I have purchased your study material and it is packed with great information. As you know, it is a lot of information, and I am just getting started. When you talk about real estate, people always say, run the numbers to see if it works for you. What I need is a formula so I can run the numbers. If there is a spreadsheet that walks you through it in your study material, please tell me where to find it. If not, would you please send me one along with instructions on how to make a good decision once you run the numbers?
We have got exactly what you need. In your Buying System, there is a form; it is called Property Acquisition Worksheet. Now, that Property Acquisition Worksheet helps you to find exactly what you need. It guides you through all the questions you need to be asking, and all the details that you need to put together in order to determine what is the best deal, and what’s the best structure.
First, you need to gather the information, in gathering the information, you need the
Seller Questionnaire. The Seller Questionnaire actually is a script that has you ask the right questions of the seller. It actually gives you all the details that you need to ask. Without those details, what I call “in the box”, and it’s a two page questionnaire. The first page is the seller questionnaire. On that first page, there is a box there. It asks some questions and asks for the details as well. I’m going to tell you the first thing you need is to fill out the seller questionnaire.
The second thing you need is to find out the value of the property. We provide a service for you that’s called Comp Whiz. Our Comp Whiz program is different from what you can get, say from Zillow, or with some of the other comp providers. I recommend that you check several when you are putting your comps together. Some people have access to MLS, which only give you information about listed property and sold properties through the MLS. That doesn’t give you all the properties. That is not what appraisers use. Instead, appraisers use a service that we’ve got access to. In fact, it’s the service that appraisers use. What it provides is not only the sales through realtors, but the sales that did not go through realtors. In fact, it pulls all those comps together with close proximity to the subject property. It actually gives you all the details about the listings with the tax office, and it actually gives you all the details about the number of bedrooms, bathrooms, everything about that property. Then, it gives you those comparables. The closest ones to the property first, and it goes on out.
What I recommend you do is get a Comp Whiz search. If you haven’t seen Comp Whiz, if you don’t know what it is, call the office at 1-800-578-8580, and let them do a little tour for you. It will show you exactly what the Comp Whiz has available to you. It’s a monthly service fee, and it really provides, for you, access to incredible information. When you are looking for Comps, it allows you to search for Comps throughout the United States. If you’re actually working your business from other places, other than your backyard, there is no problem because Comp Whiz goes there too. You can try it out.
Now, that’s the second thing you need: to determine the value of the property.
The third thing you need to determine is all the other costs that you’re going to have. The Property Acquisition Worksheet begins on page 81 of your Volume 1, Buying System. It actually asks you all the questions.
First of all, in number one it asks you to estimate it’s after repair value. That is where you’re going to get that answer through your Comp Whiz and other comparable searches.
The second thing it asks you is all of your acquisition expenses, and it breaks those down so you can determine what the expenses in each category.
The third thing it asks you is repair and renovation expenses. That’s a repairs budget and a contingencies miscellaneous budget.
The fourth thing it asks you is all of the holding expenses. That’s so you can determine exactly how long you plan to carry the property, and anticipate all of the expenses, including property taxes, insurance, utilities, everything that you are going to be faced with.
The fifth thing it asks you is the sales expenses. You’re planning to sell this and you’re going to go the traditional route, you need to figure in all the expenses for that, and it fair.
Then we have you add all those things together and determine exactly what the sales price is, minus what you say the estimated after repair value is, and that will give you your estimated net profit.
Also, it allows you to determine exactly what your cash needs are going to be throughout the acquisition of this property. Absolutely critical, this is what we call the PAW, or the Property Acquisition Worksheet, the PAW Worksheet.
Now, there’s one more thing. Once you determine those things, you’re going to go sit down with the seller. You’re going to use the Cost to Sell Worksheet. The Cost to Sell Worksheet actually goes through the process of you determining exactly what the value is and what you need to offer to the seller. I’ll get into that next.
Concerning the Cost to Sell Worksheet, do I take the asking price of the house and add it to the total figure on the Cost to Sell Worksheet?
First of all, if you were to add what the property’s worth, plus all of your expenses that would actually make a number far greater than the property is worth. Instead, what we need to do is write down what the value of the property is at the top, or the seller’s asking price, whichever is lower. Then we take that number and deduct from it all of the cost to sell expenses and we finally get that last figure. It actually may be, in some cases, confusing, because that could be a negative number.
