How To Tell If A Cash Deal Will Be Profitable Or Will Sink You Like A Lead Balloon
I get offers everyday from folks who have what they think is an amazing “dramatically under market value” cash deal.
On the surface, it looks amazing, but when we drill down, we quicklydiscover that most of them don’t make sense. Here is how to determine if that deal you think is so wonderful will work or not.
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Read Transcript for “How To Tell If A Cash Deal Will Be Profitable Or Will Sink You Like A Lead Balloon”
Doing cash deals can be tricky. Here’s some of the different ways you can do them and profit from them, and why in many cases, doing zero down deals makes more sense.
Joe: There are a lot of ways to do this. If you want to buy foreclosure properties or REO’s (real estate owned) from the bank, you’re going to have to have either cash or you’re going to have to be able to be prequalified for a loan. If you go make an offer to a bank, they’re going to want to make sure that you have funds or that you’re going to be able to purchase this property, so you’re going to have to show proof of funds.
Joe: You can get proof of funds from folks like me. I do transactional financing. I only do it for my mentor students because I can’t do it for everyone. But most of the time, you’re not going to need proof of funds because if you’re going to do this kind of transaction, you’re going to have cash, or you’re going to have somebody in place to buy the property. If you don’t have somebody in place to buy the property already, if you have to do some work to it and put some money into it, then you’re going to need to show proof of funds, then close the deal and then turn around and sell it.
Joe: There are some tricks with selling it right now because it’s harder to get lenders to loan for new buyers on properties that have just been flipped, especially if you’re raising the price on those properties. So be careful how you do those types of deals.
Joe: I’ve been buying a lot of foreclosure properties, but I’ve been putting tenants in them and then I keep some of them for my portfolio or I sell them to other investors. If you’re interested in learning more about that, go to GetMoreClients.com/highcashflowhouses. I’ll put it on the bottom of the screen so that you can go there if you’re interested. It’s another video that actually addresses the issue to investors if you want to buy properties from me personally, and how I do it.
Joe: You can sell to investors the exact same way I do it. I’m buying most of these properties. But if you do it some of the ways I’m doing it as shown in the video, you can actually get the investor to pay for the property, but it just becomes more of a pain in the neck. I think there are better ways to work with investors than doing it that particular way. It’s the way I’m doing it right now because I have capital from my IRA to invest and so I’m buying a lot of properties. I want to fill my portfolio with high return investment properties (which these properties are).
Joe: Buying bank owned properties can be very profitable if you know what you’re looking for. You better make sure that you get a good deal on them and that they’re going to make sense for the investor. I’m going to talk about what’s going to make sense for an investor in the upcoming videos when we talk about exit strategies. But right now, let’s just talk about the ways you can buy cash deals.
Joe: There are foreclosure properties where you’re going to need cash, and short sales – you’re always going to need cash or a loan when you do short sales, or you’re going to need an investor. I wouldn’t count on investors. Most of the people I know that are finding short sales are putting together these short sale deals with an agreement from their investor saying, ‘I’ll buy it if it makes sense to me’. Then they have four or five investors lined up, ready to buy these properties, and then when they find one, they go through the whole process of dealing with the bank and getting them to finally approve the short sale. Then, they go to their investors and none of their investors want it, and that could be partially because the investors were just full of it – or – it could be that the deal that they put together didn’t make sense, or it didn’t make sense for their specific investor.
Joe: So if you’re going to sell to investors, you’ll want to make sure that the deal makes sense for you personally to keep or to flip. If it makes sense for you personally, then it’s more likely that it’s going to make sense for them. If you’re not able to do it, then it doesn’t make sense for you, but if you’re able to do it and it makes sense for you personally, then in all likelihood, it’s going to make sense for another buyer. But that’s not written in stone, because if you’re just beginning in this process, you don’t always know what a good deal is, and so that’s what we’re trying to get to through this series of videos.
Joe: The next way is doing tax liens. Tax liens also require cash. With both cash and terms, you can do things like rehab projects. Rehab projects almost always require some capital. With long term and short term rental properties, you can get your money from either banks, your own capital, your IRA, your home equity line, or from private individuals – these are all places that you can find these deals.
Joe: In my opinion, it makes more sense and you’re going to be in more control of your business if you learn how to do zero down structures than if you do cash deals. By doing cash deals, you’re putting yourself at somebody else’s mercy. I’ve seen too many people go out there and put their heart and soul and their blood into putting deals together for their investors, then their investors never follow through with those purchases. It just creates heartache and discouragement and then people get out of the business because they’re not making any money.
Joe: So if you want to make money and be in control of the transaction, you don’t want to have to answer to a lender, and if you don’t want to have to answer to an underwriter who’s probably only making $40,000 a year and doesn’t really know what he’s doing and doesn’t really understand your business or real estate investing, and you want to avoid being under his thumb, then learn how to do it with zero down structures.
Joe: When you do that, you’ll start bringing in cash flow in and eventually you’re going to raise enough capital to where you can start doing cash deals yourself, which is exactly the situation that I’ve been able to get into.
Joe: So, all of these types of deals make sense, depending on the position that you’re in and what you’re trying to accomplish long term. I hope that helps.