How to approach a seller, when only wanting togo sub-to

Question

Greetings! I wish I found this place 8 years ago! Tons of knowledgeable people and information flowing freely!

Anyways:
I'm looking to acquire some sfrs for rentals and possibly lease-options. I'm curious to find the best way to approach sellers when the only way I'll be able to acquire the property is via Sub-to or owner financing.  
At this point, there's no way I'll have cash or will be able to qualify conventionally (too many properties for fannie / freddie limit). 
What's the best way to go into the conversation, especially without putting the seller off by bringing up the subject? 
thanks for any advice and insights!

Max Drizin · Answer

If you are looking for good places to get your letters to, Jeff mentioned Absentee Owners mailing lists, which are mailing lists specifically for people who own a property but don't live at it.

They are the best place for finding investor properties.  When I planned on running a management company (thank God I got away from that one) I was going to use this sort of list to target owners to get them to have me manage.

When I go to an owner looking for seller financing, there are a few ways I structure it.  My main plan is to make it seem like there's a trade-off between cash/traditional financing and seller financing.

I start with a low-ball cash offer, and then say it's so low because I don't want to tie up that much cash.  Savvy investors know that you need to leverage as well as possible, so they understand where you are coming from.

You can get into a trade-off situation, saying that you'll go up in the price a little if they finance it.  Depending on their existing mortgage/financing situation, they could end up making a good amount more money at the end of the deal, once it's paid off.

Even if you end up amortizing over 15-30 years with seller financing, 75-80% LTV, like a traditional mortgage, you can do a lot.  An investor knows you aren't holding it forever, and you'll sell it when the price is right.  I've worked in seller financing situations where even though we "amortize" the financing over 20 years, I would have sold the property in 5-10 when the price and situation was right, if not earlier.

Seller financing is difficult if you are working with people that don't know real estate or finance, since they don't really understand why you are doing it.  The guy who bought the apartment complex decades ago and hasn't paid a mortgage on it since the first oil shock doesn't see it as making the same money, and it devalues your bargaining position with him.

If you find the right people, motivated people, you can do it.  Seller financing is a good alternative for people that aren't looking for more investment in real estate (since they can't really 1031 it anywhere), want a steady income stream, or are willing to forego the cash in hand to take a higher price.

Chris Martin · Answer

I think you go in and tell them exactly what you want to do.  Regarding "...too many properties for fannie / freddie limit..." many (most) investors use a commercial lender rather than rely on a government (or GSE) guaranteed loan. Also some investors use private money on reasonable terms. I would expect you will get a lot of no before someone says yes, but that's part of the game.

Michael Quarles · Answer

IMHO...

The best way to present an offer to purchase either Subject To, Seller Financing or a combo of both is to understand the objections a seller may have to those types of financing and be able to handle them with an alternative which benefits you both.

Then if that is your only option then you have to stick by your guns.. Rather a forced stick I guess.

Finally, understand the difference in mind frames between an equity purchase and a non-equity purchase and how you earn money on both.

It may be easier in the beginning to present non-equity Sub 2 offers.

I posted a link to a Subject to course I wrote a while back somewhere on BP... It may help.

Account Closed · Answer

Lots of good advice already. What I do as a general rule is offer their full asking price divided by the number of months it takes to make the payment where I need it. ($100,000 sales price equals $500 a month for 200 months). This almost ALWAYS generates questions or statements like "my payment is more than that" or "I don't want to go that long" which is exactly what I want to hear. It helps me gauge motivation and zero in on what the real issues are. I submit at least one offer everyday to keep the phone ringing.

Shanequa J. · Answer

1) How would you convince an owner (someone who owns 1 house and doesn't consider themselves an investor) to sign the title over to you? RE investors might go for it, but other common people would think it was some sort of scam and would say no.

2) If they do go for it, what kind of terms should I offer that would allow me a monthly profit?

3) Or should I sacrifice profits until I refi? I'm targeting absentee owners/landlords so I think they would want at least fair market rent. FMR would leave me with no profit.

Jeff M. · Answer

Bryan's right on da money! I use yellow letters to target out-of-state, non-owner occupied homes...basically, investors. Many out-of-state investors are tired of the hassle of trying to make their long distance investments work. Sometimes you're able to score a house with a cash flowing tenant. Love that!

I use a letter that offers a solution to their out-of-state headaches. Response has been good. However, you must follow the yellow letter rules to see results. Plenty o' "yellow" resources on BP.

To our success!

Bryan Hancock · Answer

You'll need someone that is motivated or it won't work.  Sending out yellow letters, screening on the phone, and highly pre-qualifying people is the best way I know of.  There are many threads on this on BP if you dig some.

How to approach a seller, when only wanting togo sub-to

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