Real Estate Investing with Brian Evans Jr.
"Investing With the Lowest Risk Possible"
Last week we discussed using the MAO formula to determine your offer amount when buying a property with cash. Now I want to discuss how to buy a property on terms. Terms is the best because even if you get a property under terms you can still sell it for cash, it just gives you more flexibility when you do sell it.
The best definition of buying on terms that I could come up with is any deal that wouldn’t require you to have to pay the seller all cash in order to get the house. You’ll either be taking over debt or creating new debt, that’s terms.
Buying on terms should always be your first option, because again, you can still wholesale it or rehab it or whatever you want to do with it. You have much more flexibility. If you buy on cash, then you have to sell it on cash. It would be a lot harder to sell it. Whereas, people that have some money and poor credit and can make a great monthly payment would be great lease option candidates. If you buy a property with all cash you won’t be able to lease optoin the property because you’ve got to sell it for cash.
The easier you can make it for somebody to buy from you is going to spawn from how you bought it. Buy on terms whenever you can and then you can still sell for cash. If the market won’t allow, won’t bring cash your way because that’s not what this house is doing, then you can sell it on terms and you have much more flexibility on getting out of maybe a potential problem property.
Always ask yourself, “Can I make this a free house when I buy? If not, is it worth my time?”
Again, the definition of a free house is nothing or very little out of pocket in order for me to get ownership of the home. If I can’t make it a free house, can I get my money back very quickly? If not, does it make sense? Do the numbers work? Am I at risk? Am I writing a check? Am I having to use my credit? If yes to those questions, you probably don’t want to do the deal and it’s a suspect deal. Go find more prospects.
If you’re thinking you can’t find anymore prospects then here is what you need to do: Get your phone to ring better, market to a better list. Get some different signs out. Make some outbound calls to some other sellers. Get your front end fixed if you’re not getting the right types of sellers calling you. And again, it’s a numbers game. If you mail out 100 letters, you may get ten calls depending on the list you sent letters to. Of those ten calls, maybe you can get one or two prospects, maybe three, and then one or two under contract.
Remember, if it’s suspect, get rid of them. Find the prospects. You’re going to buy with cash or terms in their mind.
Again, if you make a cash offer and you plan to wholesale it or whatever, all they think about is they’re getting cash. That’s all they want so give them what they want and in turn try to figure out a way to bring that cash to the table with a new buyer, with private money, or however else but not your money.
The only time I would say it’s okay to bring your money to the table is if you have another buyer in place willing to pay more than what your purchase price at a decent amount, and they’re going to close same day or next day and you have to have your funds to close it. Ideally, if my attorney will allow those funds to flow through to my purchase, man that’s golden. That’s the golden goose, because that means I have to bring no money to the table.
But if I’ve got to bring a check, then we’ll talk about some funding sources, but it’s a very, very, very, very low risk check. The moment you write a check, you’re at risk my friends. I don’t have a problem with that, but it’s got to be at the lowest risk possible, which means there’s a buyer right here that wants to give me their money right now. You know what I mean?
So when would I buy on terms? Again, terms is either taking over debt or creating new debt. There is either one mortgage on the home, there’s two mortgages on a home, there’s no mortgages on a home. The seller is flexible and will accept payments from you in order to sell quickly. It doesn’t matter what kind of liens or debts are on the home, or if there’s no debt on the home, you can still buy on terms.
Will the seller allow you to make payments or take over their debt and make payments to their lender to get out of the home? That’s terms. Or, is the seller stuck on all cash? If they’re stuck on all cash, then use the MAO formula even if you’re going to wholesale it. Even if you don’t know where the cash is coming from, so what? Get it under contract and then let’s figure out how to make money with it.
I know this is a lot of information to process, but this is the part of real estate investing that allows you to have fune and be creative. If you are currently investing and find yourself bringing your own money to the table, send in a help ticket here and one of my team members will contact you to see if you may be interested in buying your properties the way I do, with the lowest risk possible!