Success Story

Wholesaling and Assigning Contracts

This strategy allows you to make money in real estate:

With no money or very little money
With a bad credit score
Without having to get a loan
With no job or low paying job
Without having to fix anything
Without taking risk of getting property sold (getting stuck with property)
Without having to own anything or put anything at risk

What is Wholesaling and Assigning Contracts?

The basic premise of Wholesaling is finding potential deals, analyzing those deals, getting them under contract and then assigning the contract to another investor for a fee. The investor will then actually close on the deal and take responsibility for getting the property fixed and sold or rented.

How does it work?

Assigning vs. Double Closings

Assigning

After the wholesaler has the deal under contract they will assign the contract over to the investor buyer using an “Assignment of Contract” form.

-Easiest and cleanest method
-Wholesaler paid at closing by title company (don’t worry about not getting paid)
- One contract

Double closings

This type of wholesale deal involves the wholesaler actually closing on the deal and then selling it to another investor immediately.

-Don’t do this method if you don’t have to
-Two contracts involved
-Wholesaler needs funding to close the deal (at least for a minute)
-Two sets of closing costs

Should you assign deals or rehab them yourself?

-What would you rather do?
-Rehabs typically require more money
-Typically make more money on rehabs
-Quicker short term profits with Wholesaling
-Make less money per deal Wholesaling
-Do more Wholesale deals and make same amount of money overall

What is creative financing?

Commonly used phrase which involves non-traditional types of funding that are not commonly used. Most of these techniques involve the seller not having to use much or any of their own money.

Lease Options
Subject2 deals
Hard Money loans
Seller financing
Private loans
Wrap-around Mortgages

Definition of Wrap-around mortgage

A seller financed deal where the sellers existing loan stays in place and a 2nd loan agreement is created between the seller and the new buyer.

Example
Owner of a property has a $100k existing mortgage at 5%. Current payment is $537. You make offer to buy the property for $105k at 7% interest and create a loan with the seller resulting in a pmt from you of $699. Seller will continue paying on the 100k mortgage or $537 a month and collect your $699 and pocket the $162 difference.

Benefits of a Wrap-around mortgage

Benefits to Buyer

• Smaller down payment (or maybe no down payment)
• Easier qualification
• Lower closing costs
• Don’t have to work through lender – no arduous underwriting process
• Don’t have to have good credit
• Don’t have to be employed

Benefits to Seller

• Quicker sale
• Increase the pool of potential buyers
• Create stream of cash flow
• Collect high rate of interest
• Defer taxes on the sale

Wraps to Create Streams of Cash Flow

• As investors we are always looking for huge discounts 30-50% off
• Using wraps you don’t have to find deals at these huge discounts
• Investors can create streams of cash flow by collecting cash on higher rates of interest than they are paying the bank on the underlying loan.

Mkt value $100k
Buy (assume mortgage) for $95k at 6% - Pmt = $570
Sell for $105k at 10% - $921
Positive CF = $351

How do they work?

Many sellers will have never heard of a wrap-around mortgage. Don’t expect people to be offering their homes on a wrap; you will need to put the numbers together and incorporate this type of financing into your offer. You will play the part of consultant as you educate them on the strategy as well as show them how it is beneficial to them to do this type of a deal.

This is how you create creatively financed deals. I hear many people say they “can’t find good deals”. Well, we don’t always find good deals, we have to create them.

What to watch out for

What if the seller doesn’t make the payment on the underlying mortgage? You need to make sure they ARE paying. You can do this buy using a third party to make those payments, you can make the payment directly to the bank for them and send the additional amount to the seller, or get access to their bank via internet or phone so you can verify payment.

What is creative financing?

Commonly used phrase which involves non-traditional types of funding that are not commonly used. Most of these techniques involve the seller not having to use much or any of their own money.

• Lease Options
• Subject2 deals
• Hard Money loans
• Seller financing
• Private loans
• Wrap-around Mortgages

Definition of Subject To

A real estate transaction where title to the property gets transferred to the new buyer and the new buyer takes over the payments on the existing loan. The seller’s existing loan is not satisfied or paid off; the house is bought “subject to” the existing mortgage.

Example
Owner of a property has a $100k existing mortgage at 5%. Current payment is $537. The buyer makes an offer to buy the property and simply takes over the $537 payment. Title transfers and the buyer is now the new owner of the property.

Benefits of doing a Sub2 deal

Benefits to Buyer

-Smaller down payment (or maybe no down payment)
-No loan qualification
-Lower closing costs
-Don’t have to work through lender – no arduous underwriting process
-Don’t have to have good credit
-Don’t have to be employed
-Can do as many of these deals as you want because they will never show up on your credit

Benefits to Seller

-Quicker sale
-Increase the pool of potential buyers
-Relieved of mortgage payment
-New buyer will build their credit score with consistent on-time payments

How do they work?