Will this figure be the one I must use to determine if this is a fair price for that neighborhood?
Absolutely not. In fact, you need to predetermine what the fair price is for the neighborhood by using the Comp Whiz. Once you determine what the Comp Whiz value is, you’ll already have done that homework before you go to visit with the seller. You’re already going to know what the number is.
Let me give you an example. If the seller says their property is worth $250,000 and you’ve done your Comparable Search and you find that the property is actually worth $200,000, then you’re going to bring all of your research and proof with you to the meeting with the seller to prove to them that their number is wrong. Then you’re going to put that number down on the beginning point of your Cost to Sell Worksheet at $200,000, and then we’re going to start to deduct from there.
If so, is this figure called the ARV?
ARV is After Repaired Value. That’s the number you are going to use in the first section of your Cost to Sell Worksheet. That’s going to be the After Repaired Value. Remember, if the seller had offered the price to the lower price than the After Repaired Value, then that’s the number we’re going to use on the Cost to Sell Worksheet.
However, on the Property Acquisition Worksheet, that’s the sheet that we’re actually going to put the higher number on if we determine that the property is actually worth more money than the number we are going to use for the Cost to Sell Worksheet.
That should help you guide through the process of determining, and you’re right, it is important to determine these things. Be prepared to offer a number that makes sense for you; never, never work your deal towards the seller. Only ever work the deal towards what your needs are, and to determine and to confirm that there is a profit in there for you.
When you borrow from your private moneylenders do you stick with short-term notes just to secure the deal, or do you have them carry the financing as long as you can get?
Absolutely, if we have an opportunity to negotiate for a longer period of time, and the lender will carry for that period of time, then absolutely we want to write the note for the longest period of time available.
One of the things I teach is to put the deal together so the lenders accrue the interest. That means that you are accruing the interest instead of making monthly payments to the lenders. You’re actually accruing that interest and owe them no payments on a monthly basis. You’ll owe then all of the payments, plus the accrued interest, plus the interest on the accrued interest when that note expires.
How do you use the paper work; short term notes just to secure the deal, or do you have them carry back financing for as long as you can get?
You can use just a promissory note. If they have loaned you the $25,000, let’s say, and let’s say they want to do it for a year. Let’s say they are loaning it to your business, so that gives you the opportunity to use it for multiple purposes, then you can give them just a promissory note for that.
If they insist on security, and by the way, you don’t offer the security unless they ask for it, you say, what did you have in mind? If they say, I want to be secured by one of the houses, then you say, absolutely no problem, the next house I find, we can secure your $25,000 against that property. The only problem is if I sell it, say a month or two later, I will be refunding your money at that time. Wouldn’t you rather have your money working for a long period of time?
If so, we can do that with our trust program where we actually have our trust borrow the money, and then it loans it out to our various projects. It receives security from those projects so if anything ever happens to me, the trust that you have a note with can actually go after those assets and receive the money back.
Go over how you are recording the note and mortgage, and if you are every time.
First of all, of course I just explained that we are not doing that every time, and, in fact, we do it as little as possible.
Explain how you do that.
If they want a mortgage against the property, which means that if the property gets sold, it will be paid off because they have a lien against a particular piece of property. Then you’ll want to use your Borrowing, Volume 6, and in there, there is a Fannie Mae mortgage and there is also a note. You’ll see that it is a note favorable to you if you want to use it.
We are in two different businesses. One is a buying business and the other is a selling business. We also do the same thing when we are lending and when we are borrowing; when we are lending, we use very secure, and hardnosed paper work. When we are borrowing, there’s a lot easier paperwork and we’ve got that built into your Borrowing, Volume 6. You should have everything you need right there.
How do you tie up a home equity open-end line of credit when doing subject to?
First of all, let me explain what an open-end line of credit is. Many of you understand that our Street Smart way of investing is; if they have financing on the property, we want it. If it makes sense for us to take it, of course, it has to be a good interest rate and good terms; but whatever money they already have secured by the property is money we don’t have to raise to go buy that deal. It makes a lot of sense to buy it and take it over. Now, in this case, Jim has found a deal where there is an equity line, and it’s open-ended, meaning that the seller can go pull down off that equity line and actually get more money.
