The Midas touch Formula for Buying a House.
It is an “etched in granite” fact that one must buy wholesale today in order to make a profit whether it is in single family homes or candy bars even when you pay retail or especially when you pay retail. So how does one go about that?
This author has many such real estate techniques to draw upon and one of our favorite is “The Midas Touch” formula.
One needs to find a newspaper full of mortgages for sale or to place an ad that states you buy mortgages. In the event you ever get a call asking if you sell mortgages, immediately say “NO” unless you have a mortgage broker’s license. Many states do a sneaky job of checking up on you that way since they have a tendency to monitor such ads.
Just as we attempt to buy houses at 50% on the dollar, we can buy mortgages the same way.
Suppose we want to buy a $100,000.00 house and we locate one that is free and clear. The owner is willing to do the financing. Many people don’t want the headache of the property any more. They are willing to take good cash flow instead of all the cash right away. We offer him his $100,000.00 asking price and the method of payment is $100,000.00 in good seasoned mortgages and the seller agrees to it.
We simultaneously have been looking for these mortgages to buy and we buy them subject to closing them within 90 to 120 days. We first accumulate a sizeable quantity of real estate paper. It may be 5 or 6 smaller mortgages or trust deeds. The total face value is $100,000.00. However, we purchase it at a discount of $50,000.00. Remember to always put and/or assigns after your name as the buyer.
The rates on all these mortgages will be different. However, the average rate will be 9% which is a lot better and safer than the seller’s equity was in the event it was in the form of cash in a bank savings account or CD today.
At this point we become a combination of Chinese plate spinners and runners. It is important to remember you must make small contingencies in your contract so you can perform when the time comes. One such contingency might be subject to obtaining financing on the subject property satisfactory to your in your sole opinion. Allow enough time and make the closing date on or before a certain time subject to your option. In other words, when you say close, everyone closes!
You simultaneously go out and get an 80% loan on the house so you have $80,000.00 cash on the table. This could even be a one year private loan at interest only.
At the closing table, the note sellers get their cash i.e. a total of $50,000.00 out of the $80,000.00 goes out.
The seller of the house gets $100,000.00 in good seasoned notes.
You get the house and the balance of the $80,000.00 loan proceeds which might be about $25,000.00 after closing costs and that money is tax free because it is loan proceeds.
We do not recommend you have all parties in the same room. Educate your closing agent at the title company to split them up. Have them in different rooms or have them come in at a different time. Not only educate the closing agent but insist on it or go to another title company.
At this point you still have $20,000.00 equity in the house. You can either leave that on the table or sell it quickly to another buyer or investor to get you out of your short term loan. In the event you were able to put on a permanent long term loan, you can either rent the house and become a landlord if you have the temperament or sell it out on an unrecorded contract for deed which is one of my favorites because we can usually pick up another $5,000.00 or $10,000.00 down payment and now we have someone who takes better care of the house and who also pays the taxes and insurance.
Think about this deal. There are always people who need money and are willing to sell good, seasoned notes at a discount. There are always people out there who would like to have a 9% return on their money.
This deal is hard to do with a real estate agent in the deal unless the property seller is will to pay his agent out of his pocket at the closing or to give the agent one of the notes and that involves an agent who is savvy enough to be creative to take one of the notes as his fee and I find that most agents seem to want 100% of nothing than to be creative when it comes to their commissions.
How do you find a buyer who will take this kind of a deal? Why not run an ad that says “Have good seasoned paper paying good, stead monthly payments, want a free and clear single family house.” See what kind of response that would bring.
Where do you run this ad? Perhaps in the houses for sale section of the houses for rent section. There are plenty of landlords who would rather have passive monthly income than erratic paying tenants. Place an ad in the mortgage section saying, “I buy mortgages, fair price, fast closing”. Sit back and the phone will right especially if you remember to put your telephone number in the ad. We tend to favor all the penny savers simply because they are cheaper than the regular newspapers. Run them for a month, matter of fact ninety day ads works best.
The real estate game is not a game for sissies nor is it necessarily a game for the big money people. It is a game for the adventurous and the bold. Play it fairly and squarely and it will be good for you and to you.