In my last article, I discussed how I was recently reviewing the Millionaire Real Estate Investor by Gary Keller of Keller Williams Realty fame and found a particularly interesting page where he was discussing how an investor bought a house by just agreeing to make payments on the existing financing. In the creative real estate investing circles, we refer to this as buying a house “subject to” the existing financing.
While there is almost infinite variation deal to deal, how does a typical “subject to” deal actually work?
First, you find a motivated seller. Not all sellers are in a situation where you making payments on their existing loan is an attractive option to them. However, as the record number of foreclosures tell us, there are lots of folks where having someone making payments on their loan is a good option since it would prevent a foreclosure.
Next, you write up a sales contract outlining the exact terms of how you will be buying the house, the price and other critically important details. Make sure you outline that you are not going to be getting a new loan and that you will be buying the house “subject to” the existing financing that is on the property.
Once you have a contract to purchase the house, you double check all your assumptions including everything the seller has told you. This is the time to do all your due diligence. Verify taxes, insurance and the payment. Read through and understand the loan documents so that you know about the loan you are agreeing to pay on. Consult with your dream team to get sound advice on anything you have questions about.
Once you are satisfied, close on the property and begin marketing it to get it sold or occupied. We will be discussing some of the more common strategies investors employ when moving properties that they purchase “subject to” in a future article.
Until my next post,
James
P.S. We cover “subject to” investing strategies in a variety of real estate investor courses including Subject To FAQs, Secret “Subject To” Tips and Tricks, Subject To For Lazy and Poor Folks and more for our Real Estate Investor Bronze Members.
Last week, while preparing to speak at our real estate investor group meeting, I was glancing through the Millionaire Real Estate Investor book by Gary Keller and I came across a page that I did not recall reading when I read the book previously. The page was discussing a motivated seller that could no longer afford to keep his properties and how an investor came in and “agreed to take over the properties and assume responsibility for their debt and payments by using a simple quitclaim deed.”
It is easy to miss what just happened there. Did you catch it? Instead of the investor going out and getting a new loan on the property, the investor and seller agreed to have the investor start making payments on the existing loans on the properties.
The investor did not need to go out and get a new loan on the property. She just paid on the existing loans until she sold the properties. The seller was not foreclosed on because he could not make the payments because the investors was making the payments.
There was equity in the properties so the investor was able to resell the properties, make a profit and, in the end, shared some of the profit with the original seller. So, overall it truly was a win-win deal for all involved.
For those investors that have been exposed to this form of creative finance, it is often referred to as buying houses “subject to” the existing financing. In times like these where loans–especially investors loans–are much harder to structure, it can make creative financing like “subject to”, lease options and owner financing much more attractive.
Over the next series of articles, I will be discussing some of the frequently asked questions regarding investing in properties “subject to” the existing financing (link is for our Real Estate Investor Bronze Members).
Until my next post,
James
Are you finally ready to start finding great real estate deals that you can wholesale for a fast profit? Well, let’s get a big picture overview of some of the various ways that you can find deals as a real estate investor or real estate wholesaler, and in future articles I will break each one down in detail.
Before I get started, I want to point out that there are dozens, if not hundreds, of variations on these methods for finding deals. You may talk to another investor who is doing something similar (mailing a different list of people, using a different flyer method, and so on). So, to spare you the monotony of endless variations, I will try to discuss some of the more common and/or more effective methods I know of for finding real estate deals from years of personal experience and the experience of the hundreds of wholesalers who I work with.
How Investors Find Deals
According to a survey of investors in Gary Keller’s book, The Millionaire Real Estate Investor, 32% of their deals came from networking, 28% came from real estate agents and the MLS, 10% from driving and walking neighborhoods, 9% from newspapers, 7% from foreclosure listings, 4% from For Sale By Owner (FSBO), 3% from Internet and Database research, 2% from targeted marketing and 5% from other sources. So, there are many ways to find wholesale deals, we will be focusing on locating motivated sellers.
