GUIDE: Close Your First Seller-Financed Deal

Intro

Just what is seller financing and why is everyone talking about it…and why is it important anyway? I will tell you one thing, the term itself is misleading and can be any combination of sorts. In general, seller financing is a broad term that means a property owner carries some portion of the debt attached to a property. This guide will focus on the most commonsense type of “seller financing” called a Purchase Money Mortgage.

Let's cover a couple of basic details about the note and mortgage first. The "note" or promissory note is the legal document that specifies the terms of the contract agreement. The mortgage is the document that tells everyone there is a note in place and outlines the repayment terms. We’ll be using the term "mortgage" loosely to describe the note and mortgage.

We'll also cover the deed and title as we move through the mechanics. The deed is the legal "vehicle" that defines ownership, and the title is usually used as a casual reference to a "deed," but it is really the stuff (bundle of rights) that accompanies property ownership...

Got it?...good. Let's go.

Why is Seller Financing Important?

Well, firstly it permits you to gain ownership of property with lower out-of-pocket expenses than using a bank or private lender. For example, a seller may accept 5-10% down versus a lender requiring 20-25% down...and if you can negotiate it, you can structure a deal with any amount down...or zero down!

And more importantly, as you will learn the longer you are in this business, there is no need for a credit check, no underwriting, and the transaction has nothing to do with your Debt-to-Income (DTI)...which is the one item that will halt your progress quicker than anything else if you are relying on bank money to scale your business.

Mechanics

The seller financing process is virtually the same as a bank funded transaction...the deed gets recorded and ownership transfers, but it's all done privately and there are no outside players that need to approve any of the terms you establish. The sky is the limit.

If you understand the mechanics of a basic bank-funded transaction, you already understand how a seller financed deal works. So, lets recap a normal transaction;

1.) A bank finds you credible and decides to loan you money to buy a property

2.) The bank charges you interest so they make a profit over the life of the loan

3.) You pay the loan payment every month...

An oversimplification, I know, but stick with me...

I know what you're thinking...but how can the seller originate a loan without bank involvement? It's quite simple really. It works like this; if an owner owns a property free-and-clear, they can do whatever they want with it...right?...I mean it's theirs isn't it? This includes extending a mortgage to you. All you need to do is find the free-and- clear owner and ask them to give you a loan. Piece of cake. But there is a lot more to this- keep reading.

So, how do you get the seller to "carry the note?" Good question. More importantly, why would a seller want to extend a mortgage to a stranger?...a better question.

There is a lot that goes into getting to this point...to the point an individual would consider selling their property with little or no money up front on your promise to be responsible and repay the debt. If you take a step back and look at it through a seller’s lens, you can see why a seller carrying a mortgage creates a lot of hesitancy; therefore, you must be very methodical, calculated, and prepared in your approach.

"YOU'VE ONLY GOT ONE CHANCE TO MAKE A GOOD IMPRESSION."

-Head & Shoulders, Dandruff Shampoo

If you show up in jeans and a t-shirt with no presentation or explanation of how this process will benefit the seller, you will not gain their trust. There's more to it than this, but appearance is important. And trust is everything. 

Before we go any further, I want to tell you that if you are a wholesaler or farming trash properties this guide is not for you. If you think mailing yellow letters, using bandit signs, or looking for vacant or blighted properties is a good idea, you can stop reading now.

...Unless you want to change and join the ranks of successful, responsible investors.

This guide is for individuals that want to start accumulating small to mid-sized B-C class multifamily properties where hassle is low(er) and value can be added.

Rule #1- We don't want to buy other people's problems. Trust me.

Let's look at some of the steps you'll go through as you graduate to acquiring your first, or next, seller financed deal.

STEP 1- TAKE A LOOK IN THE MIRROR

Like what you see?...handsome.

No, really...how does your business look? If you're running around telling everyone you can meet their needs and you are a legitimate buyer, but haven't the first business attribute, you'll turn off prospects quickly. This is the information age and everyone is using Google or Alexa to find out everything, including if you are credible. And remember what you are asking for; the sellers trust that you can meet their needs without putting them at risk. Remember, real estate has very little to do with the physical structure of the property; it's all about people and personalities.

