Click Here For Buying Event Details
The article today is a LONG one. I am giving you a huge amount of very valuable information today. If you read this article, you will be prepared to go out and structure a zero down deal. I’m not exaggerating or kidding… this is good stuff.
What you will read below is a transcription from one of my boot camps. I usually don’t give out this advanced material to anyone but the people who attend my $10,000 “Buying Event” Boot Camps. Most of the folks who come to these events walk away with a real estate deal (or 2 or 6) in their pocket. We learn how to do the deals… and then we actually DO THEM! If you want more info about my boot camps, go here.
I know you’re going to enjoy this one… remember, it’s a transcription from an audio recording… I didn’t edit it because I wanted you to get a feel for how these events go. It may be a little confusing until you get into the flow of it… writing an article and listening to a speaker are two very different things.
Here goes…
Joe Crump: What I’ve got next is a bunch of theoretical deals. Who wants one? I’ve only got about ten of them so let’s spread them out a little bit. Okay, Connie, why don’t you start?
Student: Okay, asking price $110,000.
Student: Value is $105,000. Condition is good.
Student: First mortgage $75K. No second mortgage. And a total PITI of $700.
Student: A total principal and interest with PITI of $700, yeah, $700. And the alternative to if he can’t sell it, he would have to foreclose.
Student: If they can’t sell –
Joe Crump: Their alternative is foreclosure.
Student: – the house, he would have to go into foreclosure. And he’s willing to negotiate terms, but would rather have cash.
Joe Crump: So do terms, yes.
Student: Terms, cash, but rather – he would be able to do terms and is not late on payments.
Joe Crump: Okay, Connie. Tell us how would you structure this deal? What kind of offer – what we’re trying to do here is try to figure out what’s the best offer we could make this guy and is still profitable. And I think the questions to ask yourself here, first, is it substantially under-market value? We’re looking for two types of properties. Is it substantially under-market value?
Student: Yes, it is.
Joe Crump: No.
Student: No, because? Because of the equity of $30,000?
Joe Crump: He’s asking more than it is worth. Okay. Here’s a guy who clearly –
Student: Who is unrealistic.
Joe Crump: What’s that?
Student: He’s unrealistic.
Joe Crump: He’s clearly not understanding the situation. Okay…
Student: Yes, since he’s equity is like $30,000, right? First mortgage… He’s equity is $30,000, since I want to make a deal on it so the most I would be offering, I guess…
Joe Crump: He’d like to have cash. How much could you give him cash?
Student: $25k.
Joe Crump: $75k. See he owes $75,000 on it. Is $75,000 substantially under-market value? I’d say that’s a decent deal. So it’s worth $105,000, you could offer him $75k cash. And what I would suggest is give him two separate offers. He wants $110,000. The chance that he’s taking $75k is pretty slim. So if we offer him $75k, say, look, I can give you $75k or I can have his – buy it on terms. Now what kind of terms would we have to offer to make that deal work? Would it be a subject-to, would it be a land contract, would it be a lease option?
Student: _____________
Joe Crump: Land contract, subject-to?
Student: _____________
Joe Crump: How could you do a subject to? If you took – what’s that?
Student: _____________________
Joe Crump: He wants his equity, right? Land contract. It’s land contract. Because – and then it is a matter of negotiating price. If he’s really adamant about this $110, you want to try and negotiate the price. Now he’s alternative is a foreclosure but he’s not late. He’s making his payments, but he’s not going to be able to make those payments very long. He is willing to do terms, so give him a land contract. See if he can get it for $100,000. You know make sure that the value is there. Get it for $100,000 and then you can turn around – and how would you sell that property?
