All Forum Posts by: Lee Allen

Here is a scenario that I can work as a Realtor using my Investor experience.

Seller calls me and tells me that he wants me to take over his house. The house is worth 90k and he owes 85K on it. The mortgage payments are $675/mo.
The seller doesn't have enough equity for me to take over this house. I would rather ask the owner for an option to purchase the house for the mortgage payoff and to list it on the MLS also.

I list the property on the MLS for $95,000 and put SELLER WILL FINANCE in the listing. If I get a buyer that can get a mortgage then we sell the property for $95,000. If they want financing then we sell the property to them for $105,000 at 9.5%

If I cannot find a buyer for the property then I can walk away from the deal and cancel the listing. This limits my risk.

I then start screening potential tenant/buyers until I find someone that has $3k or more to put down. The tenant/buyer would pay $883/mo plus a part of their taxes/insurance.

Tenant is given 3 years to get permenant financing in place.

My contract with the seller says that I get paid 6% for selling the house and $150/mo for property management until the tenant/buyer gets his permenant financing.

I get to keep the $3k that was put down as partial payment towards my commission and then get paid $150/mo to manage the property until it sells and the seller gets the remaining $58/mo.

If the property finally sells then I get the remaining amount of my commission which is set at 8% since I had to wait 3 years to get it and the seller get the rest of the equity.

The reason that I would do the deal this way is that the risk remains with the owner. About 8 out of 10 tenant/buyers never buy the property. Sometimes this is because they have outgrown the house and no longer want it anymore and other times it is because of some life event such as a divorce or job transfer that prevents them from buying the house. Once the tenant moves out of the property it can take 2-3 months to get it cleaned up and reoccupied. While this is going on the owner will have to make the mortgage payments and not me. If the tenant did any damage or ruined the carpets then the owner has to pay for this to get repaired.

The owner is taking all this risk for $58/mo. Imagine if the property goes vacant for 3 months and also needs $1000 in repairs. The owner will end up paying 3 mortgage payments plus the repairs which is $3025 out of his pocket.

Now imagine if 6 years has passed and several tenant/buyers have been put into the property and I get one that is ready and able to buy the property. I could then execute my option to purchase the property. If the payoff of the mortgage has gone down to $75,000 and my tenant/buyers contract is now at $125,000 then I get to pocket the difference.

I am both an Investor and Realtor. I think the pros of being a Realtor outweigh the cons.

The Broker I work for is very flexible and allows me to run my business any way I want to. I do have to disclose I am a Realtor but that normally gives me credability and helps put many sellers at ease.

By being a Realtor I can list a property while I am looking for a tenant/buyer. I don't have any holding costs while I am doing this. If I find a tenant/buyer first then I just drop my MLS listing. People don't expect for a Realtor to make the homeowners payments.

People expect an investor to make payments once they take over a property. Try telling a homeowner that you want them to continue making payments until you get someone into the property.

As a Realtor I can also list properties that I would not buy and get a commission or if they don't have enough equity for me then I can lease/purchase them for the homeowner and get a commission / property management fee without the risk.

Million Dollar homes in my area take years to sell ... if they ever sell. Only 4% of the population in Alabama can afford a house over $400,000. I would rather have 2 or 3 $250k listings than one $400k listing.

Here is an easy way to make $7 Million in Equity
There is an estate in my area that has been trying to sell a mansion that is worth about 13 million. They have been trying to sell it for 6 years and have reduced the price to $5 Million. If anyone is interested then I will write up the order for you.

Andrew, I have been a Real Estate Investor for 5 years and a Realtor for 2 years. Before I was a Realtor I couldn't understand why alot of agents and investors don't get along.

First not all agents or investors are created equal. You will have people who are newbies and others that are experienced on both sides.

As an Agent I have had investors that wanted me to show them 20+ homes but they never wanted to buy a property. Some of these investors have been looking for years for their first deal.

Other new investors want to purchase houses with no money down and there isn't any money to pay the agents or closing costs.

Often agents are asked to take their commission back in the form of a promissory note and sometimes agents will do this after they have worked with the buyer on several deals but not the first few deals.

Many agents have gotten burned by taking their commissions in the form of a promissory note.

I'm sure that the % isn't exactly 20% but it theory generally holds true for most jobs.

What type of vacancy rate are you using?
Some areas have high turn over and you would want to use a vacancy rate around 25% and other areas you could use 10%.

It is true that that about 20% of the Real Estate Agents make about 80% of the money.

It is the same for Real Estate Investors. In my area there are about 150 Real Estate investors in the local REIA club but only about 20 of them are serious investors.

I found a good article that happens to mention what I had found out. The article mentions that the average real estate agent net around $1200-$1400 on a $100,000 house sale and they sell about 12 houses per year.

This is about $14,400 per year and most agents work 60+ plus hours per week and have to work on weekends.

If you look on Salary.com you can verify what a Realtor makes in your area.

Here is the article I was talking about
http://www.narec.com/news22.html

One of the secrets that I learned when I became a Realtor is that many agents will show properties with higher commissions first. It often amazes me when people try to cut the commission down to 4% but what they don't realize is that they are putting their house at the end of the list to be shown.

Did you know that about 80% of FSBO eventually list with a Realtor. Its because most FSBO have never sold a house before and they are unrealistic about what it takes to sell a home. They believe that if they put a sign in the front yard and then list it on one of the FSBO websites it will sell. After a few weeks of getting calls from buyers that want to come over to see the house and then finding out that they can't get qualified they get flustrated and just list with a Realtor.

Most Realtors have made the same mistakes that a FSBO makes but they learn from them and learn how to screen people.

I get calls from "buyers" all the time that just want to go "look at the house" and I tell them that we need to go ahead and get them preapproved. Most of these "buyers" are really not interested in buying but they just want to look at houses. They don't think twice about calling an agent and having him drive 30 miles to show a house that they are not going to buy.