Many sellers will have never heard of a Sub2 deal. Don’t expect people to be offering their homes Subject to. You will need to put the numbers together and incorporate this type of deal into your offer. You will play the part of consultant as you educate them on the strategy as well as show them how it is beneficial to them to do this type of a deal.

This is how you create creatively financed deals. I hear many people say they “can’t find good deals”. Well, we don’t always find good deals, we have to create them.

What to watch out for as an investor

• Make sure the title is clear that you are taking over – Do title search
• Make sure the numbers work on the deal – Work financial analysis before buying
• Have a clear exit strategy – buy and hold, buy and sell, wholesale, etc.

Concerns to the Seller

What if the investor doesn’t make the mortgage payment?

Answer-

• You are an investor and are doing this deal to make money. If you make the payment you make money on the deal. It would be a waste of time to do a sub2 deal and then not make the payment. What’s the point?
• The loan is still in the seller’s name and they can monitor on time payments on the internet or by calling their bank
• Tell them if you are late ONCE you will immediately deed the property back to them
• What other options does the seller have? Probably none. Many Sub2 deals will be with houses going into foreclosure.

What if the bank doesn’t want to do this kind of a deal?

Answer-

• In most cases the bank will not even know you are doing the deal. They don’t monitor the country recorder’s office to see if title is being transferred on their properties.
• Even if the bank does know, typically they won’t care as long as the payment is being made
• Banks will get notified if insurance is changed but, again, they probably won’t care.

The Dreaded Due-on-sale Clause

• When title transfers the bank has a right to call the note due. They have the RIGHT not the obligation. The question is will they?
• If they do call the note and you can’t refinance and don’t have the money to pay the bank, their only option is to foreclose. In this market do you think banks will foreclosure on homes that have a fully performing underlying loan? Probably not.

Working effectively with Partners

• This might initially scare you
• Keep an open mind
• It is not working with some stranger; you will become friends with them and it won’t be so scary

Why work with partners?
• Source of money
• Source of knowledge and expertise
• Diversify risk
• Source of deal flow
• Source of credit

How to work with partners?
• Can own property jointly in your names
• Set up entity – management agreement sets forth rules

Structuring deals
• Simple cash loan
• Equity split
• Hybrid deal

Simple Cash Loan
• Partner lends money and is paid a percentage interest rate
• Try and defer interest payments

Equity
• Partners split equity and ownership of the deal
• Don’t give away the farm

Hybrid
• Cash loan for interest
• Equity split

When to use what strategy?

Cash only

Pros:
• Getting cash the least expensive to you
• Don’t have to share the equity

Cons:
• Cash payment required to investor
• May not have the cash
• Not sharing risk
• Deal goes bad, you still owe the money

Equity

Pros:
• No cash expense
• Share risk
• Deal goes bad you don’t owe anything

Cons
• Giving up valuable piece of deal

Hybrid

Use this strategy when getting resistance from potential investor or you feel more comfortable with this structure. They may be concerned about giving you cash and not getting immediate return so you can offer some cash payment combined with a small piece of equity. Conversely, they may not want immediate cash; they may want a piece of the deal, so you can give them a smaller piece of the deal and some cash payment.

You decide what is going to work best for you and propose deal and negotiate from there.

Are you looking for a good area to invest? I frequently get asked by investors where they should look for deals. I always tell people to start in their own local markets where they can “see, touch and feel” the deals. However, if you have an itch to reach out of your local area, below are some places you may want to look.

What I like most about this note is the phrase “motivated sellers are slashing prices.” That is music to my ears. Investors (you) love motivated and flexible sellers!

Las Vegas Leads Cities for Top Housing Deals

Property values are down, but in some cities sales are up because motivated sellers are slashing prices and buyers are getting deals.

“There’s a pretty active housing market, it’s simply at a lower-priced inventory,” says Michael Feder, chief executive of Radar Logic, a New York derivatives firm.

In San Diego, Calif., transactions are up 90 percent as buyers compete for available bargains.

“Unlike stocks, housing has intrinsic value,” says Barry Ritholtz, chief market strategist of Ritholtz Research, a New York research firm. “Outside of Love Canal or Detroit, house prices do not go to zero.”

Here are the cities where sales are up the most in the last three months:

• Las Vegas
• Sacramento, Calif.
• San Diego, Calif.
• Los Angeles
• Detroit
• Phoenix
• San Francisco
• Washington, D.C.
• San Jose, Calif.
• Atlanta

I came across the note posted below and wanted to highlight a few things. Firstly, it is good to keep your eyes out for different offerings like this by different companies. In general, it’s just good to know what is going on in the market and what different people are doing.

