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Sell at Lightening Velocity via Private Lenders!
| | Monday, August 16, 2004 @ 12:30 PM EDT
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Contributed by: Mark Walter
Mark Walter Properties
Read more archived articles about Paper and Mortgage Investing
Nurture your lenders. My most remarkable, exciting, and
profitable deal became the first like it for me. Selling part of the cash flow
to a private lender enabled me to flip the home at lightening velocity! Until
this deal, I was forced to require 5% to 10% down payment due to direct costs
and overhead. Overhead is significant when you operate your business full time as
I do using television advertising, a full time assistant, and website
marketing. As you may guess,
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the search gets extended when hunting for buyers
with 5% to 10% down. Painfully, slower sales mean making an occasional payment
on an empty house. Shockingly, this narrative will illustrate an exhilarating
means to crack the sluggish selling predicament via private lenders. What
occurred? The sellers sold because they retained specific motivations.
Simultaneously, a private lender earned an easy, high yield cash flow. Lastly,
a buyer snapped up the home quickly even though their cash resources were scant.
The sellers felt induced to sell the 4-year-old house because they were
exhausted from trying to complete the 3rd level. Desiring to acquire
a newly constructed, completely finished home, they contacted me. After
listening to my purchasing program, they revealed their loan documents. The
first mortgage charged a very low interest rate while the home equity line of
credit charged a breathtakingly low rate sporting interest only payments. The
payments screamed, “Buy me!” They provided an opportunity for a $450 per month
spread via selling Contract For Deed. During negotiations, the sellers
determined they must have $10,000 cash at closing as down payment on their next
home. Determined to construct a win/win deal, we arrived at the following. The
sellers pulled the remaining $10,000 off their home equity line of credit, I
took over their financing subject to, and they held the remainder of their
equity as a third mortgage with a 5-year balloon payment for a total price of
$185,000 leaving my total payments at $1,100 per month. Simply put, this deal
delivered me a nearly new house having extremely affordable payments with no
money down and satisfied their desire. They have already closed, moved, and settled
into their newly built home which eliminated their burden of finishing the other
house.
The private lender who frequently lends me short-term loans is primarily in the
business of buying properties to hold for cash flow. Customarily, he only loans
me the money to pay closing costs which are repaid from the down payment when
the home is sold. Explaining his most recent rental purchase to me, he said he
was investing $3,500 in closing costs, a new roof, and other repairs, to rent
Section 8 and obtain a $200 per month cash flow minus ongoing maintenance
costs. After explaining the $450 cash flow on my most recent purchase, he
expressed his amazement. Subsequently, I offered to sell him $300 of cash flow
for 5 years for $7,500 giving a 42% yield. He counter offered $5000 for $200 of
cash flow over 5 years for the same 42% yield. Since I had nurtured the
relationship with him by always paying the short-term loans on time, we settled
it. The lack of maintenance costs and headaches made the cash flow more
exciting to him than his typical rental property.
The risks of his loan compared to the rewards are favorable. Fundamentally,
the house secures a 4th position lien on the house. At first glance, this
sounds very risky to a private lender. While weighing this risk, you must point
out to your private lender the factors mitigating the risk such as a low loan
amount, an established payor, and a high yield to offset the risk. Since you
are guaranteeing the payments to the lender, he carries less risk than other
types of cash flows. Certainly this is safer than investing in the stock
market.
After a week of advertising the home, buyers appeared who had only $5,000 in
cash but were comfortable with the payments. Pulling some money off their
credit cards, they accepted the offer of $1,571 per month, $8,000 down, and a
price of $210,000. Fortunately, the family enjoys home improvement and they
look forward to completing the 3rd level. As you see, accepting a
down payment of less than 4% generated a rapid sale and prevented absorbing an
extra payment. It is an honor to put nice family in a lovely home even though
their cash resources are limited.
In the end, the sellers settled themselves cozily in their newly constructed
home. The private lender relaxed with his trouble-free 42% yield cash flow.
The buyers revel in a fine home in a great neighborhood. Customarily, this
house would sell for $10,000 down minus closing of $1000, cleanup for $250,
empty house payment of $1,100, advertisements of $400, and overhead of $3000
leaving only $4,250 for profit. This spectacular deal brought $5000 extra up
front cash flow from the private lender, $8000 down payment or total of $13,000
in flows and saved me from an extra payment of $1,100 giving a net profit of
$8,350. If you are not impressed with an additional $4,000 on one deal, then
consider what happens when you do 1 or 2 of these per month like I do. The
profit jumps to approximately $144,000 additional yearly cash flow. You’ll profit
enormously from the thrill of selling at lightening velocity by teaming up with
savvy private lenders.
Note: Mark Walter is the owner of an established real estate company serving the Richmond, Virginia Metropolitan area. You may read more about him in is profile here on TCI.
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