So does everybody understand how we bought it now? Land contract, $100,000 is what we’re offering, maybe he wants $105. We could still give him $105 and make a profit. But the lower you can get him to negotiate down, the more money you’re going to make. That’d be good. Lease option for $110, maybe $115. So you turnaround, you sell it to somebody else on a lease option. You got it for $100; hopefully, you sell it for $110-$115 on a lease option. You get your $5,000 upfront. You got to carry the rest of it for the year. Get your money out at that time. And then your payment. Yeah, you try to get your lease fee to be at least $900. Now it probably could be higher than that. Actually you’re going to be, I’m sorry, you’re going to be buying on a land contract, so you’re payment is going to be higher than $700. You’re payment is probably going to be around $900-$950. So you’d want to be above $900. You want to try to get $1100. Cause I’m guessing you can probably get $1000-$1100 depending on the market that you’re in.
Student: So even though you attractive terms on that to resell it, would you still make a contingency of approval by your investor?
Joe Crump: Absolutely.
Student: Or would you just sell it the way it is?
Joe Crump: Every time.
Student: Every time. Regardless of whether you have good terms or not?
Joe Crump: If you know that you’re going to turnaround and lease option this one out, you might say this is subject-to me finding a tenant for this property, cause you know that you’re going to put a lease-option person in it. And that way they’ll understand that better than the investor thing.
Student: So they’re not going to say –
Joe Crump: Cause you’re going to be the investor. If you know that – if you’re not sure – it really doesn’t matter. One way or the other, both of those will cover you. Say I just couldn’t find a tenant for it. But if you know that you’re going to be able to put a tenant in it, just make it subject-to finding a tenant for the property before closing.
Is this helpful, guys?
Student: Yes.
Joe Crump: Is this helpful? Okay, good.
Student: What would you say to the seller to get him to hold off for 60 days or 90 days for the closing in order to get a lease-option person in there so you’re not paying any of the monthly payments?
Joe Crump: Write the contracts – give yourself 90 days on the contracts. If they won’t go for 90, at least 60. If they won’t go for 60, at least 30.
Student: Okay, so you trying 90 days first and then come back.
Joe Crump: Right. But remember if he gives you only 30 days to do this and you can’t get it done, he loses as much as you do. So it is in his best interest to give you more time. And you can probably get it down a lot faster than that. Now what you could do, let’s say he’s adamant it’s gotta be 30 days. Say, well, I’ll do my best to get it done in 30 days. And if you don’t get it done in 30 days, then you come to him and say, can I have another 30? What’s he going to say, no?
I mean if he says no – or maybe, you know…another thing we run into is, okay, I don’t want to tie my property up for 90 days you know and then have it not sell. Because I want you to be honest with these people about the possibility that it may not sell, because it is contingent upon the approval of your investor or it is contingent upon you finding a tenant. And you don’t want to just jerk people around, you want to be honest and let them know what you’re doing. You don’t need to explain how you’re doing it, you just need to explain there’s a possibility that it won’t close but that’s not likely but it possibility.
And if they’re really concerned about that, you can always say, well – and this puts you out at risk so you don’t want to do this unless you have to – you can go ahead and sell it to somebody else if somebody else comes along. And just give me a one-week first right of refusal, so that I have the right to come in and buy that property and get it closed within one week from time that you accept another deal from somebody else. So if they accept another deal from somebody else that deal has to say on it it’s not going to be valid for seven days, cause they got a first right of refusal from somebody else.
Does everybody understand what that is what I just said? Okay. That way – cause it is unlikely that that’s going to happen, first of all. And the risk here is that you tell your investor, who’s unscrupulous, about this property. He goes to them and he says, “I’ll buy it from you directly. Let’s not go through this guy. I’m not going to buy it unless I go through you directly.” And the seller says, “Well, I want to sell it. I’ll just go ahead and sell it to him.” I have the right to back out of this contract, but you’re the one who told the guy about it. So they can go around you. So you don’t want to do this unless you have to.
As you start working with investors over and over again, the investors you work with will want to keep working with you because…I mean you got a list of investors that you work with and if somebody were to pull that on you…I mean you’re doing multiple deals with particular investors.