Motivated Sellers
These folks should be your main focus: finding sellers that need or want to sell their house. We will be trying to find sellers that are willing to sell their house at a discount so that we can wholesale it, at a discount, to make a profit. The challenge is that sellers don’t give away equity. What? I thought you just said that we are trying to buy houses at a discount. Now you are telling me that sellers don’t give away equity. Yes, that is correct. While a seller will not give away equity, they will trade their equity for a solution to a problem or challenge they are facing. So, as real estate investors and real estate wholesalers we are looking for problems to solve and ways to bring value to a transaction. That’s why we are looking for motivated sellers. Sellers that have a problem or challenge that we can solve.
What Motivates Sellers
Some sellers will be motivated by financial distress: they can’t make their payments anymore or need money for some urgent financial need like medical bills or to settle a divorce. They cannot wait to sell their house traditionally either for sale by owner or with an agent. They need an investor to buy it now – even if that speed means selling it for a lower price.
Some sellers are motivated for very positive reasons: they’ve been promoted to a much better job, are being transferred, and don’t want to deal with a vacant house to sell while they are focusing on their new job. Maybe they are getting married and need to liquidate one house. There are just as many positive reasons that people are motivated to sell as there are negative ones.
Top Methods for Finding Motivated Sellers: An Overview
Websites. You can have, and should have, a website for buying houses.
Newspaper Ads. You can run newspaper ads, of various sizes, in an assortment of different types of publications to find motivated sellers. You can place your ad in daily, weekly, monthly, free and paid newspapers. You can run classified ads or display ads. You can write editorial, advertorial or straight ad copy.
Signs and Billboards. Many investors use yard signs effectively. Some companies effectively use billboards, bus bench signs and other sign type marketing to find motivated sellers to buy houses.
Car Advertising. Some investors generate inquires and buy houses from signs on their cars and trucks while they drive around town. Some investors buy advertising on buses and other vehicles that sell advertising space.
Yellow Pages. Many investors find advertising in the phone book and specifically in the yellow pages an effective way to generate calls from motivated sellers.
Pay per Click and Pay per Impression Advertising. Investors can purchase advertising from search engines and internet advertising companies to generate traffic to their websites. This can generate inquires from motivated sellers via your website to buy houses.
Door to Door Marketing. Some foreclosure marketers have gone door to door to buy houses. Or, you could use flyers, post it notes or door hangers to put out marketing door to door to generate calls.
Classified Ad Websites. Websites like CraigsList, Backpage and other free, or low cost, classified ad websites are useful for generating inquires from motivated sellers.
Direct Mail. Mailing to various lists of homeowners can be a very effective way of generating calls from motivated sellers. The type of mailing you do – postcards, letters, et cetera – and the list you mail to – absentee owners, new filed foreclosure notices, vacant houses, et cetera – make the possible variations for direct mail marketing a huge topic for discussion.
In a nutshell, these are some of the ways that I use and that lots of other real estate investors and real estate wholesalers use to find motivated sellers to find deals.
Until my next post,
James
P.S. If you want to jumpstart your real estate investing business and find out the strategies that are most important, you may want to become a Real Estate Investor Bronze Member to access our personal systems and checklists and get access to our included consulting sessions.
If you have not read The Millionaire Real Estate Investor by Gary Keller with Dave Jenks and Jay Papasan you need to stop whatever else you are reading and put it at the top of the pile of books to be read about real estate investing. It is that good. My personal copy is well loved with a well worn in cover and lots of dog eared pages. I still reference it occasionally.
This book has some great motivational information, plus it is full of some great models for growing an entire real estate investing business. Many of our clients and readers familiar with what I teach will see some common themes.
Buy the Book and Get a Full Day Real Estate Investing Seminar Free!
The Millionaire Real Estate Investor retails for $21.95 and if you buy the book from this website using the link below I will also give you an entire full day seminar on real estate investing called Retire Young and Rich via Real Estate. The seminar retails for $197 and it is worth far more than that, but it is included as a free download right after checkout when you purchase the book.
Use the link above and we will rush the paperback version of the book to your shipping address and immediately following your order you will be able to download the entire seminar Retire Young and Rich via Real Estate as 8 approximately 1 hour long sections of MP3 audio files.
P.S. You may also be interested in our Real Estate Investor Bronze Membership which includes over 100 real estate course downloads, on-going live training and consulting sessions.