I will admit that there are a couple of different approaches here and it's based on balance and preference. If you want to run this as a "guy or gal that buys a property a year business," that's fine...but if you want to scale your business and work toward financial freedom, you'll need to work hard at your appearance and look like a professional. And remember, since you're not farming trash properties the odds you'll be interacting with educated sellers increases drastically.

Here is a brief list of some of the things you'll need:

• Business Name
• Logo
• Domain Name
• Landing Page(s)/ Website(s)
• Registered LLC & Operating Agreement
• Business Checking Account
• Business Cards
• Apparel
• Vehicle Lettering
• Blog & Other Helpful Content
• Social Media Business Accounts
• Presentation
• Resources/Guides
• Needs Assessment
• Purchase Agreement
• Title Agency
• Attorney
• Third Party Debt Servicer

Ok, so the list is a bit lengthy, but it's all pretty simple stuff that is relatively inexpensive to obtain.

So, after you've got most of that together, we can move to next steps.

Quick Tip- leverage a virtual assistant to complete almost all the steps above. Here are a couple sites to check out;

UpWork

Fiverr

PROFILING YOUR CITY

Mapping is key. What does that mean exactly?...well, this is part of your reconnaissance.

RECONNAISSANCE. RƏˈKÄNƏSƏNS. NOUN: MILITARY OBSERVATION OF A REGION TO LOCATE AN ENEMY OR ASCERTAIN STRATEGIC FEATURES.

Ignore the enemy part...unless you have an enemy in the area...then go for it!

A few questions:

• What is your preferred asset class?
• Where does it exist?
• Who owns it?
• Is there viability?
• What strategies will you develop to locate and acquire it?
• Is this approach scalable?

Using data is key to locate your sweet spot...for example, let's say you want a 6 unit C+ apartment building...but how will you locate it? Does it even exist? Are there areas of the city full of this type of asset? What if it's only available in a sea of low priced 6-unit developments full of section 8 tenants?...or what if it does not exist at all?...

A Couple Strategies

The least effective- driving for dollars (this is basically where you jump in the car, drive your farm area, and look for assets that are a good match)...if you use this technique, just make sure you have a firm tracking system in place that keeps you well organized (no spreadsheets!- Excel is a financial tools...you must have a relational database to do this correctly). Amongst many other things, you'll need to track:

• Your driving schedule- calendar
• Your discovered properties
• Property & Location images
• Notes
• Supporting records/ attachments

Mapping and GIS Technology- this is really where it's at. GIS can be leveraged in conjunction with public data to create a comprehensive map of your city. There are a few resources out there that can give you a general idea, but most are largely inaccurate. Working with a GIS professional is key. Google has some good tools out there, but the technical nature of the product requires guidance. If you want to go pro, you’ll need to move over to Esri or Arc GIS. These are common programs and lots of folks are available to help you build your own map.

Paid list brokers- There are an abundance of list brokers that will sell you data after they learn your requirements. You'll likely need to have firm criteria on your preferred asset, so be prepared before you engage a list broker.

Ok, so you know what your city looks like, including where you're going to farm, the asset class and details, and general price points and rental rates...let's move on.

PROFILE YOUR "MOTIVATED" SELLER

But how do I find a seller!?...valid question. One thing you must remember is people are irrational and unpredictable. Let that serve as the backdrop for how you approach securing properties from sellers using this technique.

IRRATIONAL + UNPREDICTABLE = PEOPLE

A quick word about marketing: inbound is king. By this, I mean that having systems in place that permits your target seller to find you is a must. Outbound marketing is still valid...and it's a lot easier...this is where we "push" content to prospects. Let's cover the process in chronological order of the things you'll need to do to attract a seller.

Here is a book to keep on hand.

BUILDING YOUR OUTBOUND CAMPAIGN

How will you reach people?

This consists of:

• Researching your market- What's the investment landscape?
• Establishing your "farm" area- Where is the best opportunity?
• Defining your asset class- What type of property am I after?
• Profiling property owners- Which property owner's own properties in my farm area?
• Designing copy- How can I best attract possible sellers?
• Launching a direct mail campaign- What's the most (cost) effective way to get mail to my target property owners?
• Launching supplemental efforts- What other types of outreach can I provide where I might meet property owners?

