How Do I Stgructure This Deal? Help wanted!

Question

Attention all creative financing gurus and innovative strategy specialists!

I have a co-worker at my 9-5 job who is looking to sell his home QUICKLY. When he first told me he was interested in selling his home, I asked him a great deal of questions to see if there may be a deal here and I thin there is. Is this was YOU, how are you making a deal out of this?

Location: suburb of Indianapolis, IN

1800 sq ft, 3BR 1.5BA ranch

Owed on mortgage: $78k

Value: Appraised at $96K in 2011

Interest Rate: 4.15%

The seller has made it clear to me that he would let it go for $86,000, and I am willing to bet he would go slightly lower. However, I am not sure where to go with this one. Maybe a wholesale deal? Looking for advice from guys like @Brian Gibbons and his crew. All thoughts are appreciated in advance!

Dan Walters · Answer

First off, what is your exit strategy for this particular property? If it's buy and hold or lease/option, does it cash flow based off the monthly mortgage vs. rents in the area? Is your seller going to purchase another property after selling this one? If so, can they qualify for another loan with this one still on their credit? These are questions that you need answers to before you present the "sub2" option. If he is planning on purchasing another property then he'll need to inquire about his ability to qualify. If he can't, that would eliminate this option.Based on the information you have provided, a couple things are triggering for me: He is willing to "let it go for $86k". Why $86K? How did he get that number? Is that just to cover fees in the transaction to ultimately get out of it what he owes? Or is he looking to put some money in his pocket?Anytime I have purchased sub2 I run through all of their options, I believe I saw a handwritten chart that @Brian Gibbons goes through with a seller on a thread that is similar, sell retail(MLS/RE Agent/showings/offers/contingencies...etc), rental (become landlords/hire PM/still have expense of prop/may be positive investment for them), sell to me either at a significant discount (wholesale price) or I can put some money in your pocket, take over payments and they have their hands clean of the property. I will take it as-is. I won't ask for repairs and I can close when you're ready. I explain that it this is not a conventional method. It is a creative, above board strategy that allows me to provide them with a solution. I cover that it is not very well known and very well misunderstood by most.If/when they elect to hear more about the sub2 strategy, I disclose all info and "risks" that go with it, DOS. I do not sugar coat nor do I shy away from the potentials. I probably sound as if I'm trying to talk them out of it, initially. These transactions are complicated enough that they're not worth the headache no matter how sweet the cash flow or equity. You don't need a misinformed seller coming back on you because you elected to "omit" some information that may have changed their minds. Disclose, Disclose, Disclose!!

Brian Gibbons · Answer

@Dan Walters that is great!Here is the diagram you referred to.Please notice the 3 column Presentation includes:Buying - Controlling with Seller Financing : Lease Option Assignment, Sub2 with or without land trusts, contract for deed, master lease option, wrap around mortgage - all inclusive trust deed, purchase money mortgage, etc.Using a legal pad - Visuals help home sellers look at all the options. Be willing to teach and ask questions, like a good financial planner, instead of a car salesman buying cheap for his car lot.Many REIs come from engineering "number crunching" type of skills.The "soft skills" of negotiating with NLP is a major key to success in Seller financing negotiations. (NLP is Neuro Linguistic Programming).

Stephen Fryer · Answer

HI Brian.I watched the video. I really appreciated the technique. It allows the seller to arrive at a destination (with a little prompting) and is very consultative in nature. You can really help them to resolve their problems, to their satisfaction.Stephen

Brian Gibbons · Answer

Heres a video that describes how I use the above legal pad 3 column method to talk about Selling w and Agent vs Renting it out vs Seller Financing.https://docs.google.com/a/reiskills.com/file/d/0B4...No links or ads.

Brian Gibbons · Answer

Hi @Clay Manship That 3rd column I discuss not only possible solutions using sub2, but with lease option assignments, wrap-aitds, cfds, equity split lease option sandwiches, master leases, etc.It all depends on many factors.Here is the jpg of the image https://www.dropbox.com/s/iqimdjzufh19ma1/photo-3c...And Clay, you need to be the doctor with the seller. Dont push 1 solution down their throat.Here's the "Be The Doctor" article http://www.biggerpockets.com/blogs/3/blog_posts/17...

Clay Manship · Answer

@Brian Gibbons and @Dan Walters -The seller has indicated verbally that he would sell for $86,000. He has also made it clear to me that he intends to sell this property in order to take whatever proceeds he can to purchase a new family home. That being said, he will need some kind of cash up front. Also, while I am unsure of his ability to secure secondary financing, I would assume he is able to do so.If I were to acquire the property Sub2, the monthly P&I payment is $490.53. Given similar rentals in the area, it appears as if the property would generate $750 to $800 in rent. Crunching those numbers, it is looking like a pass on the deal thus far unless I can work out something more lucrative. Thoughts?P.S--Brian, that chart is very nice to use in getting a seller to agree to Sub2. However, it appears very small on the webpage here. May want to consider readjusting the size...

Clay Manship · Answer

Sub2 was the first thing that came to mind, however, I have always had a hard time making that sale on individuals given the infamous "due on sale" clause. He doesn't like the idea of still being on the hook if for, whatever reason, I quit making his payments for him.Thanks for all the info @Nathan Brooks --would you mind going into more detail on your strategy of "contract for deed"? Maybe I am misunderstanding you. But I'd like to hear more about what you think.Anyone else--namely you Sub2 investors--how are you SELLING this idea to those who are trying to get rid of their property? The way I look at this is that there is a problem and we are both trying to find a solution. I don't think he absolutely NEEDS to get rid of it quickly, but if he doesn't, he is stuck with realtor fees, holding costs, staging, etc etc etc. So I'd like to get a quick example pitch for how you close the deal on Sub2. Maybe that's a conversation for a different topic? Feel free to PM me as well...thanks for all the responses so far.

Rick Baggenstoss · Answer

How did you figure wholesale? Subject to seems like a good approach but it depends upon your goals.

Nathan Brooks · Answer

There are a couple things that come to mind ... first, if he needs to sell that quickly, you probably have a lot more room to negotiate ... you could lease option it for $80k and list it/sell it. You could get it under contract and assign the deal to another buyer who would be holding to rent it ... depends on what kind of shape its in, what the properties in the area are (rental, home owners, mixed ... etc)Or contract for deed, leave his financing in place, and rent it for a while.

Bill Jones · Answer

Make your best deal.... take Sub2 with a minimal down and wrap the rest sell or keep for investment rental