Sunday, September 19, 2010

The Big Sub2 Stick...

It has occurred to me that too many creative investors really aren't that "creative" at all, in the usual sense.

Once, creative investors defined themselves by looking beyond the obvious (thus creative) to find profitable ways to make money in real estate that traditional (non-creative) investors might look passed.

Subsequently, the creative investor found ways to make even more money during the holding time, that the average investor wouldn't consider.
Let's look at "seller financing" as an exit strategy. "Ugh!, says the traditional investor, whose only exit strategy is buy/hold/sell for cash.

Yes, seller financing is considered the red-headed step-child of exit strategies for traditional investors. Nobody wants to look at it, or claim it as their own, because to the traditional wholesaler, flipper, or merchandiser, this represents a failure to perform...

That is, the objective of the traditional investor/flipper is to buy for cash and immediately sell higher for cash. So having to finance a sale, is like saying, “Mommy, I did a boo-boo, please spank me...” Okay, maybe that’s just me... :)

The old way of flipping works fine until there's a hiccup in financing, appraisals, or inspections that make the property unsellable for the "right price". Then "Plan B" goes into play...or, "Plan C'... or, "Plan D'..., or Oh, crap, not the "Last Resort Plan?" Yes, seller financing. This exit strategy just represents a "muck up" if you will of the original plan to “get out fast for cash.”

For the Sub2 investor whom isn't bound to traditional liquidation methods, "seller financing" is "Plan A", not the “Oh, crap!” plan." Before I go further, one of the biggest sticking points about the “Oh, crap!” plan of seller financing is the risk of default by a buyer.

The average investor fears the "liar loan squat." That is, the buyer stops paying and won't move, and forces the investor to cover the payments on his own investment situation.
This is what the amateurs sweat, twitch over, and dread and dread, as if it were a diagnosis of terminal cancer, or permanent head injury (just to make it vivid).

Yawn...this only happens to amateurs who don’t know how to limit risk with the “Big Stick.”

For the professional Sub2 flipper, “liar loan squatters” are some faint anecdotal thing that happens to others. At the same time, those who inform themselves on how to limit the risk using the “Big Stick” make consistent, huge money in less time than the average investor does.

Meantime, the profits on a Sub2 deal, that appear at face-value to hover between "average and 'don't do it'," are substantial. And of course, the profits can be unbelievable on Sub2 deals that hover between "dreamy and heavenly".

However, limiting risk, is only the beginning of the profits. The juicy profits are in these five words: “Down Payments. Rinse And Repeat.” That just means knowing how to find buyers with down payments, and when/if a default occurs, elegantly moving in another buyer who can "hopefully pay", but nonetheless has ANOTHER down payment. Yay, for repeat seller financing and multiple down payments...!

Frankly, I'm only talking about seller financing of marketable homes that "everybody" would like to own...not the 45-year old, stucco boxes with one-car garages, gravel roofs, and wall heaters (I've owned many of those).
Who wants to buy one of those and put up a bunch of money...? Nobody. That's why the government invented low-income, no down, HUD loans, so buyers with no taste (j/k) can buy these unmarketable, ugly, obsolete hovels that nobody wants (after making sellers do all sorts of retrogrades to make them "habitable" and financeable).

So, what is the “Big Stick?” you might ask...? Hmmm?

You can find the "Big Stick" in my Sub2 investing course I call...
( Click Here )

Saturday, September 18, 2010

"Honey, I Found A Sub2 Sucker...!"

I've been offered some bizarre sub2 deals. One lady had several rentals to get rid of that she was ready to walk away from. I didn't know why she would walk away, but they were all over-financed by a large margin.

Sometimes, upside down deals can be worth "messing" with, if there's no time limit to refinance the loans, and the existing financing is stable. That is, the loans are not "neg ams" negative amortizations, interest only, or adjustable loans with high interest caps, and the like.

When the principal keeps going up, and the income doesn't...trouble happens. When the payment goes up and the value doesn't...trouble also happens. Anytime, the payment structure is unpredictable or likely to get out of control...trouble happens...for those that, without thinking things out, do these deals against all better judgment.

Well, when I found out what her payments were, I thought, "This was either the worst terms ever, or the best ones ever. She was $200,000 underwater (over-leveraged) with her loans, but her rents covered her payments.

Well, after talking with her I discovered the most amazing thing... And it wasn't what I expected...

She had pulled a quarter million out of these properties two years previous, then the market tanked, and finally she was left with a quarter million in the bank, and upside down by the same amount. Of course, I'm kidding... She didn't have squat in the bank...left. Like many amateur investors who accidentally "hit a jackpot" in real estate timing, she blew the money on...whatever...!

Okay, whats this have to do with "a Sub2 sucker deal"...?

Well, despite the common misconception, not every seller writes with crayons that gets themselves in a crack with real estate and is willing to do a Sub2 deal with us. Some sellers are quite sophisticated. Meantime, it's up to us to figure out which deals are worth a hoot, and which ones just make us "look" like we write with crayons in the aftermath of a deal gone terribly wrong.

That all said, let's take a look at a good deal and then compare with some bad ones...

