How to Legally Make Money Selling Properties That You Don’t Own
Make Money Selling Real Estate
Because of the changing market conditions in the real estate industry, it feels to sellers like all the buyers have disappeared. Wouldn’t it be easier to sell properties if you had buyers before you had to sell houses?
The realm of having buyers come to you has long been the forte of Realtors® who advertise and specialize in selling all sorts of residential and commercial properties. They spend tons of advertising dollars to attract buyers. Then they diligently hunt the MLS® to find properties listed by other Realtors®.
The system works especially well in good markets for properties that are selling at or near full market value. The sellers have to price their properties higher to off-set the Realtors’® commissions and make as much as if they sold it themselves as a For Sale By Owner (“FSBO”). Mortgage brokers also spend a ton of advertising dollars to get prospects for mortgages. Sometimes they cooperate with Realtors® to find clients that can get loans to buy their dream homes.
But a new trend is slowly catching on in the real estate investment community. This is what I call “Premium Buyer Selection”. It is simply the process of investors finding and qualifying buyers to fit into houses the investor finds from other investors. The strategy is to let the other investors go through finding the properties. The wholesalers will markup the property by $5,000 – $10,000. I will come along and have a buyer in tow to buy the property and re-sell it for a $20,000 to $30,000 profit. If this sounds too good to be true, it isn’t. It’s happening more and more every day.
I first encountered this phenomenon with a property I had for sale for $285,000 (purchased the week before for $245,000). I had a Trustee Sale which sold it the first weekend for full offering price. The buyer couldn’t get financing. After three more buyers falling by the wayside, I got a call from an investor who was making the offer for her client and said he would take the property and asked that I stop showing it. After she looked at the property she said her client wanted it. His offer was for $255,000 with $20,000 to her as a buyer’s fee as she called it. I was really “bothered” by this offer and was willing to pay a 5% to a buyer’s agent at the $275,000 range. We didn’t do the deal but I found out that she does this on a regular basis. She legalizes it by taking partial ownership of the property before the closing.
So there exists the opportunity to find motivated buyers, determine what they need credit wise, and qualify them for a loan to help them to achieve a “pre-approved” status. A number of my smart students have virtually stopped prospecting for sellers and are concentrating on finding buyers.
The next question should be “Where do they find the buyers?” Ironically the number of qualified buyers has changed very little since the sub-prime meltdown began. What has changed dramatically is the number of sub-standard borrowers who can no longer get loans under most conditions. The “stated” or “Liar’s” loans have virtually disappeared for all but the most credit worthy with substantial down payments. The estimated loss of potential buyers is as high as 35% of the sub-prime collapse.
Now buyers are truly a rare commodity with literally 10 times the homes from which to choose. However, there is still hope for low to medium income families with FHA loans. These loans do not require the strict credit scores of conventional financing and are more focused on the borrowers’ last year payment history. By carefully staying on top of the ever changing mortgage or having a mortgage broker do it for them, this band of intrepid investors has developed a niche market that could go on for many years. It is not affected by the issues of finding and rehabbing properties.
Working with these credit-challenged borrowers can be painstaking but very rewarding. Rewarding in the sense that the profit margin on the sale of the properties is large, averaging between $20,000 and $40,000. Painstaking because these buyers have different “entry levels” with respect to how much help they need. Some are ready with just help on an application, borrowed down payment, or a co-signer for the loan. Others need credit restoration which can take six months with no guarantee they will be buying one of your houses. This buyer pool is populated by some prospects that desperately need a home to move into and you need a property for them immediately. On the other end of the spectrum, are the buyers who are extremely picky and will buy what and when they are ready which may be never.
If you intend to start working with buyers instead of sellers, an industry secret to doing one deal per month for a net profit of $25,000 to $30,000 is to have a pre-approved pool of 15 – 20 actively searching and eager buyers. To get to this many eager buyers you will need about 40–50 total people in your pipeline. These people can be a real hassle to work with especially when they are comfortably sitting in a rental unit at $1,200/month and are looking at spending $2,400/month to own their dream.
For a few investors who do not want to own any properties, use any money, or take any market risk, this is a simple way to do it. There is nothing more satisfying then sending out an email saying “HELP – need 3/2/2 in ______ community, must be at 65% LTV or better depending on condition, and in move-in ready, buyer in hand”, and receiving back 5 – 6 investor properties to buy! What happens next is you have both sides of the money equation, which is eager buyers plus motivated sellers = massive profits using little money and with no risk.
To your limitless success,
Real Estate Mentor Program Founder