What I recommend it that you get the checkbook from the seller, number one. Number two; you have the seller sign a letter stating that they want to close the open-end to the line of credit. That way, you won’t be at risk of them coming back and getting the money. The third thing that’s pretty Street Smart is to actually find out how much is left. If there’s like $10,000 left on the line of credit, it may make sense for them to write you a check for $10,000 out of that equity line to buy the property. You can go ahead and use that $10,000. Yes, it will have to be paid back.
If you negotiate it where the sellers will have to pay that back, then you could go ahead and secure a mortgage against any other property they have to secure your interest and what they owe.
This is not exactly what you asked, but I’m going to go ahead and expand on this question just a little bit and say; they can actually lend you money, they can actually pay you money, and you can secure your interest in them paying you the money they have agreed to pay you, if it’s agreed to be paid over time, by securing it against other assets they have – such as real estate, such as a car, a boat, a motor, a trailer – anything else they may own, you can secure it. Such as a lot, they have in Florida, such as a time-share, although you want to be careful there and make sure there truly is equity.
If we can’t get a note and mortgage against any security they have; for example, if they don’t have a car free and clear then we can’t receive the title to it, but we can have ourselves added as a lien holder against that vehicle, or those vehicles, to secure our interest of them paying us back and they are paying us to buy the property. The only challenge is they don’t have all the money to pay you that day, and then you can secure that.
The second thing is if they don’t have collateral, then we are going to have them bring a co-signer to the table to sign the mortgage for them to pay you to buy.
If they don’t have a cosigner, the third thing you can do is just take a note…just a note. Make sure they have a sufficient job, they’ve been on it long enough, they’ve got enough income to be able to pay you and all their other bills, and you make sure there’s truly equity in the property, otherwise, they could wipe you out by merely quitting that you and you not knowing where they went from that point on.
What’s your time frame for return on investments when you do subject to if your objective is cash flow?
Say you need $30,000 to update a property that has $80,000 equity after repaired value, and you are going to lease option that property. Does that $30,000 have a time frame that you like to see to be paid back through the option fees and cash flow on properties? Is it three, five, ten years? What is your ideal strategy here? I know you like no time, but the equity was so good that we went after the deal. However, it doesn’t take many at $30,000 in a short period of time to stop you or require partners and private money in order to buy this type of deal.
What I’m going to recommend that you do is tighten up on the sale end. If you are going to tie up $30,000 in a property, first of all you may want to be sure that you can pull that money back out. Let me explain that we have a new alliance with Bank of America. One of the things that they have is an equity line of credit against rental property. They will allow up to two in your name and two in your spouses name, so you can get up to four properties with an equity line of credit. Isn’t that a wonderful thing?
What they might look at, first of all, they said that they look at the after repair value, or your stated value, not necessarily what you purchased the property for. That could be a good thing because you said the property has $80,000 in equity. You could pull down your $30,000 very quickly, and even more with an equity line of credit.
What I recommend you do is just leave the money in the property and then draw down against that equity line when you need money. Let’s say that you had a subject to deal come up next month, and you only needed $10,000. You could write that $10,000 against that equity line of credit and that would actually begin interest at that time, and you’d even wait another month before you make your first payment. That’s a great way to take advantage of equity in property and give you a solution.
Another way to handle this, though, let’s say that an equity line was out of the question, you wouldn’t be able to do it because of credit issues, or because you’re maxed out, and there’s no way that they would lend you the money. That’s okay. There’s a solution. Go to the back end of the deal, what you’re going to do with it. If your exit strategy is not cash, but instead, is lease option, then let’s only give your lease option buyer a one year option to buy, not a three year option to buy like we typically do. That one-year option to buy could be written up on our CS version of the lease option paper work. The CS version means, “Cash sale”. That means it’s forcing the buyer to go to a cash sale. They must liquidate that property and cash you out within that one-year period of time to take advantage of their option to buy. This can really benefit you because you’ve got a version.
In last Sunday’s newspaper there was an article about foreclosures being on the rise, and it basically was telling people not to give out any information or sign any papers if they are approached by someone that says they can stop their foreclosure, unless you talk to an attorney first. I have not had anybody question me on what I do until I went door knocking Sunday night and I had two people get very angry in my face. What should I be saying to people when they have read the article?