Student: If someone were to come in behind me, I would not work with them again. And since we have a property list that’s weekly and 40 available properties, I would say they lose.
Joe Crump: Right. See what you’re trying to do overall here with building a list with creating a presence is building credibility, building some leverage into your business, because now people don’t want to screw around with the big guy. And she’s perceived as the big guy now – six months.
Student: What do you tell the seller in order to get them to accept a land contract or $100,000 when they’re asking $110,000?
Joe Crump: You say, “Well, you know, it really makes sense for me to pay $100,000. It doesn’t make sense for me to pay $105 or $110. I feel the value is right around $105 and I have to make a profit as an investor. You know if that doesn’t make sense to you, I understand, but it has to make sense to me as an investor. You know, I’m not trying to push you but this…”
You’re going to develop your own style of negotiation. I do it in a very soft way. But it’s a take away but it is also as gentle as possible. And I don’t hammer people too much either. Some investors you know sometimes it probably makes sense to hammer on a certain level, you know to try to get a good deal, you know to do this deal. Well, give me my first three months for free, or you know first three months at $700 dollars and then we’ll go up to $950 after that. Once you start doing these negotiations, you’ll start negotiating all sorts of new things.
Well, you know, it needs new carpet you know. Why don’t we, you know, give me $2,000 dollars carpet credit so that I can go get carpet. Or it needs work and it just so happens this guy is a handyman and he can paint the whole house for you for $200 dollars, you know have him do the work. Negotiate that into the deal.
One of the things that Phil did, which was pretty fun, it is actually on the – he negotiated this whole deal on the three-day boot camp CDs that I’ve got. But there was a guy that was selling his house, he was buying it undervalue for cash, but he was a handyman. He’d been fixing up the property. He just needed to get rid of that property. So Phil said, “Well, I won’t give you your price. I’ll give you this price instead, which is $15,000 dollars under what you want, but I’ll give you $15,000 dollars worth of work cause I got another house that needs work on,” which he has to pay for anyway. But he gives this guy the money because he’s doing the work. And the guy agreed to it. So he got a great deal, plus he got good work done.
Student: Do you ever consider, if somebody’s asking for more than the house is worth and is kind of mistaken about the value of his own house, do you ever consider then giving him comps or taking comps –
Joe Crump: Absolutely.
Student: – so he sees that he’s mistaken?
Joe Crump: Yeah. Help people understand what the value of the property is in the nicest possible way. Because if you just say, “Your property’s not worth that. Don’t waste my time,” you know you’re not going to make any friends here. But if you say you know, “Well, how did you come up with that value?” Well, you know, the house next door sold for $105 and I got the heavy-duty nails in my – I got the drywall in the garage, and I got the extra high-quality paint in the kitchen.
Do you understand how values are created in property? Well…and you just go explain. You say, “Here are the other properties that have sold. All I’m doing is going by numbers. I’m not doing this as an emotional buy. I’m not living here. It just kind of makes sense numbers wise because I’m an investor and I have to make a little bit of money to make this thing work.”
And you know I would use, in this situation, I would try to get them down under the market value even though you’re buying it on terms, because you need to make money and I think that’s a fairly good statement to do that.
Student: Would he not be bound and would be able to go and have an accepting offer from somebody else when he already has an agreement with us?
Joe Crump: The only way that would happen is if you gave him the right to do that.
Student: Okay.
Joe Crump: Because he was uncomfortable tying it up for that amount of time. We need more mikes.
Student: In this case where he’s thinking he wants $110,000, he’s got $30,000 equity in the house. You know what’s – he could with, say I don’t know, 8 or 9 percent closing, what’s to prevent him from…I mean what would you say that he wouldn’t just go and, say, get a realtor and try to sell it that way and get, for instance, cashed out verses all you’re offering is a land contract?
Joe Crump: He could easily go to a realtor, cause he’s got the equity to do it. There’s no reason for him not to.
