Most of the people that you speak with during the house acquisition process (from the realtor to the closing agent) will tell you that your creative methods won’t work. If you tell them that you heard the idea at a seminar or in a course you bought from late night TV, they will laugh at you and call you gullible. Don’t believe them! Creative ideas work if you stick with them and be patient. Keep in mind that the people who fight you on these ideas are either threatened by their own lack of success or are jealous of your ability to “pull it off.”
It is important for you to surround yourself with like-minded people. Join investment clubs. Make friends at seminars. Work with a mentor that understands creative financing (preferably one that is currently active in the marketplace). Oftentimes your biggest foe will be the seller’s attorney. Therefore, it is a good idea to “train” your own attorney for battle. Have lunch with your attorney from time to time. Slowly explain to him what you are trying to accomplish and how you would like to accomplish it.
I bought a group of houses from an investor that wanted out. I found the Deal by sending out a plastic roll-a-dex card to all realtors in my buying area. One of the realtors who received my card (along with a letter explaining what type of property I was looking to acquire), called me up. The houses needed a lot of work and the owner was nearing retirement and just didn’t have the energy left to refurbish a lot of houses. My offer was predicated on a quantity discount (for buying multiple houses at one time) and seller financing of a $50,000 second mortgage.
After negotiating the purchase price and terms of the second mortgage, I called my attorney to discuss the deal. I knew that I wanted to hold title in the name of a land trustee and that I would be selling off each house as I finished remodeling them. This large of a project would require a lot of signatures by the trustee (as I sold off property) and a trustee that was cooperative and accessible. So, I asked my attorney if he would serve as trustee on all the properties.
In return I promised to use him not only to close the “big purchase deal,” but to close each property as I sold them off. This meant thousands of dollars of legal fees to him. The catch was that I didn’t want to pay ANY trustee fees. He agreed. This saved me thousands of dollars in trustee fees. Plus, since I would need a partial release on the second mortgage each time I sold off a house, his relationship with the original seller’s attorney was invaluable to me. Now when I sell a house, all it takes is a quick call from my attorney to the seller’s attorney and our second mortgage release is “in the mail.”
In addition, my attorney helped convince the seller’s attorney that I was “worthy” of the second mortgage that his client was taking back on the property. My new first mortgage financing was for 80% of the appraisal and the second mortgage made up the difference to complete a 100% financing package. Often times in a situation like this, the seller’s attorney will discourage the seller from accepting a second mortgage when the buyer doesn’t have any money in the deal. The implication is that because I don’t have any of my own money in the property, I won’t take care of it. Bull!
First, my credit reputation is on the line. There is absolutely NOTHING MORE IMPORTANT THAN YOUR CREDIT RATING! Whatever it takes to pay your creditors on time—- do it! Whether your lenders are private or institutional they are your life-line to the future.
Second, I would not buy a property if I were not interested in making a profit. My personal time and efforts are worth a lot and the amount of time that I put into a property is the same as cash. However, not everyone views the situation the same and many times the seller’s attorney will not accept the creative financing structure without the recommendation of one of his “brothers of the bar.”
Obviously, I had already established a relationship with my attorney before I was able to accomplish the above deal. It is important that you do the same. Your relationship with all the players on your team must be established long before you require their services.
The difficult part about finding a good attorney is that most attorneys are not investors. Therefore, they are not familiar with creative financing techniques. Search around for an attorney that already has experience in creative financing experience. Ask other investors whom they use. Get a referral from your mentor. Make friends with attorneys that attend the same real estate seminars that you do. You might even consider interviewing an attorney before working with him/her.
Ask the following questions:
- Do you own any rental property?
- Do you manage your own property?
- What is the most creative transaction you were involved in?
- Are you familiar with how foreclosures work?
- About how many closing do you attend each year?
- Are you familiar with land trusts?
- Would you consider serving as a trustee for me?
- Have you formed an LLC before? Can I see an example?
The same logic applies to selecting your lender. In the above example, I would not have been able to buy all those houses from one seller without a lender that was confident in my abilities. How can you do the same? Start with lenders that you know. Take them out to lunch and “interview” them. Tell them that you are looking to buy investment houses, but you want to keep your upfront cash to a minimum. Ask him/her what procedure they might suggest? Many conventional lenders are lazy now and don’t have to be creative to put a deal together in this low interest rate environment. Let them know that you are investing for the long haul. You will bring them loans for years to come if they work with you creatively. Also, tell them that you will refer other investors to them…..and do it.
Cold cash and net worth are what impress bankers. If you have any cash, put it in the bank where you want to do business. If you don’t have any cash, do the next best thing—-have your friends with cash put it in the bank that you are trying to impress. Make sure that no matter what, the banker knows how the cash got into his bank. Take your friends in and introduce them to your banker and make a big production out of the fact that they are opening accounts and putting cash into the bank. If you help your banker “look good” to his superiors, he will reward you with special treatment. Be good to your banker and it will pay you dividends (no pun intended).