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.
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?
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.
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.