Structuring offers is a deceptively simple concept. You can learn the basics in a couple hours, but it takes analyzing hundreds of deals to really start to understand the subtleties. Use the Structuring Offers Checklist as crib sheet to remind yourself of some of the key concepts you will need when analyzing deals and structuring offers to sellers.
In the Structuring Offers Checklist we cover most of the basic strategies for analyzing deals including an all cash offer which is based on the 70% minus cost of repairs formula. As an aside, some investors use 65% minus cost of repairs and some people use whatever the maximum percentage their hard money lender will loan minus the cost of repairs.
For most of the offers that I structure I want to calculate the net operating income first and so we include that as a prominently placed, early step on the checklist.
We do include sub checklists for structuring subject to, lease option and owner financing offers as well which are very important if you are trying to buy properties using any of those creative finance strategies.
We also address structuring offers if you plan to wholesale the property with the key consideration for doing that being: knowing what you wholesale buyers are willing to pay. Knowing their buying criteria allows you to structure offers where they are excited to buy even with your wholesale fee included.
Until my next post,
James
P.S. Interested in learning more about how to analyze deals? For a limited time you can download How To Analyze Deals Volume #2 for free.
The following article was submitted to us for publication and the reason I am sharing it with your is that it has a very common MISCONCEPTION about owner financing. In the overwhelming majority of cases there are strategies for a motivated seller to structure the deal even without paying off their existing underlying debt. Links in the article are exclusive resources for our Real Estate Investor Bronze Members. Here’s the article:
In the current economic climate, purchasing your own home can be difficult. Many buyers would like to take advantage of the low listing prices for properties, but are unable to get financing for the purchase in a standard homeowners loan from a bank. Another option for home buyers is Owner Financing.
Owner financing, or seller financing, means that all or part of a purchase is financed by the seller. Instead of paying a mortgage company or other lender, the buyer pays the original owner. The owner is the one who finances the purchase of the home. The main problem with Owner Financing is that most sellers are not interested in pursuing this option.
A seller must pay off their original mortgage before they can sell their home. Here is an exanple: A seller lists their house for $275,000, and has $200,000 left to pay on their original mortage. If you are financing the purchase price with a bank loan, the seller uses $200,000 to pay the balance of their mortgage, and walks away with $75,000. If the seller wanted to use the option of Owner Financing, they would have to pay off the $200,000 on their own. Most sellers simply do not have this amount of money readily available. Even if the seller is able to pay any remaining mortgage balance, they would then have to wait for your monthly payments over 20 or 30 years to see any return on the property.
Owner financing can be a great option for sellers who are interested in carrying investment properties, and have both the cash and time to do so. The return on a standard owner financed home is guaranteed at whatever the interest rate of the loan is. Sellers can usually charge a higher interest rate than a bank could, because buyers purchasing their home in this way may not qualify for a bank loan. Owner Financing is an attractive deal to buyers who would otherwise not be able to afford a home, even if they end up paying more in interest over time.
It can be difficult to find owners willing to finance the purchase of their home, and even if you can, you may end up paying thousands of dollars more. If you are interested in pursuing an owner financed home purchase, you should think carefully about the possible repercussions in the long term. Once the financial impact has been reviewed and thoughtfully considered, it is entirely possible that Owner Financing is still your best option.
Many real estate investors know how to buy houses with Owner Financing. If you are interested in learning about buying, selling or renting properties using these creative strategies then check out these free resources for Real Estate Investing.
Until my next post,
James
To continue with our discussion today of Strategies For Investing In Real Estate Without You Getting New Conventional Financing (link is for Real Estate Investor Bronze Members that are logged in only), I’d like to discuss what used to be an extremely popular strategy for real estate investors, but that has declined in popularity as loan documents have changed: assuming the seller’s loan.
While the number of loans that are freely assumable have significantly declined over the past decades, there are still some available and many VA loans are still assumable today (be sure to read the actual loan document for details on assuming them).
Assuming loans is different than buying houses Subject To, which I have written about many times before and will be discussing in a future update relating to this series. When buying Subject To the existing financing you are buying the property and agreeing to make payments on the loan. With a formal assumption of the loan, you are going to the bank and having your name placed on the loan as having assumed it with the bank.
While I have not heard of any cases of this happening personally, the current financial situation may make lenders more likely to accept assumption requests even on loans that are not formally assumable. Rather than foreclose on another house, a lender might be willing to let an investor assume a non-performing loan.
Until my next post,
James
P.S. Want to learn more about assuming loans and buying properties “subject to” the existing financing? Check out the massive amount of resources and training we have on that for our Real Estate Investor Bronze Members.
Continuing on with my discussion of Strategies For Investing In Real Estate Without You Getting New Conventional Financing (link is for our Real Estate Investor Bronze Members that are logged in only), today I’d like to discuss using leases and options.
Similar in many ways to buying a property Subject To, using a lease and an option can be a great way for you to become active in your real estate market with very little or no up front money and little risk beyond the lease.
With a lease and option you usually have two agreements: a monthly lease or rental agreement and an option to purchase the property.
With the lease you are usually making a monthly payment and then sub-leasing the property to your tenant and making a spread between what you are paying and what your tenant is paying you.
You also usually have an option on the property that allows you to purchase the property–hopefully for a fixed price–within a certain time period. If property values in your market go up, your profit increases. If the property values go down, your profit decreases or completely goes away, but you can, with your option, decide not to buy the property.
Until my next post,
James