It's more important to note that there is a need to pursue a refined approach that considers situation and asset class. If you target vacant properties in a sketchy part of town, then that's what you'll get. Don't even start dabbling in this asset class. You're better than that.

The advice you'll get here is counterintuitive to what almost everyone else is saying; avoid situation-based sellers. Ok, well...there may be room for this group, but not without applying an asset class or location filter. What does this mean?...think about it this way...a situation-based seller is generally in trouble. They are a property owner that owns a property and because of some situation, now want to sell that property because they have no other choice. But what are some of the reasons??

• Probate- Someone died, and their estate is going to the courts to be settled
• Divorce- Assets need divided between the parties or liquidated
• Vacant/Abandoned- The owner bailed on the property for some reason
• Code Violations- The owner simply can't afford to keep the property condition up to code (or they are a slum lord...don't be a slumlord)
• Unlawful Detainer (Evictions)- A landlord is evicting some problematic tenants

Don’t be a slumlord

If you elect to focus heavily on this group, you must apply an asset and location filter. If you simply pull a list of any of the above groups to get seller financing from a motivated seller you are creating a liability and likely wasting your time.

What do I mean by this?...well, if you mail to every property owner that has filed an eviction in the city, you'll find an owner that is motivated to sell, I can almost guarantee. The problem lies in where the property is located and its condition. Odds of acquisition increase as asset class decreases. Do you want a huge portfolio of shit properties? Please answer "no."

"ODDS OF ACQUISITION INCREASE AS ASSET CLASS DECREASES...AS DO HEADACHES AND HASSLE"

A more logical approach is to focus on a better lead source and asset class altogether...I know this is more difficult, but you'll need to be strategic and perhaps tap a local agent for market data...or learn more about the data available from your county auditor...see if your auditor has a "reporter" function where you can download and analyze data. If you're not familiar with basic data analysis, you need to get acquainted. Basics like running Pivot Tables will serve you well, but there are much more intuitive and refined ways to analyze data.

Here is a look at some outbound techniques

Outbound (Interruption)

1.Direct Mail

2.Networking

3.Paid Advertising

4.Cold Calling

5.Text Push

6.Drip Email Campaigns

BUILDING YOUR INBOUND CAMPAIGN

What does your social network look like?

Alright, now that your outbound campaign is up and running, it's time to really think about inbound marketing and “organic” ways to acquire real estate from individuals that may be willing to sell on terms. Do you have a website and social media business accounts?...what about a blog and other resources? If you follow the steps above, you'll already have a brand identity...now it's time to associate your brand with your content and social accounts. Remember, once you get branded and standardize your content you can simply work from templates.

Quick Tip: Design a Brand Style Guide…at least a basic one. This will help in standardizing everything you create.

And Check This Out: Take the Hub Spot Inbound Marketing Course...it's free: https://academy.hubspot.com/courses/inbound

You'll learn more from this free course than I can teach you here. Promise.

2nd Word of advice…you’ll need a good landing page for your lead capture efforts linked to your CRM. If you’re tech savvy, you can likely do this on your own…there are some free and paid platforms out there, but ultimately, you want to build your site on the Word Press platform.

Here is a look at an inbound strategy:

The Media I Will Use to Reach My Target Market

Inbound (Permission)

1. ABC.com & XYZ.com

Free Helpful Content & Resources

• Blogs
• Guides
• Newsletter
• e-books
• Videos
• Webinars
• Landlord Resources
• Market Data
• Request for Property Value Report

2. Social Networks

Facebook/ Instagram Posts

You Tube Videos

Twitter

3. Popular Sites

Redfin

Zillow/Trulia

PROCESSING INCOMING OPPORTUNITIES

Incoming!

Here are some ideas on lead capture:

My Lead Capture System

Leads are captured through several channels with a focus on the website landing pages and squeeze forms. All leads are processed in a central Client Relationship Management (CRM) database

1. Landing Pages & Squeeze Forms- Linked to CRM

Contact Us

Request Additional Information

Subscribe to Newsletter

Download E-book

Request Free Property Valuation

Responses to Content/ Blogs

Incoming Email/ Phone

Referrals

2. Paid Advertising

Ad Words/PPC

Facebook Advertising

Other

Next step, engaging the seller!...wait, how do I engage a prospective seller? This part’s important...

