Solving Problems

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How many hours per week would you have to put into working at your job to make $164,200 per year? A typical person works 40 hours a week, which works out to 2,080 hours per year. If you earned $78.94 per hour than you would make $164,200 per year. Now how would you like that to be part time income? Here's how:

In the real estate arena the key would be to find motivated sellers. Don't look for homes that would be a waste of time and requires too much work. You want to have a program that will help you deal only with motivated sellers because you will be making fewer offers and getting more accepted.

What you want to have happen is to get motivated sellers to call you. That's the best way because if they call you than you know that they have a problem. Now there are many ways to this. You could run an ad that is what I do. A well-worded ad could bring you as many as 10 motivated sellers a week.

You could also have some flyers made up saying that you buy property: Have your flyer say that you buy any property, any condition, and any price. Take the flyers to car washes, Laundromats, bowling alleys, advertising boards in supermarkets, phone booths etc.

In addition to the flyers have some poster signs made up. Post them anywhere and everywhere you can, like telephone poles. Nail them to a stake and post them in the ground on every intersection in town

Make sure you have business cards printed and give them out everywhere you go. Let everyone know that you buy houses for CASH. Just give you a call!

Before long you will start getting a lot of calls. Most won't be motivated, but some will. When they call you, that's when you screen them over the phone first and determine if they're really motivated. If they are than you will need to set up an appointment and go visit them.

You want them to get comfortable talking to you. They may want to talk about their job, their problems at work, whatever, in any case you want them to build some trust in talking with you so you can build a relationship with them.

You want to become a problem solver. The more they talk, the more information they let out. The more information they let out, the more you learn about their particular problem. This approach is helpful because the more you learn about their problem, the more you will be able to find out what they really need.

There are three kinds of real estate markets - a "neutral" market in which there are roughly the same number of buyers as sellers; a "buyer's" market in which there are more Sellers than Buyers; and a "seller's" market, in which there are more Buyers than Sellers. The most difficult for the investor is the Seller's Market, because sellers have the advantage.

But even in a Seller's Market, approximately one in twenty properties is a bargain (in a buyer's market, this figure could run as high as 3 in twenty). Why would anyone sell below market value, especially in a Seller's Market? The answer is a motivated seller.

Here are 10 reasons (there are more) that exist regardless of the type of market:

Impending foreclosure. Rather than lose all their equity, they will settle for just a portion. So they want - and need - to sell right away.

Transfer. Many people get transferred by their employer, or take on a new job in another geographic area. They usually want to sell quickly, as they may need the profits to buy their next home.

Death. Heirs usually want to sell fast, to get their share. They probably don't even know what the property is worth. They may even live out of state, unaware of the future potential of the area.

Divorce. Couples separate, often resulting in the need for an immediate sale of property. High emotions can lead to great deals for the investor - sometimes out of spite for one another, sometimes because the immediate sale is ordered by the court.

Bankruptcy. This may force an immediate sale of property, often at discount prices or very easy terms.

REO's (properties owned by a bank). Federal law states that banks are limited to the dollar value of real estate they may own. When they have reached that amount, they may be willing to accept terms they otherwise might not have considered.

Management problems. Apartment house owners often suffer from mismanagement that causes losses and headaches. They just want out, and they want out NOW!

Taxes. Being hit with a large tax bill can induce a person to sell quickly. He may also want to sell low, to keep from increasing that tax bill any further.

Medical bills or college tuition costs can often induce a person to sell quickly.

Absentee owners may want to cash out quickly either because they cannot manage a distant property, or perhaps they want to invest in a better investment, and need the cash quickly to take advantage of their new opportunity.

Yes, bargain properties are always available, everywhere, regardless of other economic factors. You can make money if you can solve their problem, if you can't you wont, but you need the information first so you can now figure out a solution that will solve their problem by being able to give them what they need. Your solution to their problem gets them what they need.

Example

Let me give you an example on buying a house for 30% under market without using your own credit and with very little money out of your pocket. Mr. Seller has a newer home he purchased about three years ago. When he purchased the home, he paid $125,000 and put 10% down. He was able to qualify for a 90% loan at 7% interest. The market has gone up nicely in the last three years and he has a fair amount of equity. The house is now worth about $190, 200. His payments are $900.00 per month, which includes taxes and insurance.

He has a problem however; he is three payments behind on his mortgage and is facing foreclosure. He has tried to borrow money to catch up but no one will lend him any money. This is where I come in.

I offer to buy his property for his loan balance of $108,818 plus $2,700, (the back payments) or $111,518 total selling price. I agree to take over the seller's mortgage "subject to," which means I assume the seller's loan without even qualifying through the lender that holds the seller's mortgage. The seller will deed the property over to me. I now own the home. The seller is still on the loan that has the lien against the property. The seller remains responsible to the lender for that loan until it's paid off.

Now why would the seller want to do that? The reason is, I will let him buy it back from me in a year for $114,218 also subject to the first mortgage. So if he buys it back I will make a profit of $2,700.