The first two lines talk about the honest people that are out there, but then the whole next page talks negative about all the scams that are out there. It makes what I do very hard right now. People only read what is negative. They don’t seem to focus on the part that there are honest people in this business, too.
First of all, not everyone read the paper that day. Number two, the farther they get away from last Sunday, the less they’re going to remember it. In fact, they’re going to remember it less, and less as the days go on.
Credibility is everything. Here’s what I’d recommend. You go to the door, but you have your credibility kit. You say if they get angry with you, or they won’t listen to you, Mr. Seller, you absolutely don’t have to make a decision today. We help people. We don’t hurt people. Our intentions are good.
As that article says, in fact let me show you what it says in the first part of the article. It says, right there, that not everyone is a scam artist. I just want to let you know that not only am I not a scam artist, I’ve been in this business for many years.
Remember that lots of people that you’ve bought from are your testimonial. I want you to tell these people, first of all, if you like my program, if you like what I’m going to tell you today, then definitely I don’t want you to make a decision today. I want you to check me out with the Chamber of Commerce. I want you to check me out with the Better Business Bureau. I want you to find that we are legitimate business people, and I thing once I have the opportunity to sit down with you and go through my program with you, you’re going to be convinced of that anyway. In fact, if I could just have a couple of minutes to go through this program with you.
You use that credibility kit to the max. If you have ever gotten testimonials from other people, get those and use those right there in Kansas City where you are. Another thing that you can do, you can actually show my testimonials, as well.
In our seller credibility kit you can say, now these are deals that colleagues of ours have done who use the exact same system that I do for buying houses. Let me show you our program, Mr. Seller. You’ll be able to check anything out you want to, you can run any thing you want to through an attorney before you sign. This is going to have to be legitimate and right and all before you agree. Do you think that’s a fair deal, Mr. Seller?
That should solve your problem. All you’ve got to do is get a chance to sit down with them. You have the right training and you have the right words to use. I want you to not get depressed by this and not pay any attention to it. In fact, you pretend it’s not even out there. If somebody brings it up, you bring it up and say, you know what; I’ve been in this business for many years. You’re absolutely right. There are scam artists out there and, in fact, there are some states that are even passing legislation against those very people; but they’re not passing legislation against me. We’re the good people, we can show you how to solve your problem today, if you’d like to. If not, let me leave you my card and, say in a couple of weeks, if you haven’t been able to sell your house, or deal with your situation, please, give me a call. I’ll be glad to come back out. I’ll be glad to show you our program. In fact, let me show you my card, right there is my web address. Now, scam artists don’t use a professional web site like this. I want you to go check it out. If you like what you see, give me a call back. If you’ve got a few minutes, we could check it out together and I could show you exactly how our program works.
So, keep trying to get in the door, and keep trying to gain their confidence. With our technology, our tools training technology and team, you can actually show the seller why it makes perfect sense to do business with you.
I work a lot with those in default. I am wondering how I could use the land trust system with them. For instance, I am working on one now and the person in default has two months before the sale date on the courthouse steps. She needs money now, $10,000 because her car was just repossessed. She owes, with penalties and fees, $170,000 on the house. It will take about $10,000 to get her out of default. She needs the other 10,000 to get her truck back. The property, after fix-up, is worth about $220,000. We figure it will cost with fix-up, holding cost, realtors, cost to sell, all those costs, property taxes and insurance, about $58,000, which means $220,000 minus 170,000, plus 58,000, equals 228,000, or an $8,000 loss. What’s the best way to deal with a situation like that?
What I’d recommend is all these issues, such as the fix-up cost and everything, are the same issues that the bank has. So, you could go back to the seller’s lender, and let’s work on a short sale on this situation. Take your cost to sell guideline; put the number at the top that they say it’s worth, or as we talked about earlier, your Comp Whiz, and that becomes the number you begin with. You deduct all of the expenses that it’s going to cost to sell, and that becomes the final bottom line number. Remember to put your renovation cost in there, as well as inspection gottcha’s on the renovation line. All those costs, all those fees are going to be included and then you’re going to deduct that from what the property is worth. You’re going to send that Cost to Sell worksheet, along with my full short sale package to the lender. You’re going to show the lender that there is no way in heaven that the $170,000 can be paid. In fact, you’re buyer, – remember when you’re calling the lender on a short sale deal, you’re calling them as a financial advisor- you’re client certainly can’t deal with this and you found a new buyer, but the buyer will only be willing to pay $130,000. You’re going to justify these numbers using the Cost to Sell worksheet. That will get the lender on your side to understand that you’ve done the numbers and you’ve proven exactly what the numbers are.
