Are you tired of paying high interest on your real estate deals using hard money lenders? Well there are several different ways you can reduce your interest when talking with Sellers. Many Sellers would love to get cash for their house at their price. However, as an investor our cash offers are much lower than what price the Seller would like to receive for their house.
Whenever I meet with a Seller I have done my research as to how much they owe on the home, what price they are asking for their home and what cash offer and terms offer I am willing to pay. This allows me to purchase more houses than the average investor. How do you find these Sellers? A partner of mine saw a U-Haul truck at the Seller’s house and asked him if he was interested in selling the house. I then went over there and looked at the house as he was moving out. I went back to the office and emailed him an offer. I hadn’t heard from him for a while so I followed up with a text and he said “I am glad you contacted me, I lost your number”. Remember 80% of our business is done through following up on our offers and leads. You never know when the Seller is motivated to sell the house.
How do you consider making a cash and/ora terms offer? I make both offers at the same time.
First, you need to know your exit strategy for the home ie. buy to fix and flip, wholesale or buy to hold. When you are in a Seller’s market and the value is increasing on a regular basis, it is ok to pay more for a property if your intention is to buy and hold it. This home a 4 Bedroom, 3-bathroom, 2 car garage home with approximately 1900 square feet located in Florida. I went on www.rentometer.com to determine what the median rental rate is in that area for a home this size. It was $1,725.00 per month. I knew that I could rent the home quickly, if I wanted to buy and hold it. The inside of the home was in great shape. The interior paint of the home was average with small repairs to fix the minor holes in the wall, all 3 bathrooms had minor issues such as plumbing, toilets, and cabinets that needed to be completed. The tile in the house was old and ugly but if I kept it as a rental, I would not need to replace it. The remaining floor in the house was laminated wood in great shape. There was approximately $5,000 worth of work inside of the home, if I wanted to freshly paint it and fix all the items stated above. If I was just going to rent it,
I could get away with only putting $2,000 into the repairs to get it in ready to rent. The outside of the house needed $10,000 to $15,000 worth of repairs to the siding, windows, air conditioner should I decide to retail the home. Or $5,000 just to repair the siding and two windows that were leaking. I made a cash offer on a house in the amount of $120,000 and $140,000 on terms. The After Repaired Value is $220,000 in today’s market. The terms the Seller and I settled on was $150,000 with $10,000.00 down, a 1 year term, 6% interest only at $700.00 per month. The Seller would hold a first mortgage on the property. Remember I made the terms offered so I submitted an offer based on what I wanted to put down on the home, how long I wanted to have them hold it on terms, and what interest rate I wanted to pay on the home.
Buying this home on terms has allowed me a couple of options: First, I could just fix it up and flip it with only putting out $30,000 for repairs and down payment. I would of course, have to pay the money payment to the Seller, pay for the insurance, taxes, and utilities during the time I am fixing it. Or, I can fix it up and then after 1 year of paying on it, apply for a mortgage to hold it for long time. Let’s use the example that I am going to fix it and then rent it. I put $10,000 down, $2,000 on the inside for repairs and $5,000 on the exterior (which is a preference) for a total of $15,000. It would take me 30 days to do all the repairs which could be done quicker and have it ready for rent which is another $700 due to the Seller. I now have a total of $15,700 in the home. Should I rent it at $1,725 per month for a total of 1 year it would bring in $20,700 in rent. I would still owe $8,400 to the Seller. $1,300 for insurance, $1,700 for taxes for a total of $11,400 minus the rent of $20,700 leaves $9,300 minus the down payment and repairs leaving $6,400 out of pocket expense after a year.
Then after owning it for 1 year, I can apply for a mortgage based on the appraised value and not the purchase price. This will allow me to refinance the home in the amount of $176,250 with cash back in my pocket for repairs at 75% Loan to value ratio based on an appraised of $235,000 a year later or higher.
I hope this article helps educate you on making two offers at the same time opening the doors for more deals.
Happy House Hunting!!!
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