Student: Yeah, so what would we say in our case –
Joe Crump: But here’s the problem that he’s got. He’s going into foreclosure so he’s got this motivation happening with him. Okay, so he’s got some stress on him. Now he’s got to decide, well, at what point – the way to do a quick sale in MLS is how? How do you do a quick sale? Lower the price, right?
Student: Yeah.
Joe Crump: So if you’re going to lower the price, but he wants $110. So it’s not going to work.
Student: So it’s only because he’s got the foreclosure pressure that really brings a land contract deal into looking more, plus are ability to sell the thing quickly.
Joe Crump: Right. Plus, you know now you’re buying on a land contract. You definitely show him how much extra money he’s going to get because of all the interest he’s going to make over the next five years on this property.
Now another objection that you’re going get on a deal like this could be, well, I need my $25,000 or $30,000 dollars out in order to buy another property. Well, that’s a pretty good argument. So how do you handle that situation?
You tell him, well, how’s your credit? Well, my credit stinks. Well, you can’t get a mortgage anyway. Well, what if their credit is good? Well, you can go get a 100-percent loan.
Student: ______________
Joe Crump: He could refinance. He could refinance and get his cash out that way. I’ve had people do that. Or he could out and get a 100-percent loan on a new property. Well, will he qualify for both loans? Yes, he will because he is selling the first one. And the bank, even though the mortgage is still in his name, the bank will allow 100-percent of the income on a sale to be applied towards his income. Am I losing you guys? You understand?
Okay, so the bank will allow 100 percent so it will be a wash. Actually, it will show as a profit to him. That property will show as a profit, because he’s going to be making more money than his $700 dollars a month. He’s going to actually increase his income so he’ll be able to qualify for more property.
Now if he were to rent that property out. Let’s say he rented it for $1,000 dollars. The bank only allows 75 percent of a mortgage or of a rental towards the debt service. So they would only allow $750 dollars. In this case this would still put him over $700 dollars, but that doesn’t happen in every case. You want to keep that in mind. If you’re renting it, it is only 75 percent that the bank allows; if you sold it, it is 100 percent that the bank allows. So that way you can qualify for other properties. And you’re going to hear that question a lot.
Student: I’m sorry, I think I missed something real simple in the very beginning. What did – how much did we give him to enter into the land contract? Anything at all?
Joe Crump: Oh no.
Student: Nothing at all.
Joe Crump: No, that’s me. I do zero.
Student: Okay.
Joe Crump: No money.
Student: Okay. I didn’t miss something then.
Joe Crump: Right.
Student: And we offer to him $105, you said?
Joe Crump: I would offer $100.
Student: $100, okay. And for him to agree to that, he’s going to in the future get his money. I’m just trying to really fully see why he would take that other than the fact that he’s going into foreclosure. Because he may have other people offering him something more than nothing.
Joe Crump: Well, who’s going to give him full price? No investor is giving him full price.
Student: I see what you’re saying. So he’s getting full price, but in the future and that’s the big plus.
Joe Crump: Right.
Student: Gotcha.
Joe Crump: He can go to a real estate agent right now, drop it down to $75, and sell it in 30 days, get out of that foreclosure, and not have late payments.
Student: Or full price for a future date.
Joe Crump: Eventually, he’ll be able to sell it at full price if the market’s good and he’s accurate on his price. So it may take him a few months to do that. In the meantime, his credit is taking a ding. His credit is not bad yet.
Student: ______________
Joe Crump: Why is he what?
Student: _____________
Joe Crump: Because he couldn’t make his payments.
Student: That was my one question. Why he went into foreclosure _____________
Joe Crump: There’s a lot of people that know they’re going into foreclosure that have never been late before. And those are people that are trying to save your credit. And you’re going to get calls like this pretty frequently. I lost my job, I’ve been making my payments for three months, but I’m out, I’m tapped out. Next month I’m out of money and I’m going to be late.