"HOW WILL YOU ENGAGE YOUR PROSPECT?...AND KEEP ALL YOUR DATA AND APPOINTMENTS ORGANIZED?..."

Mission 1- Get an In-Person Appointment. Period. You must build rapport & trust.

You need to get in front of sellers. This will likely start with an impersonal method like a form request or email. Your goal is to get them on the phone and commit to an appointment. Meeting in-person is the only way to get the property under contract after building rapport with the seller. I'd recommend leaving a day in-between your first engagement and the site visit to get your research completed and assemble your materials for the visit. You must be prepared to offer or bail...and everything else in-between those two outcomes.

Especially if you’re about to be attacked by a lose dog.

"WITHOUT TRUST, YOU HAVE NOTHING"

COMPLETE DUE DILIGENCE

Compile your data

• Free Data- the county auditor

• An industry professional (broker/agent)

• Paid sources & "third-party" websites (Redfin, Neighborhood Scout, City Data)

You effectively want to hunt down every possible piece of data...

• current images
• listing history
• owner of record
• deed transfers
• tax information
• historical images
• mortgage data
• location
• neighborhood trends
• rental rates
• comparable sales...and
• anything else you can find.

You'll get the most bang for your buck working with an industry professional. Just make sure it's a reciprocal relationship. As a busy broker and business owner, I simply don't have the bandwidth to respond to every rookie request for property information. Be honest about your intentions up front. Agents get their hopes up with each new prospect. It's better to start your relationship with an honest assessment of things.

Confirm Value

"As-is"- the property as it sits in its current condition. This is what you think the market would pay for the property with no improvements.

After Improvements (Pro-Forma)- is the value after improvements have been completed and the property is stable, and it should be significantly higher than "as-is”: This will help determine the best-use scenario.

So, if you are dealing with small MF properties with 4-units or less, our definitive metric of value is the comparable sales analysis. This is a technical and proprietary method reserved for industry professionals. The alternative for you in this situation is to bite the bullet and pay for an appraisal...these can get expensive based on property size and configuration. And depending on your market, there may be a few weeks delay in completion. I would reserve this for high-end properties where there is a large gain at stake. Spending $500 to make $50,000 is common sense.

As a rule, you want to compare properties that are of similar characteristics, build, finishes, size and within a half mile of the subject property that have sold, are pending, and listed within the last 6 months. This will give you a general idea of market conditions. If you cannot find comps, expand your radius before you expand your date range...but try to stay within a mile. Rural properties will prove to be more complicated to comp...you may have to go back a couple years to find viable comps.

If you are looking at larger MF properties, your assessment is going to be based on the property's income...Net Operating Income (NOI) to be more specific. So, you want to assess current income and possible income...and every other possible scenario you can think of...this gets technical, so if you're looking at larger properties and need some assistance, reach out to an industry professional.

Here is a feather to stick in your cap: Real Data Courses

If you're comfortable running financial analysis on commercial properties, you likely will not be able to get a firm read on current value until you get copies of the leases from the owner...but you can always run proforma before you make your visit. This may also require the use of a letter of intent (LOI), rather than a contract to purchase. Don't get a contract on something you aren't sure about performing on. A well-crafted LOI should protect you from competition while you conduct additional research. Tap an attorney early on and pay for quality legal docs...but keep it as simple as possible.

Confirm they have paid off the note on the property

This isn't tremendously easy, but it's doable both on the paid and on the cheap. The concept here is that individuals that own property free-and-clear have more ability to sell on terms. If they do not have a mortgage, they can easily originate one to you, who will take over the property and pay them a monthly check while they lose the responsibility and headaches. It's a win-win situation.

If you are using a paid list broker, you'll be relying on pretty good guess work. Core Logic’s List Source is largely accurate at running aggregate mortgage data through algorithms to find equity position on properties. The alternative to this is to do it on the cheap through publicly available data. Here, it would make sense to consider the length of ownership and, age of the mortgage. For example, if a property closed before January 1, 1990 and is still owned by the original owner, the debt is very likely to be paid in full.

