Keep Your Offers Simple, Close More Deals, Use Financing Clauses

Investors who want to do transactions without agents –


I have discovered long ago that a seasoned investor knows lots more than an agent – agents are trained to protect their broker, represent buyers, list properties and to stay legal – I have always inferred that if agents knew what investors know – they’d be investors representing themselves.

DISCLOSURE; I am not picking on agents – I am a broker – I understand the culture – been there done that!

Keep your offer simple – you don’t need all that stuff that agents are required to have in their offer (you know agents do not write contracts – they can’t unless they are an attorney – they can only legally fill in the blanks on a form contract of sale) – so over the many years of investing – negotiating – developing and trying to make money in real estate – I have the good fortune to have created what I call my Skinny Contract – this is a one page contract with only one out clause – it is easy to understand by the seller and all involved in the chain that reaches to the settlement table.

Contract engineering clauses that may help you —

Owner financing – “Seller to carry a first subordinated mortgage at X% for X years” This clause lets you get a new first mortgage and have your seller financing in second place. Used correctly you’d be able to create mortgage cash.

Ask the seller for a Principal Mortgage -” Seller agrees to take back a first subordinated principal mortgage with payments of $900.00.” What this means is that there are NO interest payments – all payments go to pay off the mortgage and you can put its second position.

On the clause above you can add that the mortgage is fully assumable without qualification. This makes it easy to sell the property with this financing.

If later you sell the property that is a NO Interest mortgage – you can do wrap and charge interest – in this case, you are making money on money you owe – get your calculator out and figure out what your yield will be – off the scale!

Nothing settles on time – we investors are always on the clock, usually running out of time due to any number circumstances – contractors – assignee defaulting – code violation – delay with title companies – and so on – So —- what do you do – go to the seller to ask for an extension? Yes – but suppose the seller doesn’t want you to make your equity profit of $30,000 and won’t give you an extension? What now – walk away from your profit and all the work you did? NO!—— Build in the extension when you create the contract – “Seller agrees to extend the settlement date by 25 banking days if necessary to complete title work or to accommodate the assignee.” Never write an offer without this clause – you’ll thank me later.

You found a deal – it looks good – you have a potential of making $50,000, you intend to flip this property in a short period of time (maybe have a reserve auction) —- your offer price is close, but the seller wants more – You can offer the Seller a Hybrid – “Hybrid – It is understood that the price is X-$, it is the Buyers’ intention to assign this property within a short period of time, the Buyer will pay the Seller 10% net on anything over X-$ at time of settlement.” The Hybrid agreement gives the Seller an incentive to do business with you. It creates an understanding – the Seller wants to see you succeed – because when you do he also benefits.

Always make full disclosures do not try to get over on anyone for a profit – be kind and open – One of the most important things I do when negotiating with sellers is to tell them; “My goal is to make a reasonable profit.”

Sellers want to do business with people they like, understand and perceive their honesty.

Charles

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