We have a question about short sale. We were approached by a homeowner who has two mortgages and in October, when her ARM adjusts, she will be unable to make the mortgage payment and still have money to pay her other bills. She had her home on the market and it did not sell. Even if it did, she would not have made any profit as the mortgages total about 93 percent of the value of the home. She is interested in selling the home to us. Of course, we would need this to be a short sale in order for it to be profitable. She is current with the mortgage now. Here’s the question: will the bank negotiate a short sale prior to her missing any payments, and/or prior to filing a foreclosure?
Absolutely, positively yes. The lender will work with you even though the mortgage is not in default. Now, why is that true? You are going to call as a financial advisor. You are working with Mrs. Jones, and you are going to explain to the lender, hey, the loan is not in default, but I’m calling to give you a heads – up. It’s absolutely headed for default.
Now, what we want to do is work with our client. First of all, let’s jump ahead. Maybe it’s a modification. The lenders, now, will do modification of loans. One thing you want to keep in mind is that adjustable rate loans can be made into a fixed rate loan. We can even get the interest rate lowered to the amount that you want to pay. Once we get the amount to what you want to pay, and the value is still there in the property, then it makes perfect sense to readjust that mortgage and keep it. Keep it as a subject to transaction. Leave the mortgage on the loan. Put your customer in there and you’re off to the races.
Now, if instead, the property is not worth it, and in fact, the mortgage is above what the property is worth, then absolutely, you’re going to have to go the short sale route. You go ahead and say, bank negotiate, if she’s not behind in payments, the answers yes.
What can we do to facilitate, at this time, purchasing this home on a short sale, or must we wait until she is delinquent on her payment?
That would be a “no”.
We are in Illinois. Jim is a realtor. She is not really interested in listing the home again. She just wants out.
You’re going to be able to go in, as I said, as a financial advisor and you’re going to go through and have her sign all of the documentation up front. That means you’re going to work this as a subject to deal, and also a short sale deal. You’re going to put together all the paperwork for short sale and a subject to.
By the way, when you go to MAS training, you actually graduate with all of the forms on auto-fill for subject to transaction. That means that you can merely go to the backside of your web site, your Lou Brown web site, click on MAN, cause we turn it on for you, and then you’ll actually be able to fill out one page and it auto-fills all of your documents. That’s for a subject to.
The short sale documents come from your MDM training. You graduate that one with an auto-fill disk as well, after you go through the in depth training. We want to make sure you know how to use it and we actually train you on how to use that – the forms, the paperwork, everything.
When doing a short sale, have you had a lender require that the homeowner bring the delinquent amount current prior to considering the short sale?
Yes, I have had lenders try repeatedly to have the seller bring the loan current before they consider a short sale. That is a slick move and they ought to be slapped across the face with a wet noodle for trying that one. That is an attempt, merely to coherce and extorts more money out of the seller and you. The Idea is we’re not going to give them a dime, not one red cent, until they agree to our short sale in writing. We actually set up the closing and we’re going to follow through on that. So, no. The answer: absolutely not. Don’t spend a dime. These lenders are just attempting to get the cash out of your pocket so they can back up later and say, no, we’re not going to consider a short sale. Even if they were to consider a short sale, they still got the cash. No.
All of it is inclusive and it’s good news that they are behind and delinquent in the amount owed because that just makes it more urgent for the lender to pay attention. If you haven’t been reading the newspapers lately, it’s absolutely critical for lenders to start paying attention because they have serious problems that they were self-inflicted wounds. They are the thing that caused the thing that is the thing that is taking them down. I couldn’t happen to a nicer bunch of guys, and in this case, it’s happening to them. I’d say, don’t give up any money.
I had a second lien holder do this to me recently and it kept the deal from materializing since I did not want to chance the money, and the seller could not afford to come up with the cash.
