How can I solve a seller's problems if I'm using conventional mortgage?

[Christopher R.]

Hi. From what I've been hearing and reading, direct mailing to motivated sellers work because I'm "solving their problems". This means I can help them by buying cash, closing fast, etc.

In YellowLetters.com, a lot of their pre-made postcards even have the word "CASH" displayed very prominently.

But it seems to me that I'm less useful to a motivated seller if I'm using conventional mortgage because I'm not able to close in a couple of weeks and I won't be able to pay them cash, I need to have the property inspected, etc.

But since I don't have any investment properties yet, I could use conventional mortgages for my first 8 or so properties. With the interest from conventional mortgage being lower than other loan sources, it seems like a no brainer to use it for my first deals. 

But this leads me to the question: Am I not as "useful" to a motivated seller because I'll go through a conventional mortgage instead of offering them "cash"?

[Ben Leybovich]

@Christopher R. - you don't need to have cash; you need access to cash.  Here's how it works:

1. Your letter says - I'll pay cash...  You find a deal whereby you can purchase property at 60-70 cents on the dollar.  Let's just say it's a house that need $30,000 rehab, but when it's done the house is worth $150,000 and you can purchase it for $75,000...  So - your PP of $75,000 + Rehab of $20,000 means that you'll be into the deal at $95,000.

2. You need either a partner or an investor.  If it's a partner, then let's say you split profits 50/50.  After holding costs and contingencies of about $10,000 more, having sold the house you'll be splitting $45,000.  If it's an investor, then you will simply have to add the interest you owe them to your expenses.  Thus, let's say that for financing the entire deal, you'll owe them $10,000 of interest - this'll bring your expenses to $125,000.  Having sold for $150,000, you'll keep $25,000 of profit.

3. If you want, instead of selling the house, you can refinance it. But, with an appraised value of $150,000 and 70% LTV, the most you'll be able to pull out will be $105,000, which is not enough to cover your total costs of $125,000. Thus, in order to do a keeper, the numbers have to be better by 20k - you have to purchase this house for $55,000 ! But, if you can do it, then you can market Cash Purchase on your advertising :)