Creative offers
Ashley and I were two broke kids straight out of college when we got started in real estate investing. We had a mound of student loan debt and no money in our pockets to invest. And because we had either been self-employed or full-time students while in school, we had no real, verifiable income. That fact, coupled with a high debt to income ratio from the loans, meant banks didn’t want to lend us money to buy investment property. So in order to buy houses, we had to learn a different way. That “way” became the cornerstone of our business and is centered around making creative offers.
When we make an offer, we normally make two at a time. The first will be a cash price that we make money off of. The other is some sort of financing offer. It can be a straight owner carry-back offer where the seller becomes the bank and agrees to accept payments over time for the property. Or it could be something like a subject-to offer, where we leave the seller’s mortgage in place after the sale and make payments on that mortgage until it is paid off. It could also be something like a lease option offer where we rent the property from the seller for a time and then have the ability to purchase the house from them for an agreed-upon price at the end.
These are just a few deal strategies that we have used in the past that have allowed us to create profit centers in both cashflow and equity without having to go to a bank and with very little money out of pocket. But there are all kinds of creative deal structures out there that can be used to make a deal profitable. And Bill Cook, one of my main creative deal structuring teachers, will be conducting a three-day creative deal structuring course in February. If you are interested in learning more about that class, I will put a link to his page on my website here.
Now, I am used to making creative offers. But on the last house we listed, I was surprised to receive some creative offers from different buyer’s agents. The reason for this was that we got nine offers in one weekend. And the agents knew they were going to have to do something to make their client’s offers stand out and earn them the sale.
I thought this week I would go over a couple of them with you so you can see some of the creative things agents are doing in order to compete. I’d also like to show you how we decided to go with the right one.
Like I said, we got nine offers in one weekend, all of which were at or above list price. The first thing that happened was that anyone who could changed their offer to say we would not contribute anything to the buyers’ closing costs. This was great because it netted us more money at the closing by lowering our expenses.
One offer stuck out to me even though they still needed some funds to close. They wrote their offer to say they would beat the best offer up to a certain price if we went with them to compensate for needing the extra closing costs. I thought it was creative of the agent to put that clause in there.
Next, we filtered the offers based off of purchase price, mortgage type and projected close date.
That turned out to not be a one-size-fits-all solution for choosing the best offer because one agent offered to cut their commission. And even though their purchase price was lower, it netted us more funds than other offers because we paid less commission on the sale.
The one we went with had a quick sale date, and it was an FHA mortgage. It was over list price and included zero closing costs. But the agent did something creative. They asked for a zero due diligence period.
Due diligence is the time allotted in the contract for the buyer to inspect the property. During this time, they have the right to terminate and give no reason for doing it. This is problematic because when there’s a lot of buyer competition, people will put offers on multiple houses and then use the due diligence period to choose the house they want and cancel the rest, which hurts the rest of the sellers.
This agent asked for zero due diligence but asked for an inspection period instead. What that meant for us was we had a serious buyer who only wanted our house but wanted to make sure there were no underlying defects. We were good with that plan, and I applauded the buyer’s agent for bringing a strong, yet creative offer.
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.