The Best Deals To Do in Real Estate in 2013 & Beyond! – Part 3Posted on February 28, 2013 by
To Deed…Or NOT To Deed? THAT Is the Question
(When Buying Real Estate)
Welcome back again! If you’ve been keeping up with my last 2 articles, you’ll remember that we’ve been discussing one of the best strategies for doing deals in 2013 & beyond – Wholesaling Pretty Houses!
This type of deal is most advantageous for you, the investor, to do when you’ve come across a house that’s overleveraged or has very little to no equity. Rather than walk away from the deal because you believe there’s no money to be made, you simply get an agreement from the seller to find a qualified tenant buyer to occupy the property on a rent-to-own basis (aka lease purchase) & have the tenant-buyer make the mortgage payments until such time as they’re able to buy the house outright with a new loan and there’s enough equity in the house to justify them doing so. You would collect your money from the tenant buyer as an assignment fee for getting them in to this house buying opportunity that you’ve negotiated. Make sense?
Naturally, you would then be completely OUT of the deal from that point on. Why would you want to stay in? There’s no more money to be made, so it’s best that you collect your money (usually $5k+) and get out quickly.
So let’s take a moment to look at some types of deals where you WOULD want to stay in & why.
These are some of the situations where you would either want to ‘Get the Deed’ or at least get control of the property by lease optioning or optioning the property from the seller…
Situation: Seller has a lot of equity in the property & they’re willing to give a bunch of it up to you in exchange for peace of mind, debt relief, or a fast transaction: These are the best deals, because there’s a lot of flexibility.
Solution 1: You could take over their debt (subject-to) & give them back a 2nd mortgage for the amount over their loan that you’ve agreed to pay (Pro Tip: Go for getting zero payments & 0% interest w/ 5-year balloon, if possible). Solution 2: If the seller needs some cash now, you could give them some cash now & the rest later on when your buyer cashes out. Solution 3: If the seller HAS to cash out of his loan or must sell it outright asap, but there’s still a LOT of equity, you can OPTION the deal for as low a price as you can negotiate, then market the property to find a cash buyer for as much profit as you can get!
Situation: Seller has little to no equity in the deal, but their house payment is super-low, and you know you can get a much higher amount from a tenant buyer for rent. Solution: Should be obvious – you either get the deed from the seller or get a lease option from them. Then, you simply market the property to find a decent tenant buyer who has enough money down to make you happy and can easily make the monthly payments, and you get to keep the spread in between as cash flow!
When you think about it, it all comes down to common sense (which I’ve learned is not so common these days). So let’s summarize, shall we?:
To Deed (Stay in the deal): If there’s money to be made in the long run because you’re able to get a big chunk of equity, then Get the Deed or get a lease purchase or option agreement with the seller.
Not to Deed (Get out of the deal): If there’s no equity to be gained now or later AND/OR no monthly cash flow, then there’s NO real reason to stay in the deal. So you would simply assign the deal to your tenant buyer, collect your fee, and get out with a smile on your face!
And now you know the answer to real estate’s eternal question – To Deed… or NOT to Deed!
Until Next Time,