Now these people are going to be really motivated. There also going to be really stressed on this time issue. You wanna close 90 days, that’s going to be hard. I’d still try it.
Student: If that’s the case and this guy needs to walk, and he needs $3,000 so that he can move into another apartment, just pay off whatever other bills, would you take that?
Joe Crump: Not at this price. If he sold it to me for $75 on terms, I would.
Student: Well, let’s say if I’m the sell saying, “Joe, I’ll drop it to $93, so I’ll give you $3,000 cash.”
Joe Crump: Well, then you got to make a decision. The money that you get for your lease option is going to get eaten up. So you’re not going to close it, not going to give him the $3,000 until you get it from a lease option.
Student: Right.
Joe Crump: So it’s not actually coming out of your pocket, it’s going to come through the lease option. But if you only get $3,000 from the lease option, you just broke even. Now you’re still going to get money on the back end. If you sell it for $110, you still made a pretty good profit.
Student: Right.
Joe Crump: But it is not for a year or two years down the line.
Student: Right.
Joe Crump: So did that answer the question? Okay.
Student: I just remember you was saying he would make interest on the house later on possibility. I just wonder where the interest would come from? The seller?
Joe Crump: What payment on the interest?
Student: Right.
Joe Crump: Well, it depends on what his mortgage is at. You know, let’s say this property is free and clear, cause that will be easier. If it is free and clear, I would do a seven-percent mortgage. Seven-percent simple interest would be even better, because that means you don’t have to amortize it, you don’t have to pay towards the loan amount. So seven-percent simple interest, five-year balloon. So in five years you have to pay the full the amount, or whoever owns it at that time, will have to refinance and pay it off. He’s out of the deal. Okay? And the interest rate is arbitrary; you would negotiate that.
So if you want it to be – you know if the going rate in interest rates were nine percent like it was ten years ago, then maybe you’d negotiate at eight percent or nine percent. Try to keep getting it down. Now if he had an interest rate of 10 percent – let’s say his credit wasn’t great when he got the loan, he put 20 percent down, he got a 10-percent, B-paper loan, bad-credit loan. Now his payment may go from $700 to $900, and what you’d have to be careful of is that you don’t get above what you could rent it out for.
So if you give him $950, he’ll only make $50 bucks a month, so it is not as attractive to him as far as the monthly cash flow. But he knows he’s got a problem loan on his hands and he may still go for it. But just make sure that your interest rate – he’s going to want to make sure that his interest rate covers his payment. Although that’s not always true either.
I’ve had people that have taken deals – they took out the second to pay off their credit cards, because that was real popular for awhile. So they take out a second to cover their credit cards and now they’re upside down in their property. And they’ll, “Well, I owe – you’re going to buy it for $105,000; I owe a $75,000 first and a $30,000 second, so I owe $100,000 dollars on it.” And the payments going to be on 7 percent on $100,000, let’s say it is $800 dollars. You know he owes $900 dollars month on his _________, so $900 dollars a month on it. Have him pay that $100 dollars to you, now. Don’t expect to get that money. Have it in the contract and try to collect it from him, but don’t expect.
But if you’re then going out and renting based on expecting to get that, you know getting that $100 dollars back you’ll probably lose money. You’ll probably have to pay that $100 dollars yourself, because if he’s in financial problems to start with, the likelihood that he’s going to making that $100-dollar payment is questionable. Anytime you ask people like that that are in these positions to pay you money out, you may not get. I try to negotiate it, but you may not get it.
Student: He’s asking $110 for the property, and you offered $100. What formula did you use to arrive at the $100 or did you just draw the number out of a hat?
Joe Crump: I pulled a number out of the hat. I felt like I wanted to make more money on it. If I really wanted to push him, I’d go $90 or $85.
