Motivated investor, delusions dreams and aspirations, I really need help

[txrigdiver]

I’m not exactly a new investor, I do have some experience but my repertoire and vocabulary is limited so I am new in many respects.
I am interested in learning how to purchase properties 2 ways,

1) mortgage preforeclosure in Texas, 21 days from notice of default to auction block. I actually have some good sources for this and am under tutelage by some industry pros (This site has also been invaluable). As long as the numbers work out I shouldn't have any problems with financing. I know where to get the lists and I know where to get the letters. I don't know anything else except to actually mail the letters multiples of times and when someone returns my call NO MATTER WHAT DON'T PICK UP THE PHONE.

2) I want to learn creative financing offers. All I have now is questions and ASSumptions, for example:
If I’m looking at the MLS or a local rag on FSBO’s, why would I want to make even a creative offer on a property that has been on the market for over 180 days. If they can’t sell it what makes me think I can?
OK, how about putting the cart before the horse, where and how do I find the properties most likely to accept a no money down and owner financing deal? But I can’t do that unless I ditch the cart, get on the horse and have an exit strategy already planned.
OK once I have an exit strategy (for sake of argument I want to control this property, rent it out and have a positive cash flow, I actually want 50 in the next 5 years), and I know where to look for these deals, how do I analyze and crunch the numbers so even a fraction of my offers are accepted AND I still have equity and positive cash flow? Heres what I do know, Property taxes in at least this part of Texas are killer at upwards of 4% annually in some neighborhoods and our rental market here in Harris county is pretty soft.
Since I learn best by doing what I’m really wanting here is a mentor, someone who has done it and is interested in teaching it from the beginning very slowly so I can start making offers very quickly.
I am a quick learner and I'm not afraid to knock on doors or pick up the phone, as long as I know what I'm doing. It's kind of like public speaking, I can easily get in front of a thousand people and talk for an hour as long as I know what I'm talking about, but if I don't, it aint happening.

It's just me down here Don. I have a guy in mind, let me see if I can get him to show up? :SM057:

[txrigdiver]

I know thee are people who do creative financing deals and are successful at them. There's a lot of good advice on many topics on this bulletin board but I haven't found much on creative financing. This could be a whole new arena for someone to step up to and show not just me but everyone here one more way of possibly making deals happen. I'm the newbie in this area and would really like to explore the possibilities of making it work. any advice, positive, negative or even neutral would be of help.
Thanks,
Don

[Michael Morrongiello]

Hey Harris County, TX;
We have been buying, selling, leasing, managing, doing lots (TONS) of "paper" deals, etc. for over 20 years and there are new things to learn all the time.

A lot of our ability to earn profits when others are scratching their heads is because we have take some time to THINK through the problems created by others in formulating solutions. Often so called "creative financing" is nothing more than solving another persons problem.

I was told and have also heard a long time ago that; "Real Estate is not a running man's game but a Thinking man's game..."

If you are new to the game, don't fret as there are a lot of helpful people in the business, many on these boards that are wiling to give of themselves if it can benifit them as well a solve you or your customers dilemma.

Best to your success,
Michael Morrongiello
www.sunvestinc.com
Since 1983 Creative People with Creative Solutions

[Dan Auito]

Don what I think Mike is saying here, is that each potential deal has its own particular problems to solve, the question is, can you get enough information to formulate a custom solution to the bigger parts of the problem.

I wouldn't rule out any deal until it became clear that there was no potential profit to be made for the time and effort spent in doing the deal, it helps to know property values in your target areas and to get those payoff amount figures, annual taxes, insurance to get the baseline.

From there it's holding periods, repairs, marketing time and transfer costs to the end buyer, renter, lease optionor etc.... Those things can be figured out pretty quickly from the start, the problem lies in whether or not the seller is sufficiently motivated to allow you to provide your creative solution.

[Aldo]

Putting a deal together is the thing I most enjoy, but only if it's a problem. I like a challenge and creative financing often is exactly that - a challenge. But, as Dan metioned, each deal is different and that's to be expected. Sadly, that precludes going beyond seller financing when offering suggestions for creative financing and even seller financing is often handled creatively. An example of that is a seller who took back a $20K 2nd mortgage and forgave 1/2 of it if my first 60 payments were made promptly. I never walk away from a closing without cash in my pocket, usually in the $5K range. Not a lot, but cash is cash. I once used sale proceeds to pay off the buyer's civil judgements. One of my better deals was the purchase of a $40K property which I paid for with a $59K mortgage. I doubt I'll ever be able to duplicate that, but it sure was fun putting it together. In fact, I doubt I'd be able to duplicate any creative deal I've done. Each property is different, each seller is different, lenders are often different, the current and projected markets are usually different, etc. It boils down to that fact that no two creative deals will probably ever be exactly alike.

