Security is the foundation of every deal

Security is the foundation of every deal

 

Security is the foundation of every deal

Peter Fortunato is arguably one of the most creative real estate deal structurers on the face of the planet. The way he crafts deals is nothing short of mind blowing. If he knows some key information, he can take a single house and give you at least 10 ways to construct a lucrative deal for both the buyer and seller. Every time I get to hang out with Pete, he opens my mind to new possibilities.

 

 

Pete made a cool diagram that we lovingly refer to as “The Pete House.” It lists the seven real estate investment benefits associated with any transaction. These include amortization, use, tax benefits, income, management, growth and profit.

Security is the foundation of every deal

 

The bottom of The Pete House contains this statement: “The foundation of each transaction is security. If a party doesn’t believe he will receive promised benefits, there will be no deal!”

 

That statement is huge.

 

I want you to realize that security comes in many forms. Collateral is one, but more often than not, the security needed for a deal is trust.

 

If it’s a traditional closing, for instance, the buyer must trust that the seller has a clear title. The seller must also trust that the buyer either has cash or can qualify for a loan. That’s a lot of trust for a regular sale. But if the deal contains creative elements, how much more important is that trust?

 

So as an investor making creative offers, how do you gain the seller’s trust and make them feel secure in doing a deal with you?

Security is the foundation of every deal

 

The most significant thing I can suggest is to have a reputation for doing what you promised to do and to pay people when you promised to pay them come hell or high water.

 

Now if you find yourself in a situation like the one we found ourselves in the other day, something else may be going on.

 

Ashley and I were looking at a house to buy that was listed on the MLS. After viewing it, we realized we would make negative money if we tried to flip this house. We decided to walk away.

 

I called the agent back after a couple of weeks to see if anyone had made an offer. The answer no the cash buyers were interested.

 

The owner literally had a house he couldn’t sell.

 

I told the agent this would be a good subject-to deal– that’s where we buy a house, leave the seller mortgage in place after closing, and make payments on that mortgage until we either pay it off, refinance the house, or sell it.

 

After the agent pitched our offer, the seller wanted some time to explore his options.

 

Later that week, we met the seller at the property to do another inspection. I asked him if he understood what a subject-to deal was and if he had any questions. Boy was I glad I did.

 

The seller was about to retire and move out of state. His understanding of the deal structure gave him the impression he was going to be an out-of-state landlord. That made him very uncomfortable.

 

We went back through the deal structure, taking time to answer any questions he may have had. Once he understood it he wasn’t going to be a landlord, he felt secure enough to do the deal.

 

Security is the foundation of every deal

In this case, the seller trusted our reputation, but that wasn’t the security he needed. He didn’t understand how a subject-to deal worked. Had we not gone back and answered all his questions, the seller never would have felt secure, and this deal wouldn’t have happened.

 

Security is the foundation of every deal. Make sure you ask your seller enough questions to find out what they need in order to feel secure.

 

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.

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2 comments

  1. Thanks for the good idea to re-confirm that the other side understands. Often folks don’t want to feel stupid so they are silent.

    1. You said it Steve,
      No one wants to feel stupid. And if they feel stupid, that makes them uneasy and they will turn down the deal.
      That goes for sellers as well as their agents. Some agents aren’t accustomed to creative deals. In this case, the sellers agent didn’t understand either. Even though he told me he knew what a subject-to was, He thought I was wanting to do a sandwich lease option. What we did to combat that was I went to to the meeting with the seller holding a benefits list. It looked like this:
      Benefits to Seller
      • He can move back to Maine as soon as he likes.
      • He will get debt relief.
      • He will continue to have a positive, performing account on his credit report.
      • He won’t have to worry about tenants.
      • He won’t have to worry about rental repairs, property taxes, and insurance.
      • Since it’s not a rental, he won’t have to worry about lawn maintenance, utilities, covering the mortgage payment during vacancies, much less having to try and find a good new tenant while he’s living in Maine.
      • He will have peace of mind knowing he won’t have to deal with any of that.
      • He won’t have to put another dime into the house to sell it.
      • He also gets finality in a situation that seemed bleak
      • He gets the satisfaction of knowing a new family will be raised in the same place his was.

      Benefits to Sellers Agent
      • He gets to help another client. More importantly, he gets the satisfaction of helping his friend sell a house that was other wise un-sellable.
      • He will have outshined his competition to that client.
      • He makes a commission.

      Benefits to Joey

      • He helps his extended family get into a home.
      • He gets the satisfaction of helping Ray get back to his family in Maine.
      • He helps Brent get paid.
      • He gets bragging rights for putting what seems like an impossible deal together.

      The sellers agent later confided in me he had never heard of a subject-to and that this was a learning experience for him. I made sure to use the Dale Carnegie approach. I made sure he didn’t lose face, I educated him without being condescending, I helped him fill out his GAR PSA, and we all came out as friends on the other side. Win-Win-Win

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