Student: Because I’m just wondering if it is not dangerous just to select a number _____________
Joe Crump: I think that it is going to come from a gut feeling eventually. Where you’re talking to the guy and you find out how motivated he really is. Is he just blowing smoke here with this $110,000 dollar thing, or is he really motivated, does he really need to get out of this property? And you have to make a judgment call. And a lot of that comes from experience. And the more you do this, the better you’ll get a feeling.
Because you may make an offer and he immediately accepts it and you think, well, maybe should I have asked for a little bit less. And then the next time you do it you’ll have a better feel based on that same situation, because you’ve done it before. It is just a process of learning. It is really an arbitrary figure.
Student: _______________
Joe Crump: What’s that?
Student: That sounds familiar.
Joe Crump: Oh.
Student: Joe, I just had a thought on this. First of all, he was asking you know how you picked that number, and then I got a question. But you know what sometimes you want to test the water. The house that I just sold that I bought from Vegas. The guy was asking $37, I bought it for $16.5. So you got to test the water. I mean that guy might be blowing smoke like you said. You start at $75, I would, in a subject-to. All he’s going to say is yes, no, or let’s work on it. You know so…it’s different; I’m different.
Joe Crump: I agree.
Student: You know I’d start right at $75.
Joe Crump: It is not what you deserve that matters, it is what you negotiate.
Student: That’s right.
Joe Crump: So it’s to negotiate the best position you possibly can.
Student: You know you got to take care of yourself, you don’t have to worry about this guy. You want to make sure that he’s – you’re helping him out anyways, but at $75 you’re really helping him out. Well, the question is –
Joe Crump: Let me speak on that just for a second. I believe that you have to approach this business with a servant attitude where you’re going there to help those people. Now I believe that you should be paid well to do that because you have the knowledge to do that. And I’ve said this to a couple of you here already, but if you have – if you need heart surgery, you do not want to be cut on, you don’t want anybody cutting on you. But if that’s what is going to save your life, you’re happy to have that done.
My dad had prostate cancer, and he just had his prostate taken out a month ago. And we were all concerned. His feeling was, I want it out, I just want it out. And they took it out. He’s doing great. It’s gone. No more cancer. But he was happy to pay lots and lots of money to have that done. Just like people are going to be happy to pay you to take over and do this for them, because you’re saving them.
I talk to ___________ a lot. Let me get her comment on this cause I think what she has to say on this is pretty value, kind of the… (Laughing) kind of the attitude that she’s got on this.
Student: ____________
Joe Crump: About the servant attitude.
Student: When you go in and talk with these people and you empathize or sympathize with them and let them know that you are there to help them and you can help them and let them talk, you earn their trust. And I just –
Joe Crump: That doesn’t mean that you should negotiate your best deal.
Student: No, absolutely. And with this deal here I would do as Dave said. I would explain to them that first of all you got to pay a realtor, that’s 7 percent, take that right off the $110. The condition only says good. What does that mean? Do you need new carpet? And let them know – well, what do you think you can carpet for? What do you think you can pay for? Do you want people in and out of your home? Do you want to deal with a realtor? There’s a bunch of things here that you can tell this person that brings the price down to a price where you’re going to make a profit, you’re going to help them, they’re not going to go into foreclosure.
And again, you just talk to them and let them know that you’re there to help them. And you help them with information. You help them by learning how to do this and giving them the information, letting them know what it is like to list a property ________________.
Joe Crump: Tell them the story about how people have reacted to you. I mean are people angry at you when you do a deal like this, do they feel they’ve been taken advantage of?
Student: No, not all. I was telling several people here about a deal we did, where a home – a lady and a gentleman, they were a couple, they called us. And they had been trying to sell their home for five years, five years. I went into the lady and I talked to her. She had the home listed with several different realtors. And I thought the monthly payment was pretty high, as she was paying a high interest rate. However, she had good credit. And I told her I would take the house subject-to, again, after talking with her, listening to her, seeing her child, looking at the house, the different things that you do to build a relationship with this person.