When being creative, you need to seriously analyze every 'what if' you can imagine. If an idea makes sense, put it in your offer. If it doesn't make sense, put it in your offer, anyway. I had one offer that was countered 11 times before we came to an agreement. I had another deal that became so complicated that closing took 3-1/2 hours. I'll sit at the closing table any day of the week for $10K per hour.

Fire up your imagination and start shooting off some offers. Most will be rejected, some will be countered and a very few will be accepted. That's just the nature of the beast.

[David Leach]

Hi Don,

I would be happy to give you some guidance concerning creative financing. Without having specifics, I can't give a simple answer in this email, since creative financing ideas are limitless.

I will comment on your one question about the house on the market for 180 days.

There is basically only one reason for a home to be on the market that long... the price is too high. Now, that doesn't mean it doesn't have appeal for a RE investor. In fact, these can be the most attractive because the seller tends to get desperate after awhile.

These are some of the best to approach with creative financing ideas. If the terms are right, you can pay up to full price for a home and still make money. Some creative offers to make are:

1. Seller financing of the entire purchase price
2. Seller financing of part of the purchase price
3. Lease/option
4. Buying "subject to" existing liens

There are a myriad of other ideas, but this shows how it can work.

Now, how can you make your money? These types of homes are ripe to sell to bad credit buyers who need creative financing to buy. That's what cool about these strategies, you can use them to get the home and then use them to sell it.

The key is to find discover the motivation of the seller. Why are they selling? What kind of money do they need from the sale? Do the need that cash now, or can you pay it later in some form?

Make sure you have an exit strategy and you can make an offer on any home using creative financing strategies.

David

[txrigdiver]

I love it. To each of a big warm Thanks. Because I know so little here I feel like I'm making it more complicated then it needs to be, but bear with me, I'll sort it out. Dan is this something you want on the message boards or should we do it through e-mails?
To address Michael and Dans posts; And I guess the first part there is the benefit to those willing to help. We'll, we get warm and fuzzy's anytime we help someone, like seeing the light of understanding go off in my daughters eyes when she grasps a concept I'm trying to teach her is a warm and fuzzy to me because I've made a contribution to her understanding. I also have very high expectations and pay her cold hard cash for her grades on a sliding scale. I don't expect anyone to reveal these secrets and the mechanics of making a deal work without some kind of payoff, whether it's through the purchasing of course material or maybe partnering on some deals. I wouldn't really even ask anyone to do that just for free. Since my entire real estate experience has always been partnering with others and it's worked so well for me I'm very much interested in that kind of deal. I'm a very large fan of Ayn Rand (Atlas Shrugged) and her philosophy, basically value for value. For anyone willing to mentor with me and allow me to ask questions and giving me some direction and showing me the ropes I would insist that you take part of the profit.
So, the creativity part in creative financing is a process of discovery, getting the seller to be comfortable enough to open up and tell me about the bottom line of what they need and me being clever enough to recognize what they are saying, probably with them not even saying it very clearly, then clarifying what they are saying and giving them what they want. That's where the initial contact and the scripts I would use would come into play. I guess asking effective questions of the seller.
AS far as figuring property values, I have a three year history of sales in my county by 79 zip codes broken down into Avg. DOM, Avg$$/sqft, and number of units sold per month by zip code, further I've broken down the zip codes into 5 levels of housing from low level housing all the way up to upper level housing with a spread in each zip code from the cheapest property values to the most expensive. (all in excel spreadsheets with graphs of every category - a little of my engineering background peeking through)

[txrigdiver]

Aldo, you're first. I enjoyed your post and I see we have some things in common. As nice as the payday is I really seem to enjoy the negotiating and problem solving too. How boring it would be if every deal was a cookie cutter. I don't understand your best deal where you paid for a $40K property with a $59K mortgage though.
You say to analyze every "what if" I can imagine. "What ifs" are nice because they are options the more options we have the better choices we can make or offer. At this point in my experience I don't know too many options yet. I can see that every offer I make is going to expose me to more and more of those "what ifs" so I create my map legend or tool box by exploring. I can do that, I have to do that. Theres an element of fear here though, maybe fear isn't the right word. I don't want to make an offer to someone on piece of property that is ridiculous or insulting, maybe even unfair. I guess I'm afraid of what their reaction would be, maybe ending negotiations. Does that make sense?

