All Forum Posts by: Travis H.

One other thing to consider here is corporate formalities. All of this effort to start LLCs is really quite moot if you don't follow your corporate formalities. In Texas, for instance, it only costs a few hundred dollars to start an LLC - that's a not brainer. Even if you have an LLC for each property, though, if the LLC gets sued and the plaintiff can prove that you did not abide by the corporate formalities, they may "pierce the corporate veil," which would leave you PERSONALLY responsible.

Marketing, marketing, marketing. With that kind of cash in the business, your goal should be to generate seller leads and get deals under contract to assign out for a fee.

The other major benefit of text message marketing is the open rate! Today, 100% of text messages get opened and read (if only scanned over). Email doesn't have that.

So you combine the immediacy of contact by phone with the 100% open rate and you won't miss a lead.

This will likely change as time progresses, email and text messaging is really sort of the same thing. As more and more people move to 3G and 4G networks I think there will be a convergence of email and text messaging into one platform and we will lose the benefit of the 100% open rate. But for now it works like a charm!

Note: there are several federal and state laws that you have to abide by in order to properly execute an owner finance wrap like this. Make sure you have all of the relevant parties involved, and that they have experience with these transactions (RMLO, title attorney, loan servicing company, credit restoration company)

You would process this just the same as a wholesale assignment, except you might take back a note with some cashflow and equity.

So you would sign it up under your LLC as the buyer. For instance:

Purchase and Sales Agreement:
Ivan Properties, LLC (buyer) to purchase property from Sally Seller (seller) at a sale price of $100,00.00
Financing - Seller to finance buyer or buyer's assignee in the amount of $100,000.00 with a monthly payment of $900.00 which shall include principal, interest, taxes, and insurance.

Then, you market the property for sale at $110,000.00 with a monthly payment of $995.00 per month. The revenue that Ivan Properties, LLC receives is in the form of an assignment of contract - some amount as cash up front, some amount taken back in the form of a note tied to the house with cashflow in the middle. The total assignment fee in that example would be $10,000, of which you might get $5,000 up front in the form of a down payment, and the other $5,000 is equity in the note that you have created.

Obviously, these numbers are made up and that is not intended to represent any actual contract, but this gives you an idea of how to execute the transaction. Make sure you consult an attorney for the contracts themselves. Ours were developed at a substantial cost, but are structured to protect all parties involved.

All title companies aren't made equally, though. Just because an owner finance wrap is legal, for instance, doesn't mean I would close one at the local big-box title company. If I'm doing anything more advanced than a basic cash deal with an assignment, I'd want to do it with a title attorney that has experience in those more advanced transactions.

Signs? Local real estate investment groups? Record a video walk-through and post on youtube with a catchy title? Contact the other major wholesalers and see if they are interested?

Everyone who is active in real estate investing in your metro area needs to know this house is for sale and you're the man to contact!

Jeff,

That is gold!

How do you make sure they even open the envelope? Is there anything on the envelope other than the mailing address and return address?

When signing with the seller, make sure you are framing the discussion properly with regards to what your role is. You are not buying the house, you are going to use your expertise to market the house and find a buyer quickly.

In the future, I would never promise to close at all, unless you fully intend to close and take title yourself. When sellers ask for guarantees I tell them that there are no guarantees in life. When a seller signs a listing agreement with a Realtor, no Realtor would ever tell a seller they guarantee they can get the property sold. This is no different, the paperwork is just worded differently.

If a seller is not satisfied with the comparison to a Realtor guaranteeing sale at the listing agreement signing, or for some reason believes that there actually are guarantees in life, I just pass on it. This is a unique business in that you actually get to choose who you are doing business with! Sometimes the headache of unreasonable sellers (or buyers, or tenants, etc.) is not worth the small paycheck you will get by working with them.

Edit - Just my two cents

First, I'd have to preface this by saying that I'm not an attorney, and I am NOT qualified to give you legal advice.

What I can tell you is what we have experienced. We have owner finance wrapped hundreds of houses. To our knowledge, there is only one other person / entity in DFW who has conducted more owner finance wrap transactions than us. We have never had the due on sale clause exercised, nor have we ever heard of it happening. There has been one instance where the bank called up and threatened to exercise their due on sale. We told them to go right ahead; they took no further action. We do not hide the title holder by first putting the property into a trust, then transferring beneficial interest in that trust. If you have to hide the transaction from anyone, you probably shouldn't be conducting that transaction.

Think about it from the bank's perspective. How does a bank make money on mortgages? Well first they originate the loan and charge closing costs / fees. Next, they turn around and sell the note to another institution, at which point they become a loan servicer on behalf of that institution, and are collecting monthly fees for that service. So - having one of their mortgages wrapped does not, in any way, impede their business model or take away from their profitability. In fact, I would argue quite the opposite - letting us wrap the note is actually beneficial to the bank. Reason being that if we did not wrap the note, the (motivated) seller would not be able to sell the house or keep the mortgage current. If the note is current on the payments, then the bank has a performing asset - which fits into their business model.

Furthermore, the bank has substantial costs associated with exercising a due on sale clause. First, they would have to pay an attorney to process the foreclosure (on a performing asset!?). Next, they have substantial holding costs while they try to find out a way to get rid of this property which they now hold on their books. Banks are not in the business of holding property - they are in the business of lending money and collecting fees. For investors, property goes on the asset side of the balance sheet, and debt goes on the liability side. For banks, that is reversed - property is a liability, and debt is an asset.

If you are genuinely concerned with the due on sale clause, I would recommend that you either partner with someone who has conducted many owner finance wraps over the years to assist you, or simply don't get involved in an owner finance wrap transaction.

There's a million strategies out there - you don't have to do them all!