What I’d recommend is, in this market, I would recommend that you call them back. Call those people back because it’s likely that you will be able to get the deal. That will be one of your resurrected deals that we can talk about at MDM, because that’s where we go into deal structuring.
In that class, you bring your own deals to class and we actually work them right there in class together. So, you have an opportunity to see something that you are intimately familiar with come to life as a whole new opportunity for you. In this case, if Victor had brought this deal to class, I would say Victor; it’s time, now, to call those people back because I believe you can truly resurrect this deal. It didn’t go away. It just got stinkier, and hairier, and worse for the lender. That’s better for you.
When writing the purchase and sale agreement, do you figure the sales price around 50 percent of what is owed on the loan balance, or do you do a cost of sale sheet to figure it? I don’t want to offer too much if the lender might accept around 50 to 60 percent.
I understand that, so what we’re going to do is take today’s market with today’s value, making, if it is in a declining area with a declining prices, you are going to take that into account. You’re going to come up with a number that is a today number. You are going to use the Cost of Sale worksheet. You are going to go backwards and you are going to show the lender why it makes perfect sense for them to do business with you because you are also going to send them the entire short sale profits kit. That’s going to give them the reason to want to do business with you.
On the last call, you talked about developing a wholesale buyers list to get ready for this great buyers market. Please talk about some ways to develop this list.
First, I recommend that you start talking. I want you to pick up the phone and start making some outbound calls. You can find numbers in the yellow pages, and I want you to call CPAs, I want you to call doctors, dentists, chiropractors, those are what we call our level one buyers. Well, actually, level one buyers are retail buyers that pay full price. Our level two buyers are people that are in other businesses and professions and would like to have a deal, but understand they cannot get the very best deal because they have to put an entire business together to find those deals. All they’re looking for is an investment in real estate at a reasonable profit. Those level two buyers, or tier two buyers are folks that we can build a list of names and numbers.
Hey, Mr. Jones. I am in the business of buying and selling property. From time to time, I come across great deals. Would you like to know the next time I have a deal and an opportunity that I could turn you on to? What we do is not only provide you with the deal, with also provide you with all the back up documentation, with comparables and everything to prove the value to you, and then, actually give you an inspection report as well. So, you can totally understand what the property is all about, and exactly what your investment is. If that interests you, I’ll be glad to put you on my wholesale buyers list, and the next time I have a property, I’ll send you an e-mail with all the details. Would you be interested?
Let me get all your contact information and your e-mail address and we will send that to you the next time we have a deal.
Now, what I’m recommending you do, is when you collect those names, you go to the back side of your seller web site, actually the front side, and fill out that seller questionnaire. It gives you some details that you really do need from those investors, such as the number of bedrooms and bathrooms they’ll consider. The price range they’ll consider. The location they’ll consider. All those things are asked on that buyer questionnaire on your seller web site. That means you are the seller and it’s your buyer’s questionnaire.
Also, if you can get the buyers to go to your web site, that’s another key element, too. What they are going to do is sit down and fill out that questionnaire for you, they press submit and it auto loads your back end database. So, the next wholesale deal you have, you can actually pull up all the potential buyers and actually do an e-mail blast form the backside of your web site.
The third tier of buyer is kind of like REA members. People at your REA club, many of which are just getting started, if they are just getting started they don’t have a lot of background and they don’t have a lot of experience, then they are our third tier buyers. They deserve a little bit better discount than our doctors and lawyers do. Why do the doctors and lawyers not deserve as big a discount? They’re not in the business. This is not their business. This is our business. If you’ve got somebody just getting started, you can offer them, say, a 20 percent discount. They need to be recognized and noted as a different type of buyer. You can do that also on the backside of your web site in your notes column of your discussion with that lead. You can actually identify them as the type of buyer that they are.
The fourth tier, and final tier, is the pros in the business; other people who are full professionals. They buy, they sell, they mortgage, and they do all daylong business. Those folks deserve the deepest discount. Therefore, they are you’re fourth tier of buyer because you don’t want to give deep discounts if you can help it.
Compiling and managing these lists becomes a critical part of your over all business. Not only do we have wholesale buyers on this list, we also have retail buyers and people with poor to horrible credit on these lists that we can send our properties out to by e-mail the next time you have one come available. Having already created a buyers list is exactly where I want you to be operating your business today, particularly in this business environment. In fact, I’m recommending to my platinum coaching clients these days that they actually spend a significant amount, as much as half of their marketing budget on driving leads to their buying web site where they can collect leads and have people to sell to. In this type of market, we need to move quickly and put customers in those properties and not have to carry them for a long period of time.