The preferred way to discover if a property has a mortgage is to simply ask. It's a piece of cake, although a lot of investors are shy about asking a property owner if they have a mortgage balance on their property. Clarifying mortgage balance should be part of your custom needs assessment presented to each prospective seller. We'll cover the custom needs assessment in just a moment.

And just a quick note if you are targeting larger MF properties, free and clear may not matter if you are employing strategies like a lease with an option to purchase. Those techniques are not covered in this guide, but they should be an eventual part of your toolkit.

Build a "Best Use" Strategy

This is a fairly technical concept and experience is a great deal of help when running properties through a "best use" funnel. At the top of the list is the need to take ownership of the property, meaning that title transfers, the deed is recorded and your LLC is the legal property owner. Think of it like a rundown...what's the ideal?...option 1, option 2, a combination of option 4 and 1?...something else?...what creates a “win-win” situation.

In the interest of keeping this simple and risk free, we always want to structure a Purchase Money Mortgage- this is where the property owner originates the loan for the property. There are no outside players here, so no credit checks and underwriting, and the terms are flexible.

There are advanced ways to acquire properties that have a lien (mortgage) balance by using techniques such as a wrap mortgage...seller carried junior (2nd mortgage), etc. These techniques are not covered in this guide, but will be covered in more advanced materials. The purpose of this guide is introductory, and to keep you safe from risk. Working with free-and-clear owners is the best approach to a purchase money mortgage. And the amount of property owners that own free-and- clear is astounding.

Ok, back to it. Take a deep breath...

THE SITE VISIT

Ask open-ended questions

So, what happens at the site visit?...pretty simple stuff. Remember, real estate has nothing to do with the physical structure, it's all about people and personalities. I know...I’ve said that at least 3 times already. The main goal of the site visit is to build rapport.

RAPPORT. RAˈPÔR,RƏˈPÔR/ NOUN- A CLOSE AND HARMONIOUS RELATIONSHIP IN WHICH THE PEOPLE OR GROUPS CONCERNED UNDERSTAND EACH OTHER'S FEELINGS OR IDEAS AND COMMUNICATE WELL.

What's the number one way to build rapport- by asking open-ended questions that permit the seller to voice their needs...but what questions should you be asking!

You'll need to devise an assessment tool beforehand that you can pull out during your visit, paper is personal, but electronic might be acceptable.

The questions are relative to the situation, but here are a couple to get you started, and arguably the most important to ask:

WHY ARE YOU SELLING? = MOTIVATION

WHAT IS THE LEAST YOU WOULD BE WILLING TO TAKE & WHY IS THAT IMPORTANT TO YOU? = PRICE POINT & MOTIVATION

WHAT WILL YOU DO WITH THE MONEY FROM THE SALE? = MOTIVATION

WHAT WILL YOU DO WITH THE PROPERTY IF YOU CAN'T SELL IT? = FACING REALITY

And for setting up the deal structure, keep it simple. Here is a good way to ask for the seller to carry the note:

"HOW WOULD YOU LIKE TO RECEIVE A MONTHLY CHECK AND GET RID OF ALL THE HASSLE OF OWNING THE PROPERTY"

That's right- no more hassle from the property, no more maintenance, no more property taxes, no more phone calls, no more late rent! And still collect a monthly check!

A quick note to end this section: never refer to this exchange as anything that confuses the seller or creates doubt or suspicion...this means we keep things simple by not referencing "purchase money mortgage," "seller carry back," "seller assisted financing," "carry paper", etc. We always refer to this as an “Installment Sale.” This is understandable and easy to explain- everyone gets it....you’ll be selling your property in installments paid monthly.

It’s very important to be able to demonstrate total payments to the seller and the interest they will receive. And be up-front if they ask if the interest is taxable...it is. Being able to demonstrate total payments may win the deal for you...folks usually don’t account for the power of interest.

THE CONTRACT

Set the price & terms

Here are the basics:

Price- this is the transaction price that the seller needs to get out of the property. "I need $150,000 out of this property"...and so on...

Terms- are all the other stuff that explain how you will pay back the loan to the seller. Terms contain a few main components;

• Down Payment,
• Repayment Schedule (amortization),
• Interest Rate,
• Settling the Debt (balloon).

