The Best Deals To Do in Real Estate in 2013 & Beyond! – Part 2Posted on January 30, 2013 by
Welcome back! If you read Part One of this article, you know that we covered the other different types of popular real estate deals that most people do, and the biggest problems with them these days. Then we talked about how advantageous it is to do the new type of deals: Wholesaling Pretty Houses!
But we still have a few important things to cover, so let’s pick up where we left off…
Once you agree on the deal & terms with the seller, you get all the paperwork signed & closed at either a title company or attorney’s office. No exceptions. You’ll want that legal backup in case the seller conveniently forgets what they agreed to later.
So now you’ve got a deal under contract & all the paperwork signed. What now? Simple. You get it ‘sold’ as an opportunity to a tenant buyer who: 1. Has a decent chunk of money to put down (typically $5,000+/minimum), and 2. Can afford the existing monthly mortgage payments.
For example, let’s say you have a house worth $250,000. The seller owes $260,000, with monthly PITI payments of $1,550 & they’re current. The house needs little to no repair & is in a great neighborhood where people want to live. The seller just wants to walk & realizes that there is NO money to be made on this deal, obviously.
So, at a glance, it looks like this:
OWE: $260k, PAYMENT: $1,550 P.I.T.I., current.
ASKING: $0, Just wants out (for whatever reason, e.g. job x-fer/loss, divorce, etc.)
So you SELL the house on a Lease Purchase (aka ‘Rent to Own’) to a tenant buyer who falls in love with the house, has at least $5,000 to put down as Non-Refundable Option Consideration, and can easily afford the $1,550 monthly payments (plus utilities, HOA, etc., obviously).
You arrange the closing at the title company/attorney’s office (have the tenant buyer pay their fee), and collect your check.
…AND YOU’RE DONE!! You are OUT of the deal from this point forward!
So what just happened? And why would you WANT to be OUT of the deal after that?
Good question. Let’s recap, shall we?
You found & negotiated a deal on a house with little to no equity that no one else would touch. You solved the seller’s problem & they love you for it. You then went & found a tenant buyer who couldn’t buy a house now if their life depended on it (in most cases), and gave them an honest opportunity to eventually buy this beautiful house in a beautiful neighborhood… even if their credit is terrible.
(NOTE: The worse their credit is, the more you should collect as a downpayment! J)
After that, the tenant-buyer should just make the monthly mortgage payments, as rent. There are a few options on how they can do this: 1. Pay directly to the seller; 2. Pay directly to the mortgage company; 3. Pay to a 3rd-party payment/escrow company. I highly suggest doing the 3rd, so everyone can be sure the payments are made on time. There are several companies that will provide this service for you, for a nominal fee, ranging from $5 to $50/mo. Check around for more information on that.
So here’s the next big question: WHY would YOU, as the investor, want to be DONE with the deal after that? Why wouldn’t you want to get the deed or stay in the deal??
Here’s the answer: You WOULD want to stay in the deal (and maybe get the deed)… IF!
IF the seller has equity. IF the house is going UP in value. Or IF the mortgage payments are LOW and the rent is HIGH. Those are some great examples of why you WOULD want to remain in the deal.
But IF the opposite is true, you should simply collect your down payment from the seller & assign that deal that you just lined up. Wait a minute! Assign the deal? WHO would you assign the deal to?
I’m smiling as I write this, and hopefully, you will too as you realize the obvious:
You ASSIGN the deal right back to the SELLER of the house! Does that make sense?
When the house goes back up in value & the tenant buyer is ready to buy, guess what?
They’ll buy directly from the seller! And you explain all that to everyone involved in the deal.
This Type Of Deal Is Tremendously Advantageous To You When:
- Houses in that area are still declining in value.
- If the seller simply owes too much.
- Or if you just want an easy-in, easy-out type of simple deal to do that still quickly puts thousands of dollars in your pocket without any risk or rehab.
In the example above, you got a check for (at least) $5,000, pretty quickly, and you don’t have to deal with the tenant-buyer or the seller ever again, if you don’t want to. In. Out. Paid. Done. Simple.
Of course, there are some important details in the middle that you should learn. If these types of deals make sense to you and you would like to learn more, either ask your local REIA leader to get more information for you, or drop me a line. I’d love to help!
So there you have it. I believe that wholesaling pretty houses is one of the best types of deals you can be doing in 2013 & beyond. It’s quick & easy, and there are plenty of deals like that out there now. Best of all, there’s VERY little competition to do this. For now.
Hopefully, your competition won’t read this article!