I got a call from a newer investor recently, and he was about to do his first subject-to deal. That’s where you buy a house and leave the seller’s mortgage in place after closing. You then make payments on that mortgage until you either pay it off, refinance the house or sell the property.
The investor was looking for some guidance on how to set up and properly use a land trust, which was the type of entity he’d chosen to hold the property’s title with. We discussed how to correctly implement that strategy in conjunction with a subject-to deal and the paperwork he would need.
During the conversation, he said that I sure was smart and asked how I had learned how to do all this.
I told him not to get the wrong impression. I didn’t come up with these ideas myself. I had the privilege of learning them form some of the smartest and most accomplished investors around. I told him that I had learned how to set up land trusts from a great investor and teacher named Dyches Boddiford, and I suggested he check out Dyches’ website, assests101.com, where he could buy a home study course on the subject.
As we talked further, he asked me where I had learned about subject-to deals and if I knew about any other creative strategies.
That’s when I told him about a deal we had just done where I met with a seller who no longer wished to be a landlord, and for good reason.
He had purchased a property, lived in it for a short period, and then turned it into a rental.
This would have been a great idea, except for one thing. He rented to family.
At the time of our meeting, the seller had just evicted his on flesh and blood. And those family members owed him over $10,000 in back rents.
When I asked why he was selling the property, he told me the house had too many negative emotions associated with it and that he just wanted it gone.
He wanted $40,000 for the house, but it wasn’t free and clear. It had a $10,000 mortgage that he wanted off his credit.
We offered to purchase the property for $39,700 payable in 12 equal annual payments of $3,300. These payments would be paid on Nov. 15 of each subsequent year (just in time for Christmas.) And we were willing to prepay the first three year’s worth of payments, plus $100, to give the seller the $10,000 needed to payoff his first mortgage.
He accepted, and we bought the house.
The investor asked me why in the world I structured the deal this way and why the seller accepted.
First, I gave the seller his price without haggling. This made the seller feel better about a bad situation.
Next, paying annual payments on Nov. 15 gave the seller a lump sum every year to do all his holiday shopping with. That was much more appealing to him than having $275 a month, which is what $3,300 a year equals.
Finally, we prepaid on our new mortgage. This gave him the money he needed to payoff his mortgage. Notice we did this instead of making a down payment, which means our first payment will not be due until 2021. This gives us plenty of time to rent the house out and recoup our money – all at zero interest.
The investor exclaimed, “Wow! Where can I learn to do creative deals like this?”
I told him that is just so happens that two of my best teachers, Pete Fortunato and Bill Cook, will be teaching a two-day class on creative deal structuring Sept. 15 and 16 in Atlanta. The title of the class is “What Box.”
The investor asked me how to sign up, and I told him to either call Kim Cook at 770-815-8728 or visit CashFlowREI.com. He said He was going to sign up right then.
I will see him there and I hope to see the rest of you, too.
Joe and Ashley English buy houses and mobile homes in Northwest Georgia. For more information or to ask a question, go to www.cashflowwithjoe.com or call Joe at 678-986-6813.