This is a deep, heart-felt thank you for those of you from San Diego that made the long & traffic-filled trip up to Corona last night to hear me speak to the Inland Empire REIA. I'm sure the fact that Mike Cantu also spoke never entered into your consideration... So here's to my friends: Helen & Heinz, Anya & Chris, Ortencia, Wendy, Augie, Jeff & Gary. Please forgive me if I missed anyone. It always helps to have friendly faces in the crowd. And I had a blast!!!
After hearing Mike Cantu again last night; you just have to attend his workshop in Long Beach on October 13th. The depth & breadth of his knowledge is so deep! And he is so funny & humble! I've known him for years & learned two new things last night! Go to the Upcoming Events page of the SDCIA web site for info.
There's still a space in tomorrow's calculator class...
I wish you... Invest Intelligently!!!
posted by Bill Tan's Blog @ 2:19 PM
4 comments
4 Comments:
Hi Bill,
Thanks for talking to us at the Inland Empire investor meeting last Thursday. You offered some good concepts that you covered well.
Unfortunately, I have had some negative experiences with two of the concepts you covered and wanted to get your thoughts on how investors can overcome these experiences when they implement your concepts.
My first negative experience related to finding a buyer to pay close to full retail for a home on which I was willing to carry the paper with only 5% down. Presumably, we should be able to find buyers who can't qualify for a loan if we are able to carry, even in a soft market. Last Summer, I teamed up with an experienced Bill Gatten graduate and prior Bill Gatten course instructor to market a home for sale while advertising no bank qualifying financing to sell the home. We advertised in the newspapers, used craigslist, used bandit signs, sent out direct mail to a customized mail list of potential buyers, and networked with realtors and mortgage brokers to find a buyer. After two months of effort, we couldn't find one buyer using this strategy (seller financing). What's more, the financing we were advertising was under 6% and we still couldn't get a bite. We even waived off credit and income information. As Bill says, all we wanted was a 5% down and for someone to be able to "fog a mirror". It seems that the main issue is affordability, rather than availability in financing, that's causing the market to be soft. Given our past efforts to find a buyer while offering seller financing, what can an investor do to attract buyers to implement the seller financing scenario you covered at the meeting in this market?
My other negative experience related to finding private money investors who are willing to buy notes or lend out money at anything more than 70% LTV or at less than 12%. After advertising though the newspaper and other media sources, the private money I found all required a higher interest rate and a lower LTV than in the examples you gave at the meeting. How can an investor attract investors to the type of terms you were indicating (LTVs of more than 70% and an effective interest rate of around 10%).
Please advise! Thanks!
Jerry, I can't help you regarding your effort to sell using seller financing. Not enough information. Where & what kind of property? Did anything sell & why? What were comparable SALES? What were properties renting for in the area?
Part of the due dilligence of buying an investment is knowing what is an affordable payment for the future buyer. I don't know if that's the case here. Availability of financing doesn't matter if buyers can't afford it.
There are major differences between note investors and private lenders; however their ITV (investment-to-value) are similar. Their max is 70% barrier right now. My ITV in the example is 71%. Maybe I should lower it... Private lenders are equity-based lenders that also include points as fees in addition to a higher interest rate. Note investors are not lenders.
You could look for people that have money in savings accounts that would like a higher rate and convince them. I did. You might not be looking in the right places... And you have to learn how to make them feel safe. Be very, very careful; are you borrowing money from private sources or getting paid to arrange loans for them? You'll need a license to arrange loans.
Good luck!
Bill,
I was confused by your example where you were selling a $400K house (full retail) while charging the buyer 8% interest on the 1st TD and 10% interest on the 2nd. I thought you also mentioned that this seller financing methods works even better in higher priced neighborhoods.
In more expensive areas, rents tend to be relatively lower compared to the mortgage payments that are required to buy a home in those areas. If we are charging 8% and 10% interest rates while asking for a full retail price, wouldn't that be straining affordability? There still seems to be a big disparity between rents and mortgages that you can't really find areas now with narrow gaps, especially in the nicer areas.
In short, isn't trying to sell a house for full retail any time soon even with seller financing a tough way to go because the affordability issue is MARKET WIDE, and not just restricted to certain areas or certain houses. With that in mind, how can we successfully use your seller financing system to sell houses unless market prices come down to the point where the gap between rents and mortgage is much lower? Otherwise, is there a specific way you can recommend to find such buyers.
Thanks in advance.......
Edgar, you're absolutely correct. It's all about affordability. We're going to see an adjustment in the RE market due to buyers having to obtain financing the old fashioned way: by underwriting loan criteria of down payments, good credit scores and debt ratios. And because of that the prices of RE will be forced to come down.
It will start a migration of buyers moving down rather than up. And those moving down will have the choice of renting in the areas they're currently living in (which is a possibility), renting in a not as nice area (probably where they moved up from & where there will be much more competition for the rentals) or being given an opportunity to buy again. Which will they take? It's an individual choice. History has shown that most people would rather buy than rent if given the choice.
And yes you're correct that the mortgage payment will be a determining factor. Mortgage payments have to be in line or slightly higher than rents when taking into account the tax benefits of ownership.
When I've given that presentation, I've always noted that your buyers will most likely be from the people that have lost more expensive homes & will be moving back to the areas that they can afford.
We used to market to those people that were just about to lose their houses to foreclosure. The default lists. Ads in the paper in the for sale & for rent sections. This is an area where individual creativity & audacity pay off well.
Hope that helps.
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