What if he doesn't? Than I will obviously make more profit. A year from now the house is now worth $209,220. That works out to about $98,220 worth of equity. Mr. XSeller now a renter is still in bad shape. He is three months behind in rent to me. His rent was $900, which was the same as his house payment before I bought it. He still can't get a loan. So far I'm out three payments plus the $2,700 I gave him, total $5,400.

Since I'm in the drivers seat I tell the seller he will need to move so I can sell the home. Because I'm a fair person I tell him I will give him 30% of the profits. That's better than the bank would have done had the bank foreclosed on him before. He wouldn't get anything. Mr. Xseller lives in the house rent-free for now.

It takes us three months three to sell the house for $210,000. I do it myself so as to save the commission. The total profit before my costs is $99,000. I paid $2,700 to start and six months of payments totaling $8,100. The total net profit after I'm paid back is $90,900. I give Mr. Xseller $24,570 and I get $74,430 of which $66,330 is pure profit in only 15 months. That works out to an annual return on my money of about 800%. Do you want to keep your money in the bank for 4% interest?

Now I could have done this deal using a different strategy. Here's how:

Instead of selling the property for cash right away I tell Mr. Xseller that he needs to move so that I can sell the house. I agree to give him 30% of the profits when the house is sold as well as paying for his first and last months rent at another place. So I front him about $3,000 to move.

Selling the property

I know that the fastest way to sell a property is to find a motivated buyer. What is a motivated buyer? Motivated buyers just need someone that will sell to them. They normally can't get a bank loan and have not so good credit.

Motivated buyers only care about two things: How much down and how much per month? If they can afford the payments and have enough to put down in order to allow them an opportunity of owning a home, price doesn't matter to them as much. They just want to be able to buy a home.

As I said earlier you need to solve problems. The way most people make money in this game is by using creative techniques to solve problems while being able to structure the deal to make a profit.

I'm going to sell this house on great terms, so I run an ad in the paper which said:

Lease With Option To Buy this beautiful 3 bedroom, 2 bath home, with 2 car garage. Low down with No-Qualifying. Call 303-642-XXXX

Believe me with an ad like this the phone will start ringing off the hook!

I find a potential Buyer that has $7,500 to put down and says he can afford to pay $1700 per month. I agree to give them an option to buy the home for $223,000 in one year.

Similar homes in the area would rent for about $1,300 per month, so getting $1700 a month on a $1300 rental when offering an option to buy is premium rent. People will gladly pay it because no one else will even finance them because of one reason or another. Plus, I'm getting a premium on the sale price because I'm offering terms.

What's in it for me?

I collect the $7,500 up front as "Non-Refundable Option Consideration" and if they exercise the option, the $7,500 will be deducted from the purchase price of $223,000, leaving my Tenant/Buyer with a balance owed of $215,500. If they don't exercise the option, the option money paid is non-refundable and is lost.

I get the $7,500 up front, plus first month's rent of $1,700. Now remember my payments are $900 per month. So I collect $7,500 + $1700 first month rent up front, for a total of $9,200. The following month I collect the full $1,700 which is $800 per month positive cash flow.

At the end of the year, if the tenant/buyer exercises their option, they will pay $215,500. After paying off the underlying mortgage of $108,500 remaining on the Mr. XSeller's mortgage, I'll collect another $107,000 at closing.

So lets see, that's....

$7,500 option money up front.

$800 x 12 months rent positive cash flow = $9,600.

$107,000 at closing ($215,500 - $108,500 = $107,000).

That's $124,100 over 12 months total profit. Now I had agreed to give Mr. Xseller 30% of the profit when the house sold, but not any profit on the positive cash flow or option payment. So I take $124,100 - $3,000, - $8,100, (11,100) which equals $113,000 times 30% which is $33,900 for Mr. Xseller.

My share of the profits is $7,500 option money up front.

$800 x 12 months rent positive cash flow = $9,600.

My 70% share $73,100.

My total gross profit is $90,200 minus my investment 0f $8,100 leaving me a net profit of $82,100 on an $8,100 investment over two years.

What if my tenant/buyer doesn't exercise the option?

That would be great. Now I get to start all over again. I get to collect another option fee of $7,500, raise the rent after a year for inflation, and get a higher selling price for the option the next time around. I just keep repeating the process over and over again until someone eventually exercises the option.

Assuming all the tenants exercised their options in the first year, how many deals like this would you have to do each year to make $164,200?

Just two deals like this one and you're making $164,200 per year!

What I did was to solve problems for people. I found a seller who was going to lose his home because he was behind on his payments. If the bank had foreclosed he would have received nothing. I gave him 30% of the profits. How many hours would that work out to be to find and structure two deals like this and get a Tenant/Buyer in the property? I would estimate about one hundred and that works out to $1,642.00 per hour.

Thank You For Reading

Jan H. Gaudina

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