Secondly, there may be good opportunities that arise from these types of offerings.

Thirdly, it’s always good to be around and associate with other investors. There is much to be learned from meeting and talking with other investors and learning about their business. How are they finding deals? How are they funding deals? What types of strategies are they using? Also, there is always the opportunity of partnering with these investors, doing deals together, having them as wholesale buyers, etc.

Novel Home Sale Strategies Drive Bargains

In California, Florida, Las Vegas, and other housing markets hit hard by the downturn, real estate brokerages are renting buses and taking interested buyers and investors on tours of foreclosed properties.

Those taking the $20 tour offered by the Keenan Carter Group in Pismo Beach, Calif., partake in refreshments while receiving information on mortgage financing and how much a particular home could generate in rental income. Meanwhile, the Santa Clara County Association of REALTORS® is holding “The Biggest Open House Day of the Year” in California’s Silicon Valley on April 13, with incentives given to buyers willing to make on-the-spot offers.

Besides bus tours, association President-elect Quincy Virgilio also expects the housing downturn to make such renew the popularity of financing options such as equity sharing - in which an investor covers the down payment for the party planning to occupy the home.

Source: Realty Times, Broderick Perkins

I normally do not like posting long articles but I’m going to make an exception. A seemingly insurmountable obstacle to buying property in today’s market is getting financing and a large part of getting financing today is down payment money. This article discusses how properties can still be purchased with low down payments. Through the Federal Housing Administration (FHA), qualified buyers can still secure loans with just 3-5% down.

This should be very encouraging news to those of you that thought you would need to come up with 10-20% down payment.

NEW YORK (CNNMoney.com) – The credit crunch has made it hard for anyone to get a loan these days - and borrowers who can only make a small down payment are facing even tougher odds.
But it’s not impossible to land a low-down payment loan. The Federal Housing Administration (FHA) is actually still offering 3.5%-down mortgages to qualified buyers, even as the subprime loans that these types of borrowers had traditionally relied upon have dried up.

The FHA has been flooded with applications; in 2008 it helped 630,000 borrowers buy homes, most of them using low-down payment loans. “People can get an FHA loan with very little out of pocket,” said George Hanzimanolis, a mortgage broker in Pennsylvania and past president of the National Association of Mortgage Brokers.

He recently arranged an FHA mortgage for a client last month for $242,500 on a $250,000 home. The interest rate came in at 4.75% for a 30-year fixed rate loan, yielding a monthly payment of only about $1,265 - just $15 more than the rent the buyer had been paying on a smaller home. The tax savings will more than offset that, as well as his property taxes and insurance.
No wonder the program is flourishing.

How to get an FHA-insured mortgage

Applying for an FHA loan isn’t difficult, and the parameters for those who qualify are fairly straightforward. Start by calling a mortgage broker or an FHA-approved lender. You can search for an FHA lender on the Web site of the U.S. Department of Housing and Urban Development.

For lenders, income is the main factor in determining who qualifies for an FHA loan. The agency’s guidelines dictate that that buyers spend no more than 31% of their gross income on mortgage payments. Lenders do look at buyers’ credit histories, but the interest rates that FHA borrowers pay aren’t actually based on their credit scores, as they are for most home buyers, according to Keith Gumbinger of HSH Associates, a publisher of mortgage loan information. Instead, FHA borrowers get the same interest rate that any conforming borrower with a good credit score would receive.
One catch: Borrowers with scores of 500 or less are generally required to pony up a down payment of 10% rather than the 3.5% minimum.

The FHA also charges insurance premiums, which pay to cover any defaults. Borrowers pay an up-front fee of 1.5% to 2.5% of the dollar-value of loan, as well as an annual fee of 0.5%.
So a buyer of a $200,000 home would be expected to come up with a $7,000 down payment as well as $5,000 for the initial insurance premium. The borrower’s monthly mortgage payment would come to about $1,096, including the 0.5% ongoing fee, at an interest rate of 5%.
And there is a limit to just how much can be borrowed. In most parts of the country, FHA borrowers may not finance more than $271,500. In high-cost areas like New York and California, the cap is $625,000 for single family homes. In Hawaii, the cap is as much as $721,050.

And there is even more help available to lower-income home buyers from the government-funded American Dream Down Payment Initiative program. That fund makes $200 million a year available to help low-income home buyers pay for down payments, or to make home repairs. To be eligible, a borrower’s income must be no more than 80% their area’s median income. And the grants may not exceed $10,000, or six percent of the home price, whichever is greater.

By Les Christie, CNNMoney.com staff writer