Down Payment- This is always negotiable, but the bottom line is you want to come to the table with the least out-of-pocket possible, while still making the seller feel like they are getting a good deal. You can go about this one of two ways based on your personality and preference... just get to it and propose your best fair offer:

"Mr. Seller, I do several of these deals a year and I typically offer 10% down, does that work for you?"

Two, start low and negotiate...you can start at zero and see where it goes. If you are a good negotiator and refrain from taking outright advantage of sellers or being dishonest, then go for it.

Side Note: Our firm was founded on the premise that we always offer fair and honest solutions to meet seller's needs. This means we structure win-win deals that make sellers comfortable enough to do repeat business or write us a nice testimonial.

Repayment Schedule- How will you repay the debt? Well, we want the longest possible amortization period. 30-yrs is good, more is better. We also want plenty of time to be able to renovate, stabilize, reposition, sell, or refinance the property...5-years is typically plenty of time, but take what you can get within reason here. Anything shorter than 2-years can place you in a bind, but it just depends...and you really don't want to string things along for more than 5-years...that's usually the most sellers will tolerate.

Side Note: This is all relative, you may run across a seller that just wants a monthly payment the rest of their life, or a seller that is reluctant to give you 12- months. The way you approach this is unique to each seller and each property. If you are planning to renovate and resale, a year may work, if you are holding long- term, you'll need much longer.

Interest Rate- What about interest rate?...we want the lowest possible but reasonable interest rate, I would recommend somewhere between 4-6%, but try and start lower...not offensively low, though. Remember, banks are returning less than 2% on money market accounts, and less than 1% on other savings vehicles, so 5% is pretty high in the scheme of things.

Side Note: If you are setting up an amortization on the property, the interest rate will have the single biggest impact on your monthly payment to the seller...just 1% on a $150,000 purchase may mean an extra $6,700 saved in interest over a 5-yr period.

Settling the Debt- How will you pay the loan off? Well, if you are lucky enough to find a seller that will let you pay for 30-years into the future, this isn't an issue. For the other 99% of sellers, you're probably going to have to structure a balloon payment. A balloon is simply a lump sum pay-off at the end of the loan term. You can either do this with cash (yours of someone else's), a bank loan (re-finance), or sell the property outright.

Side Note: If your preferred exit is a re-finance, you MUST make sure that the value of the property is there. What does this mean?...you'll be getting a re-finance loan that is going to be limited to 70% of the value of the property. You must calculate the debt-paydown, loan balance, balloon payment, and property value accurately. If you do not have a sufficient equity position in the property, you'll fail and lose the property to foreclosure if you cannot re-negotiate the terms.

I digress....

So, here is a way to look at it all together on a $150,000 acquisition on a property with an after-stabilized value of $225,000- considering improvements and minimal natural appreciation:

• Purchase Price = $150,000
• Down Payment 10% = $15,000
• Loan Extended by Seller = $135,000
• Interest Rate = 6%
• Amortization = 30 Years
• Loan Period = 5 Years
• Monthly P&I Payment = $809
• Balloon Payment = $126,433

When you get to the end of the loan term, you have an after stabilized value of $225,000 and a balloon payment of $126,433. If you re-finance at 70% of the value, you come up with $157,500 which should be plenty of wiggle room to settle the $126,499 balloon payment...and maybe allow you to take some cash out for your next property.

Good job on negotiating the $150,000 purchase price and setting up the right terms!

Odds are you will need to address objections at some point. Here is an example of how to deal with one of the most common and move to seal the deal:

"I understand you've seen other properties sell for more, but I simply can't meet those sale prices. I'm offering a solution today where you can be done with this property by next week. I can offer close to your bottom line if you'll help me out on the terms. You said the rent is $1,200/mo. between both units...after maintenance and repairs, taxes, insurance, setback for capital expenditure and paying the note, there won't be much left over...would you be willing to take $400/mo. cash direct deposited to your bank account every month on the date you chose? And would you give me 60-months to get the units stabilized and renovated before I do the refinance?...here's an idea on the interest you'll collect in that time, and here's what the balloon payment will be. At the end of the term, you will have made significantly more than your bottom-line price."

Now that you've got everything buttoned-down, it's time to close the deal!