I attended your Philly training. It’s awesome. I have questions about owner financing when I am the seller. What is needed to qualify a buyer interested in owner financing?
First, you are going to use my Agreement for Deed questionnaire. It asks other questions that the rental application does not ask; such as what are their monthly obligations, and what other bills do they have. All of it’s built into the application so that you can really get the information that you need, just like a mortgage company would use. It’s very critical information.
What closing cost is involved and how do I figure the closing costs out?
If you are the seller, you can determine whatever closing costs you want to ask. In most cases, we don’t even charge them anything for closing. We are already rolling points into the loan, and we’re financing those points over many, many years – usually forty years financing, so we really don’t ask for any more than those points, and we roll them into the loan.
Where should we have our closing since I work from home?
The answer is Denny’s, Waffle House, or your closing attorney’s office. Yes, you could even hold closings there because if you give them business, then they’re not going to mind sharing their office space with you.
What’s the difference between a demand for payment and a statement of rental default?
One is softer than the other.
So that everyone benefits from this question, what Brian is asking is actually from Volume 8, and that’s our Property Management System. We’ve got several different notices that we send to the client. If they’re a new client, they’re just getting started with us; we’re going to send them a demand for payment. We’re going to absolutely, I akin it to paper training your tenant. The way you paper train your tenant is to stick their nose into the paper, just like you would a little puppy when you are trying to train them how to go to the bathroom.
We’re going to train our tenants that our paperwork is not window dressing. It is real stuff. We really mean business with that paperwork; therefore, we’re going to demand that payment. If it’s been a good customer for a long term, then we send them a statement of rental default. That statement breaks down exactly their payment, what they’ve committed to, and what they owe us.
You use different paperwork in different situations, and it’s all there in Volume 8, Owner Financing. In fact, the instructions are on the CD as well, that you can listen to over and over again to guide you through how to manage your property.
When I hired my property manager, I told her listen, I’m not going to train you. These CDs are. You listen to them, you read that guidebook, you listen to those CDs again, and you read that guidebook again. Good, now you’re trained. You’re handled.
I have tenants in one of my houses being sold on a lease option. They gave me a $6,000 option fee to move in. They bought their credit, but in the last year, they have only paid their rent on time twice. I have sent them numerous Demand for Payment notice, and they eventually do pay. Now, they are two months behind, although they gave me a partial payment for June and July, they haven’t returned my calls, and now their phones are turned off. I drove by the property and they were still living there. What should I do?
My recommendation is that you should immediately file eviction. When you file eviction at the courthouse in which the property is located, courthouse for which the property is located, you go and you find the dispossessory or evictions office. I’m sure that the guard at the front door will know exactly where that is because there are people just like you that have been coming in there all day long. When you go, you’re going to fill out the paperwork and you’re going to get that served as soon as you possibly can. Then you are going to immediately call the tenant and say, according to the terms of our agreement with the owners of the property, I, as manager, must follow the rules. I have not been following the rules in the past, and therefore, I’m in a lot of trouble. I’m subject to losing my job of managing property with these people. I have already filed, with the court, the eviction proceedings. What I can do with you is if you want to do a work out plan, I can come over right now and I can do what is called a consent judgment. The judge will actually sign off and agree to it. That will mean that you will not have to be evicted from the property. Let me come over and explain this whole process to you.
You come, you meet with them, and you get whatever money you can. You fill out a consent judgment, that’s in Volume 8, and you’ll be able to avoid going to court, and avoid being in the cue for the eviction proceedings when all the other people are there and you have to sit there for two, and four, and six hours for an eviction.
Guess what. With our consent judgment, you don’t have to do that. You do a work out plan with them. The paperwork guides you through it. Basically, do a work out plan with them, you sign it, they sign it. You take it back to the courthouse and the judge signs it. Now, if they don’t pay according to the terms of that Consent Order, the judge will automatically issue a writ of possession for you, and a default judgment against them. That means you can immediately take your paperwork to the sheriff and set up an eviction proceeding where they put all their stuff out of the house and you can get your house back.