Example Deals: 100% Owner Financed Real Estate Investing Deal Analyzed – Does It Make Sense In FL?
Articles,  Blog

Example Deals: 100% Owner Financed Real Estate Investing Deal Analyzed – Does It Make Sense In FL?


Joe: Hey, it’s Joe. I’ve got another deal
to analyze here. This is another email that I received. This one came from C.R. Harpe
in Florida. Thanks, C.R. C.R.: “I have a deal that has some good features
to it but I’m broke and have bad credit. I need this deal to get some cash flow coming
in and start replacing my income and allow my wife to be home with the kids. I’ve located
a grouping of duplexes that the seller is willing to sell with 100% owner financing
for $109,000 for each building. They’re rented and in good shape. I contacted a local realtor
that I found on Craig’s List and she drove by and said that they looked good and that
his rents are normal. If I can get my own financing, he’ll give me a 20% discount for
not having to carry the note. I cannot go to traditional lenders because my FICO is
596.” Joe: And these days if you want to get an
investment loan you’re going to need a 720 and you’re going to need to show income to
support those properties even without their rent. It’s very difficult to get an investment
loan these days. C.R.: “I found a private lender but most won’t
touch anything under $1,000,000. The only one that I found that will handle smaller
acquisitions will do 65% loan to value on the appraisals or purchase price, whichever
is lower.” Joe: This is hard money he’s talking about
here and I would stay away from hard money, unless you know for sure that you’ve got a
buyer and you’re going to be able to get out of that deal quickly. Hard money — I can’t
say it’s never profitable — I’ve used it and I’ve made a profit from it, but it eats
into your profits so much and there’s so many other ways to finance a deal than using hard
money. This is one thing that I guess I should reiterate — you don’t need cash to buy properties
if you find the right properties and go after the right types of deals. What so many of
you are doing are looking at properties that are not going to be available that way. This
one looks like it might be possible to do it on terms without cash or hard money because
the guy said he would finance it 100%. So let me finish the letter here.
C.R.: “The county has the building assessed at $121,000. For the three that I would like
to buy, the total comes to $363,000, so I would need to get $265,000 to the seller.
That’s not quite the 65% loan purchase price.” Joe: He’s talking about the 65% loan to value
that he could use for hard money — don’t do it that way. First of all, if you try to
show that you’re paying a certain price for a property, and if you’re trying to show that
you’re paying more for it than you are, and then getting the down payment funneled back
to you through the seller, that’s loan fraud. You’ll get yourself in trouble; you’ll get
yourself put in jail — so don’t do that kind of thing. Make sure that the lender understands
exactly what you’re doing and that all of it is revealed. We’ve done some very creative
stuff in the past where we have been able to do rebates and things like that, and all
of that’s legitimate as long as the lender’s aware of it and accepts it. I’m not just talking
about the loan broker being aware of it but also that it’s in the loan documents and that
it’s obvious that that’s what’s happening. Because the broker and the actual lender are
two different entities, and a lot of times a loan broker will just tell you, ‘Well, just
do this this way and that way and the lender will accept it.’ When in fact, what he’s saying
is that that way the lender won’t know about it and he’ll get his fee and you’ll get the
deal done, but you will have committed loan fraud. That’s happening less these days simply
because investment loans are fewer and farer between than they have ever been.
C.R.: “How can I structure this to get no out of pocket costs and still pick up the
property? He has 17 of these to sell total. He wants to do 6 at a time and here are the
details. Don’t share the address or the city as it’s so small that others can find it easily.”
Joe: The thing you have to know that he didn’t give me the information for is how much they
rent for. And he doesn’t need to know just the amount that they rented for. He also needs
to know what the history of the rent is. So you want to look at the Schedule E of the
owner of this property. Ask him to just send over the Schedule E of that property so that
you can see what he reported to the IRS. Typically he’s not going to report more than what he
made. So if you can see the Schedule E you can tell that he made x amount of dollars
over the last year. If you average that out then you can figure how much you can expect
to make with this with this particular manager in place. Can you keep that manager in place?
Is that manager a good manager? Can you talk to that manager and find out a little bit
about the properties from him? What kind of condition is the property in? How long have
the tenants been in there? How often do they turnover? All of these things are going to
be important if you’re going to buy these properties as investment properties. If you
are, and he’s willing to do 100% financing, can you do them using the hierarchy of zero
down structures that I taught you in one of the earlier videos?
Joe: In this case, we’re talking about doing a subject-to deal. Now does he have a loan
on these properties? We don’t know if he has a loan on these properties; we need to find
that out. If you’re paying $363,000 for these properties, how much in loans does he have?
If he has a total of $200,000 in loans on them and he wants the rest of his equity to
get the $363,000, and if he wants the full assessed value and you’re willing to give
that to him, and the numbers make sense because it has enough income to cover the payment
on that — let’s say he owes $200,000 on regular notes and he wants to get to another $163,000
in notes — you could do a multi-mortgage on this, and have him deed you the property.
You could make payments on the existing loan for that $200,000 and then you could make
a payment on another loan that equals $163,000 for these three properties to him personally
to where he has a mortgage on all three properties so that if you default he can take all three
properties back from you and protect his equity. Joe: There’s lots of ways to do this. The
next way down is you can do it on a land contract from him. He could just say, ‘Okay, 363. Do
a balloon payment after 5 years, x amount interest rate.’ Let’s say your payments on
that thing are $3,000 a month and the income on it is $3,600 a month and the payment covers
taxes and insurance and you’ve got to figure in your property management — do you still
have enough money to break even and make these deals work in the long term? And if you do,
and they’re good selling investment properties, do you keep them yourself at that point or
do you want to try to make another chunk of money and maybe sell them for $5,000 more
to an investor who gives you $5,000 for each duplex so that you make $15,000 on the deal
and then turn it around and sell it that way? You have to — because then you can show,
if the investor only has $5,000 on each of these deals and they break even and again,
remember what we talked about in depreciation on long term investment and how properties
go up in value and you can take deductions even if you’re breaking even, it’s going to
make sense if they pay off over a period of time.
Joe: What you want to try to go for when you’re making this offer to this guy is to get as
long a term on these loans as you can. I don’t think I’d do it for 5 years, I’d want to try
15, I’d prefer 30 years — I want to be able to pay these off over a long period of time
so that I know that they’re advertising. And if there’s enough money to make them pay off
sooner than that then obviously you want to pay them off sooner than that so that they
start cash flowing for you personally. I hope that helps.

4 Comments

Leave a Reply

Your email address will not be published. Required fields are marked *