ask other investors what they’re currently doing, especially in this market to make those cash offers.

Tony:
Awesome. Well, Mitch, I hope that answers your question, brother. I feel like Ashley and I give a lot of value there and I love when the question’s right up our alley. It’s like a soft ball that we can just knock it out of the park with.

Ashley:
And a two-parter. One question for you, one question for me.

Tony:
We need more questions like this.

Ashley:
Well, thank you guys so much for listening today. We hope you took some value of it. Make sure you join our Facebook group, the Real Estate Rookie, and we will be back next Wednesday with an awesome guest. So make sure to tune in. I’m Ashley @wealthfromrentals, and he’s Tony @tonyjrobinson. Thank you guys for listening.