CLOSING

Time to seal the deal

Now that you have everything in order, you simply need to forward your contract to a reputable title company who will perform the title search and issue title insurance. Just follow the title company's lead here...they'll take it all the way to the finish line.

At the same time, you want to have the Mortgage and Note drafted with the terms agreed to in the contract. These are the two key documents needed to close the deal. Any local real estate or contract attorney can draft these for you for a marginal fee; likely less than $500. The first stop for a good attorney is the title agency…all you have to do is ask.

After everything is in place, it's just a matter of showing up to sign paperwork and exchange money.

Pretty simple stuff...and always close in person if you can. This is respectful and reassuring to the seller...closing at the title office is preferable. As an alternative, meet the seller at the designated location, or even at the property if it's reasonable.

TIPS & REALITIES

Tips

Tip: Establishing Payments- There are a few options for setting up the note payment, which include everything from paying the seller directly to having a 3rd party handle the task as an intermediary. The first option is always one of formality. If you cannot find a bank or similar company to service the debt, then keep it as formal as possible. Every bank has a bill pay or ACH option. Keeping formal records avoids ambiguity and keeps everyone honest. There will never be a question of whether or not the payment was made.

Truth: Refinancing real estate kills your cash flow- I wonder why nobody really talks about this. Think about what you are actually doing...putting debt on the property. Debt requires debt-service (loan payments)...and where do loan payments come from...your cash flow. Re-financing also kills your equity and greatly extends the time it takes to pay off your properties when you pull cash out. Someone with 40 units with debt is probably lying to you when they say they are financially free...on the other hand, having a half-dozen properties owned free-and-clear that generate $1,200 each in monthly rents each = retirement. Think twice before assigning debt to your properties.

I digress...again. So, buying properties with cash and then assigning a bank loan to pull your cash back out makes more sense, but you are still killing your cash flow (and shrinking your debt-to-income ratio.)

Quick Tip: The owner will be taxed on the interest they make, so answer honestly or volunteer the information up front.

Quick Tip: The owner will have the right to foreclose if you fail to meet your end of the bargain.

Quick Tip: You will have two closings and there are costs associated with each- the first closing will be when you transfer the title up front, and the second will be when you release the mortgage on the back end. The back-end transaction is typically inconsequential as far as costs go. You'll need to discuss who pays for closing costs as part of the negotiations, which will include the cost to draft and record documents.

Quick Tip: In the simplest terms, there is no difference between closing a Purchase Money Mortgage and closing a standard real estate transaction using a bank loan.

Quick Tip: You must retain adequate property insurance at all times.

Quick Tip: If your preferred exit is a "cash-out" re-finance, and this is a small multifamily (less than 5-units), the refinance will be based entirely on your personal financial situation (including credit score). If you will not qualify for a bank loan and you do not have cash to pay off the loan balance, you're screwed.

Quick Tip: If you are designing a direct mail campaign, plan at least 6 mailings per group 30-45 days apart. Repetition is the one key component to getting responses. If you have limited dollars, refine your search and limit your target prospects to a group you can afford to send multiple mailings.

Quick Tip: Institutional lenders (conventional banks) will not lend to an LLC. So, if you are taking title in an LLC., which I recommend, you'll need to be diligent about making sure you meet the lenders requirements. Most need the property to be held in your personal name for 6-months prior to the re- finance...timing is critical if this is the case.

Quick Tip: Remember, you may need to execute two quit claim deeds; one to transfer the property from your LLC to you for the refinance, and one to transfer it back after the re-finance. The transfers are subject to the lenders acceleration clause if you are using a bank. This means they have the ability to call the entire amount of the loan due...odds of this happening are extremely rare, but it's possible. If it happens, you can't say I didn't warn you.

MOVING ON...

OK, THIS IS A LOT OF INFORMATION, AND EVEN THOUGH THIS IS A COMPREHENSIVE GUIDE. THERE ARE MANY MISSING DETAILS THAT ARE IMPOSSIBLE TO CONVEY WITHOUT SIGNIFICANTLY MORE INVOLVEMENT. IF YOU'RE INTERESTED IN LEARNING MORE ABOUT HOW YOU CAN TIE THIS ALL TOGETHER DROP US A LINE......