Simply Solving a Problem Beats Out Higher Cash Buyers
Real Estate Investing Beginners
The property that my Student acquired was being fought over by at least a dozen other investors at the same time he got the deal. This is a case of giving the seller what he wanted with the result the price the seller received didn’t matter to him. I tell Students that investors are problem solvers and we provide solutions to homeowners’ worst problems and for this service we get paid very well – this is an example:
The homeowner had not paid his property taxes and he was scheduled for a tax deed sale in two weeks. Tax deed sales are a prime prospecting niche as the homeowners are motivated to find the money to pay off the outstanding tax certificates or lose their home. The tax-deed sale also wipes out the majority of liens against the property including bank mortgages and judgments but not IRS and city liens (which can be reinstated). So typically banks are buying the tax certificates each year or they pay off all the outstanding ones once they are in foreclosure.
The homeowner was deluged by investors sending him letters and postcards and showing up at his door. As is typical, he wanted to stay in his home and was trying desperately to raise the $8,000 needed to save his home but had been unable to do so. He had been estranged from his adult children and even they and his personal friends wouldn’t give him the money. The property was free and clear and worth $150,000 but still his children wouldn’t help even when they understood his entire equity would be lost.
When the Student spoke to him he said he wanted to say in his home until he died. He told the Student he was dying and wasn’t sure how long he had but that he planned on being around for a few years at least. He said he had three cash offers of $120,000, $125,000 and $130,000 dollars. The problem with these offers was the investors wanted him out of the property immediately and would help him move to an apartment or condo.
The Student wisely spent more time focused on his personal problems and a solution that fit his needs. The Student called me and related the situation and I suggested buying the property from him and renting it back to him until he, in fact, died. This put the Student in the situation of carrying the property possibly for years so we factored this ongoing cost into our offer.
We structured the deal with a one-year renewable lease for $1.00 a month rent and a purchase price of $65,000. If these terms sound ridiculous remember the Student was simply giving the homeowner what he wanted and needed. He did not want the much higher cash offers– he wanted to stay in his home. One of these investors was so tenacious he kept coming by and was even there the day when the tax deed sale should have happened.
To do the deal with little or no money, I further suggested he have the seller do owner financing but with a twist. The Student’s monthly mortgage payment would be 5% of the mortgage balance but with no interest so the seller would be getting his principal back each month. When he died the Student would return the remaining mortgage balance to his only relatives, his estranged children. There was a title issue because a former girlfriend was on title and was also estranged from him. The Student worked through this issue also and got the former girlfriend to take $15,000 for her part of the property – she, “Just wanted out!” in her words. If one of the other investors had purchased the property from the homeowner, he would have been buying only ½ of the house – be careful of who’s on title and know you’ll eventually have to deal with the other person(s).
The Student became the caretaker of the now tenant and had to hospitalize him a couple of times and even tried to get him into rehab. One problem was that the tenant had squatters move in with him and they were arrogant and boisterous that they weren’t leaving. As time went on, the tenant refused all help from the Student and died about eight months later.
The Student was forced to start eviction of the squatters but I suggested he approach them and offer them cash to leave and say this, “I can spend the $300 on a Sheriff’s Officer to be here as we throw out your belongings or I’ll give you the $300 if you are out by tomorrow evening.” The squatters took the $300 and the Student got the property back with one tenant who was paying rent and was very cooperative.
The former owner/tenant had set the house on fire years before by smoking in bed. He survived and his insurance company completely rebuilt the property including impact windows. The Student now had the option of patch and paint (lipstick on a pig) and retailing it to an end buyer for $150,000 or wholesaling it for $120,000.
This is one of the best examples of how an investor can compete with cash offers that are much higher. If you try to be the highest offer on deals you will likely not be in the business very long. Find motivated sellers, listen more than you talk (especially about yourself) and make offers based on a solution to the seller’s specific problem. If the seller doesn’t have a problem, you won’t have a motivated seller and all they will talk about is price.
To your limitless success,