Good deal...
  • Seller has one or two loans that total 90% loan-to-value, or less (or 10% equity remaining, or more).
  • Seller needs out of the payments/situation "yesterday"
  • Seller has "gone through" at least one failed escrow and perhaps two real estate agents.
  • Seller has a fully amortized, fixed rate, or reasonably-capped ARM loan, with no balloon payments coming due.
  • Seller needs to salvage/maintain/improve his credit.
  • Seller needs/wants to qualify to buy a cheaper/different home.
When the stars line up, we've got a good deal. Now, here's the anatomy of a "bad" deal from a "good" prospect.
  • Seller has one or two loans that total over 100% loan-to-value, or more (or no equity remaining).
  • Seller needs out of the payments/situation "yesterday" and can only short sale, default, or modify the financing .... and screw his credit...
  • Seller can't list his house conventionally, because he'll have to pay out of pocket for the closing and real estate costs..
  • Seller has a fully amortized ARM loan with higher interest payments, high cap on the interest and a balloon payment due (all of which will torpedo this deal).
  • Seller needs to salvage/maintain/improve his credit (He's screwed).
  • Seller needs/wants to qualify to buy a cheaper/different home ( His option used to be to, "buy and bail," until last year, when banks got wind of this tactic ). That is, the seller maintains his credit, buys another house, cheap, and then lets his old house "go back to the bank" (maybe the same one that made him the new loan...! heheheh.
To recap: Good deals:
  1. Motivated seller who writes with crayons (just kidding) and has burned through a couple agents and failed escrows.
  2. Low interest rate loans with no balloons or adjustments.
  3. At least 10% equity.
  4. Wants to buy another house immediately.
Bad deals:
  1. Motivates seller who writes with crayons (just kidding, again!)
  2. Teaser rates, high rates, negative amortizations, high interest caps, early payoff dates.
  3. No equity, or upside down.
  4. Dreams of buying another house sometime before the "rapture"

Thursday, September 16, 2010

3 Steps To Sub2 Success...!

I responded to an email last night that I think you should read...

A newbie investor wanted advice on how to get into real estate investing...

I receive requests like this every week and a half.

Frankly, I used to lap up the opportunities, until I realized that the ones wanting my help didn't really know what they wanted. I discovered that unless I had a very clear, precise idea of where they wanted to go, it was a case of the blind leading the blind. No thanks. What really frosted my cake, was that none would follow my advice anyway, since they really weren't committed to their blind journey in the first place.

So, I decided I was done with that. Now, when anyone wants help, I have them do a little exercise (not little) before I waste time. Here's what I said to my future "mentee" last evening...

"John [name changed],

Size yourself up...
Evaluate yourself honestly and frankly...and ask...

  • What are my skills?
  • What are my strengths?
  • What are my weaknesses?
  • What have I set out by “faith” to accomplish, that seemed impossible, but succeeded in doing despite the obstacles? That is, how determined have I been at following through to the end of a difficult achievement...?
  1. What is my most important, pressing, must-have, goal?
  2. What is my absolute deadline that it must be achieved?
  3. What is the consequence of it not being achieved other than my life will come to an end, and/or I’ll be embarrassed to the point of committing suicide, because I’ve told everyone in the world what I was going to do, and by what date so it MUST happen, or else?

Frankly, if you can answer the last 3 questions, I would love to help you further. However, if you’re not really sure about these yet, then I’m going to be a poor source of help.
Don’t feel bad, if this isn’t a solid situation for you yet. I understand.

However, nobody does squat, really, without knowing the answers to those three questions first, including me. So I just gave you some very important feedback that will set you ahead of the pack.

Meanwhile, read everything you can on real estate, and above all control your thoughts. Remain positive and thankful for everything you have, and completely STOP focusing on failures, doubt, worry, self-doubt, or what others might think of your goals, dreams, deadlines, or accountability to them.

Finally, I highly suggest you get a copy of both of Tony Robbin’s books, "Unlimited Power” and “Awaken The Giant Within”, and finally “Get The Edge.” You might not be ready for these yet. You have to be in the mindset of changing the way you think.

It may take something fairly traumatic to “get you there”. Meanwhile, the books are a lot to absorb, but “Get the Edge” is not hard, and is fun to listen to. However, if there’s a problem or challenge in your life right now, Tony Robbins has enormously helpful things to offer, that have changed my thinking habits 180 degrees."

Now, I'm waiting to see if John examines himself well enough to be open and clarified in his thinking to absorb and appreciate anything else I have to offer. We'll see.

Saturday, September 11, 2010

"When You Absolutely Must Have $30k In 90 Days..."

Wow, after three weeks of preparation, I just finished the final touches on a 30-minute presentation outlining how I learned how to do "subject to" deals from my friend Mitch.

In the video, I share the story about Mitch, the guy that we all thought was a drug dealer, because he drove nice cars and lived in a view home with a pool, but nobody ever saw him at work.

Ha Ha! Little did we know that Mitch was a professional negotiator and sales trainer that morphed his training into buying upscale houses from motivated sellers without down payments or using his credit...

Well, I got Mitch to tell me what he was up to several years ago now, and frankly, what he showed me changed my life forever.

Normally I put content here, but today, I'm just offering a free video presentation that shares exactly how my friend Mitch made thirty or forty thousand dollars in just a few days of buying pretty houses without qualifying for loans, or offering up his credit. In the video, I also show examples of what can be bought using "subject to" financing that surprises most people.

Here's the link to the video... FREE VIDEO PRESENTATION