[txrigdiver]

Mr. David Leach, I really do appreciate your time. I am going to purchase your book, I just wanted to let you know that up front. And here is where I'm going to get creative. I realize you are very successful and your time is very valuable. $30.00 isn't a lot of money for a single copy of a book and frankly I couldn't imagine what your time is worth. I don't know if you do personal coaching/mentoring but I'm all ears, I'm more then willing to do anything you tell me to and be accountable to you. I would like you to help me come up with some kind of business plan, a plan of attack if you will. It doesn't have to be anything elaborate, just an action list of things to do, I don't even know what I don't know right now. I'm hoping your book will spell some of that out. But if I could do some reserch and come up with a list of properties I'd like to make offers on, based on the criteria you tell me and you could help me formulate the offers, and explain to me why we are doing what we are doing, including the exit strategies I would be more then happy to split any profits with you. That really goes for anybody but I remeber being told to find someone who has reached a level of success doing what I want to do and emmulate them and I would end up with the same results. I would really like to achieve the level of success you have.
Again I appreciate your time.

[brianb_cobbres]

Mr. David Leach, I really do appreciate your time. I am going to purchase your book, I just wanted to let you know that up front. And here is where I'm going to get creative. I realize you are very successful and your time is very valuable. $30.00 isn't a lot of money for a single copy of a book and frankly I couldn't imagine what your time is worth.


I wonder if you could get David to finance the entire purchase. After all, #1 is "Seller financing of the entire purchase price".


Please note, this post is a joke and not intended to offend anyone of be a "jab" at anyone.

[GoodLife]

Hey Brian! That is truly creative financing.

Those were his words.

Great idea.

Ray

[David Leach]

I wonder if you could get David to finance the entire purchase. After all, #1 is "Seller financing of the entire purchase price". :SM013: "

I'm not exactly sure why this was posted. It looks like some sort of a "jab" at me. I only offered advice that I have personal experience with that has worked.

I thought the purpose of this board was to help each other. This is what I did.

[David Leach]

Hey Brian! That is truly creative financing.

Those were his words.

Great idea.

Ray

See my reply to Brian.

[txrigdiver]

David, anytime someone of your caliber takes time to help out the "little people" in this business then it shows a side of your character that really can't be diminished by anyones jabs. I appreciate your time and I look forward to speaking with you in the future,
Thanks Again,
Don

[brianb_cobbres]

I'm not exactly sure why this was posted. It looks like some sort of a "jab" at me. I only offered advice that I have personal experience with that has worked.

I thought the purpose of this board was to help each other. This is what I did.


David, I am sorry you were offended by my post but it was only a joke and was not a "jab" at anybody.

[David Leach]

David, I am sorry you were offended by my post but it was only a joke and was not a "jab" at anybody.

That's cool. No problem. Have a great weekend!

[GoodLife]

Hi David.

I'm not exactly sure why this was posted. It looks like some sort of a "jab" at me. I only offered advice that I have personal experience with that has worked.

I thought the purpose of this board was to help each other. This is what I did.

You are right. I think the forum is for helping people, which you were obviously doing.

Brian's comment was quite innocent, in my opinion, as was mine.

Sorry you were offended by my post.

Ray

[David Leach]

Hi David.


You are right. I think the forum is for helping people, which you were obviously doing.

Brian's comment was quite innocent, in my opinion, as was mine.

Sorry you were offended by my post.

Ray

That's cool. No worries.

[Aldo]

The deal you asked about was really rather simple. The property needed a lot of work. Having a good, long-term relationship with my lender, I was able to convince them to do a mortgage based on a 'future value' appraisal ($74K). The mortgage proceeds remaining after paying everyone their due was placed in an escrow account from which I could draw funds to pay invoices for the work and/or materials. Since I was able to get the work done for substantially less than the original estimates, there was a fist full of dollars left in the escrow account which were mine to do with as I pleased.

[cfc]

Don,

I don't have much experience, but while you are learning everything, it may make sense to focus on one or two things first. I've tried to work creative deals on the buy and sell side, and some of them fell through because although I knew how to do them, I didn't know the ins and outs of negotiations and details.

That being said, this is how I finance my rehabs:

1. Find a property that is selling for less than 75% after repair FMV minus repairs.
2. Get hard money loan for purchase + escrow for repairs.
3. When done with repairs, either sell outright, or refinance and rent.

These have not been $0 down technically, but I've put the $7-$15K I needed on my credit card. With proper analysis, the rental properties cash flow even with the credit card payments. The one I'm closing on this week will pay back all my holding/closing costs and net me a good profit.

Ideally, you would have a pool of cash and not need the hard money loan in the first place. That's my next step, to accumulate enough working capital to avoid the Hard Money fees.

Give me a call if you ever want to talk about creative financing details. I haven't done a whole ton, but I've studied them quite a bit and could probably at least get you started. But if you find someone who is willing to mentor someone in Houston and want to split the cost, let me know!

Joe