What does the seller need?

 

This week I saw a couple of good questions asked about how to get deals done. One was with a subject-to deal and the other was a preforeclosure. Today I would like to go over them and talk about the most common mistake that beginner investors make when talking to sellers.

The first question was about a subject-to deal. And as a reminder, that’s a deal where you buy a house from someone and instead of getting a new loan to pay off the seller’s mortgage, you leave their loan in place after the closing and make payments on it until it is paid off.

 

This deal structure has a huge benefit for investors because a homeowner loan always has a cheaper interest rate than an investor loan. And the investor is not tying up any of their credit in order to do the deal. The benefit to the seller is they get the financial relief of no longer having to make the monthly payment but they still get their credit score improved by having a long-term record of on-time payments being reported on their credit.

 

Now, a subject-to deal is a long-term relationship between the seller and the investor. And there needs to be a tremendous amount of trust between the two. The seller has to trust that the investor is going to make the payments on time and the investor has to trust that if they are needed that the seller will cooperate with satisfying anything the mortgage company may need in the future.

 

Since interest rates have jumped, this deal structure has become very attractive. So much so, that wholesalers are getting houses under contract subject-to and then trying to sell that contract. And that’s a sketchy situation because the seller has never met the end investor and formed that relationship.

 

The question I saw posed was how do you fix this situation if buying a subject-to deal from a wholesaler. And the answer was simple: you’ll have to pay the wholesaler a finder’s fee to make them go away and then you yourself need to meet with the seller, establish that relationship and trust. Then make sure the paperwork and closing are done correctly.

 

In other words, you have to talk to the seller. And I wouldn’t buy one without doing it.

 

The other question had to do with a preforeclosure. This one was a beginning investor trying to figure out how to do the deal. He was asking for help structuring it and gave info on the mortgage payoff, monthly payment, needed rehab and a value he thought the house would sell for.

He thought about buying it subject-to and found out the arrears. He didn’t want to keep it, though, because the monthly payment was too high to cashflow. So instead, he wanted to do a wholetail deal with it which is where you buy it, do a clean out or minor repair and then sell it on the retail market. The problem was it needed a new roof. And after he factored that in and the arrears, the deal was just too slim for him.

 

He went on to think of some other structures, but he was missing a piece of information which was “What did the seller need?”

 

When asked that question, he said I think she would be happy just to not be foreclosed on and maybe receive $10,000.

 

The problem with that was he said, “I think.” He didn’t know for sure what the seller needed because he didn’t ask. He was guessing on the money and after some other questions was found to be guessing on some of the data he had given.

Here is the thing, in any creative deal situation the seller needs to be able to trust you. They want to know that you are giving them something in value and that you have their interest at heart. If they feel that from you, they will understand that you need to make a profit and will be glad to give you that for your help. But if all you do is try to figure out what is in the deal for you, they will sense that and won’t want to do the deal with you. Even if it’s the best thing for them.

And the only way you are going to find out what they need is by asking the seller questions about their needs and not just about the house deal.

 

I see newbies make this mistake over and over. They get excited about the deal analysis and forget that we are in a people business, not a house business. Focus on the person first. Ask Peter Fortunato’s famous “Why are selling such a nice house as this?” question and then see what you can do to help them. And if you come up with a creative deal structure that works for both of you, they will be more likely to say yes because they will believe in you — and more importantly — they will trust you. And that is how you get deals done.

 

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.