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How To Make A Profitable Offer On ANY Property
Joe: Hey, it’s Joe. Here’s another zero down deal we’re talking about. And this is hypothetical deal. I’m doing this series here of hypothetical zero down structures and the different ways that you can make offers on different properties and different situations. The thing to remember is that you can make an offer on any property that is going to be profitable to you. Now, not all, it may not always be acceptable to the seller, but it can be profitable to you. So you want to be able to do that in a way that’s most likely to be accepted. I mean, you can always make crazy offers on properties, “Oh, I owe $100K on it.” “I’ll give you $50K.” Well, yeah, you, they can’t do that because they can’t come up with the $50K. So, it, even though it’s an offer that’ll make you a profit, it’s not probably an offer that they can do. So, you want to find ways that you can make it work for them that doesn’t eat them alive but still makes you money and also solves their problem.
Joe: So, let’s look at this particular deal. This is an asking price of $625K. The value is $600K. So, it’s actually, they’re asking more than they think the value is. The mortgage is $580K.
Joe: So, first of all, the likelihood they’re going to get $625K is pretty low if they put it on the MLS. So you have to talk to them about that, if they’re going to do it on the MLS. If they want to sell it as a lease option getting $625K for a $600K property is not a big stretch. As a matter of fact I’d probably raise that property up to $645K and try to get $20K as a lease option fee for me and the first month’s rent for them.
Joe: Their principal, interest and taxes and insurance is $3,300 a month, but this property would only rent for $2,700 a month so it rents for less than they owe on it every month. So for them to be able to take a deal like this they’re going to have to take a $600 a month negative cash flow on this property which is going to be painful for them. But, is it going to be more painful for them to do that and take that $600 a month, or is it going to be more painful to take the $3,300 a month? It’s always easier to pay $600 than it is to pay $3,300 a month. And if they wait, the values will probably go up over time and they’ll be able to pay it off.
Joe: So what I would do on this is, I’d probably do it as a lease option. I wouldn’t take this property subject to because there’s no cash flow for it for me. It would cost me a negative. They’re willing to take the negative often times because they want to keep their credit clean. A lot of people, especially in higher incomes, have to keep their credit clean because of their corporate job or because they work for the government and they have to keep their security status or there’s a lot of reasons people want to keep their credit clean other than the fact that, you know, it’s just good to have good credit if you can manage it. And if you’ve got the income to be able to pay this, they can handle this.
Joe: If they’re getting ready to go bankrupt it’s not going to solve their problem, really, because they’re probably not going to have enough cash to do it. But a lot of people that are in these situations don’t have this situation. And you’re going to find this with people that are upside down. We found this, we saw this a lot in 2008, 2009, especially in places like California and on the east coast as well, where properties dropped in value 20%, 30%, 40% in value and they were actually upside down by several hundred thousand dollars. And we would go in and we would sell the property on a lease option for the full price of what they owed on it, but we would do a five-year lease option so it’d give it time for the values to come back up. Because historically values come back up after a big crash like that over a five-year period. We saw that happen in 1991 when things crashed for me, with my first experience with that, and that happened again after 2007. By 2009, 2010, the values had already started to come back up and most of those properties were back to where they were before. You just have to wait them out and a lease option is a great way to wait them out if you have to move.
Joe: You know, a lot of people that have to move, so they can’t, you know, stay in that property, they have to make a mortgage payment on there. If somebody’s making the majority of that mortgage payment for them, it keeps their credit clean, they can then go out and buy another property and they can do it that way. And one of the questions you get a lot of times as well, I need, I can’t qualify for two properties. Well, they can because they’ve got income coming in on one. The banks typically will allow 75% of the income coming in on a property to apply towards their debt service. So if they’ve got $1,000 of rent coming in, they’ll allow $750 to go towards the debt service. So if the debt service on that loan is $750 that’s a wash and it doesn’t affect what they qualify for. If it’s a little bit more than that, then it’ll drop down what they qualify for by a little bit, but not the full $250.
Joe: So that’s how you could do a property like that and still make it make sense for them. You can make a good chunk of money for yourself, anywhere from $5,000 to $10,000 to $20,000 on this deal almost every time you could make that. If they don’t, if you find a buyer who doesn’t have $20,000 but they’ve got $10,000 down, you could do $10,000 and then you could another $10,000 as a promissory note that they could make payments to you over time, over the next two or three years.
Joe: All right. Hope that helps.