Because when you build a relationship with this person like we talk about ten minutes ago, if an investor comes in behind your back they won’t sell to them because they don’t trust them. So if you build a relationship with this person – I mean it is not a long-term relationship, but earn their trust and let them know that you’re there to help them, it makes all the difference.
So this lady five years trying to sell her house. Jeff and I went in, we told her what we could do for her. The relief in her face was just unbelievable. I mean she literally started tearing up and crying, five years I’ve been trying to do this, this sounds like a great idea, this is what I want to do. And she was more than willing to refinance the house to bring the interest rate down to get a better payment so that we could take it subject-to and get a person in there and make a profit. And this happened after a 20-minute conversation.
So then the next day she called and she said, “Well, my husband and the realtor want to meet with you.” And I was a little concerned; we were fairly new at this. But the realtor is sitting there and he was asking us how we do what we do and all these different questions. And we explain to him that we take over the home or we locate properties for investors. And how we go about do it: subject-to, making the payments, getting a person in there, getting them qualified.
And the realtor is sitting there, and come to find out after about ten minutes of conversation, this realtor had eight lease-option homes. He had done this with eight different people, but didn’t help her. And we were floored. Bottom line is we have the house and that realtor is no longer dealing with them. But if you go in with the intention of helping this person, listening to their need, not their want but their need and how you can help them, it works great for everybody.
Joe Crump: Everybody is going to be different on how you deal with sellers. You listen to Osmund’s deals, I mean he just gets right to the point. You know he doesn’t screw around with being nice. I mean he just gets right to the point. Everybody’s going to be a little different, their personality. But this is my mindset, this is where I go with my deals when I talk with people. I want to do that I can sleep at night, I want to know that I can be happy with my life. I also want to know that I make a lot of money at this. So I gotta find a balance.
We’re going to move on to the next one.
Student: ____________
Joe Crump: Go ahead. Go ahead. One more, one more.
Student: ________________
Student: Which one? I’ll go _________ ask my question. Joe, something just popped into my head. What if you got somebody with a variable-rate mortgage? What happens then?
Joe Crump: Well, you have to prepare for it. You have to prepare for that mortgage to change or they do if it is going to be on a land contract. So they’re going to have to – everybody knows what a variable-rate mortgage is. If the index goes up, the mortgage rate goes up. And they have caps on them on how much they can go up. It is usually two and six, which means that it can go up two percent in one year, up to six percent over the life of the loan on the interest rate.
One percent on a $100,000 dollars is about $70 dollars. So if it goes up 2 percent in a year and it is a $100,000 dollar property, it is going to go up $140 dollars on the payment. That can be pretty substantial. So if you’re paying him $900 and he’s paying $700 and it goes up 2 percent one year, now he’s up to $840, he’s got a very small margin there.
If it goes up again the following year, he could be in bad shape. So then he would have to come out of pocket. So he may not want to do it that way. You know, once again, you have to negotiate that stuff and see if he’s going to do it and you have to be aware of it too. So that if you buy a property like that you have to be aware that maybe that seller isn’t going to keep make those payments, or the payments aren’t going to be enough to cover that amount.
But it may be a good enough deal to go ahead and accept that risk yourself, because you know you’re going to get a decent enough lease payment on it. So if it does go up and you can sell it in a year, or two years, or three years, you just figure out what the numbers are and make sure that it makes sense.
Student: That’s probably a good question to ask the seller if it is a variable-rate mortgage.
Joe Crump: Well, you’re going to know before it is closed, but that would be a good question.
Student: I’ve never even thought of it. That could really screw you up.
Joe Crump: Yeah.
Student: Anyways, on to the next one, right? Sellers –
Joe Crump: By the way, these are – I do this exercise – I’ve done it several times and this is the best questions and the most questions I’ve ever had on just one. And I’ve gone through the whole list in this amount of time before. So congratulations for that. I think this is great, it’s a lot more fun. Go ahead.
