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Hugh,
It all depends on your marketplace. In Portland Oregon they are playing retail plus. In some markets they are quite slow and even 80 cents on the dollar does not stir buyers up. What is the desirability for your 100K property in your market? Is this a lower, middle, or high end home? My guess is if 90K is their rock bottom price they are not very motivated and don’t have a serious problem. Please tell us more.
Don WedeHuge,
Don is right, it all depends on the market conditions. Working with a FHA retail buyer is much harder than a wholesale buyer. Even if you are doing a Highest Bidder Sale on a house in perfect condition with the objective of selling to a retail buyer, I would suggest that you get an option at at least 20% below market, 30% with the agreement to split profits 50/50 over the strike price is even better.
An FHA buyer is the hardest buyer to get approved. The FHA inspection for the house will be tougher than other types of financing. They will almost always require additional repairs be done to the house so you need to make sure the seller has agreed to do this and has the money to make repairs.
Plus, with FHA loans they require that the seller pay certain closing costs. This will cut in to your profit margin even more. This all needs to be taken in to consideration.
10% below market is just not enough. AVOID any properties that are listed with a real estate agent too because their 6% commission or more will come out of sales proceeds too. Between real estate commissions, seller closing costs, and inspection repairs needed, it could easily exceed the 10-15% of the sales price.
If your only marketing for buyers with CASH, would you not be limiting your pool of buyers? If someone has CASH, they can be more selective and you would need to get a bigger discount from the seller? So, you are saying that good to have at least 20% discount in order to make it work? Without seeing an actual case study, I’m having a hard time wrapping my mind on how it all works; the numbers.
Hugh
Hugh,
I think you are stuck on the idea of retail buy sell. Stick to distressed situations. You can do retail deals but as Jackie is explaining that is slow slow slow. In essence you are competing with the Realtors world. Stay away from those deals. If they do come your way pick your favorite Realtor and funnel them their way. They will get to love you for it. If you build a good enough re pore with them. somewhere down the line once you get your credibility built up, they may even throw you some deals they do not know how to put together. The hold your breath on that idea. Lol Follow the training on CFD. Step back and think, is there any retail buy sell taught here? The answer is no.
Don WedeIf you want to do retail sales, you may do better just getting a real estate license and working as an agent. There is not much profit in retail sales as an agent until you can get the volume up and/or work in higher priced homes. The typical commission is 6% and that often has to be split with another agent – so you’re looking at 3% of the sales price as your payday.
Understand that paydays will take a l-o-n-g time — 30 days or more.
Sure, we, the creative real estate investing community, do retail sales too but we much prefer to do sales to wholesale buyers or below market retail buyers who will pay cash. Cash = speed!
A friend in Panama had her house for sale in the United States. FHA buyer. 60 days after the contract was signed, the mortgage broker told her the sale was falling through so she had to start all over again. This happens all the time with buyers who need institutional financing – especially FHA.
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The realtor community of agents uses a horribly SLOOOOW version of the historic dutch auction, where an overly high price is the starting point, after which it drops by increments until a buyer bites. That’s still used today by the Dutch, but with centuries old time-tested principles, almost every one of which the realty community botches — not that they know that history.In contrast, an HBS sale, paralleling the 2+ millennium tested auction method, but with slight differences to avoid legal troubles, starts low, rises quickly, and concludes perhaps in an hour or two. It’s almost as fast as the Dutch flower auctions, which take place electronically — in less than a minute or two. Jackie has encountered a small number of licensed realtors, who once they discovered the lightning speed and reliability of the HBS system, will never go back to their botched version of the Dutch auction.
My brother’s house in top condition in North Dallas sat on the listed retail market for TWO YEARS in a hot market while he and his family did house sitting in a different city where his work took him.
So which approach do you think works best now?
–Dee
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Sorry.. I’m having hard time getting my head wrapped around the HBS. I just don’t see any case study I could follow. I just don’t understand what kind of discount needed nor what kind of buyer you need to be looking for. Am I only looking for cash buyers? If the buyer likes the house and needs financing, we reject him because he doesn’t have cash?
There are hundreds of detailed case studies for a Highest Bidder Sale in the Premium training.
A Highest Bidder Sale does not have to be for a cash buyer but it is always much better if that is the kind of buyer you are aiming for because a cash buyer can close quickly and there are no hassles.
You can do real estate the easy way or the hard way. The easy way is to do deals where you’re selling to cash buyers. The hard way is doing deals where you’re selling to buyers who need to get bank financing.
The easy and fast way to do real estate is to control way below market properties with an option then sell to cash buyers. These buyers are usually other investors, not owner occupants. A wholesale flip is a good example of the type of deal. You can usually close these in less than 7 days. You can also do a Highest Bidder Sale but to make it easy, and fast, you’ll need to get an option on a property that is way below market then sell to an investor who pays cash. A cash buyer always expects to get a 20-30% discount on the property, maybe more depending on the condition. So that means that your option needs to be for even less!!!
There are several ways you can do real estate that will result in the need for a retail buyer who will need to get bank financing. That’s what real estate agents do. Another way is to buy, then rehab houses, which will be sold to retail buyers who are planning to move in to the house. (This is risky because you’ll have a lot of your cash tied up in the property) These buyers almost always need bank financing which could take 30-60 days to close with a chance that the whole deal will fall apart at the last minute. Or, you can control a property with an option then sell to a retail buyer with or without doing a Highest Bidder Sale but this will be slow and you’ll still need a really good profit margin if you expect to make any profit at all.
Fast and easy with no risks OR slow and harder/stressful?
There’s an exception to selling to retail buyers!
If you negotiate to buy a house subject to the mortgage, if the house is in good, move-in condition, then you can sell to a retail buyer and they will not need to get bank financing. This is how it works:
If you get an option to buy a house subject-to the mortgage, you need to make sure it is a fixed rate loan (not adjustable) and that there is no balloon. Only do subject-to deals with these terms. (there is a 90 page report, including paperwork, about how to do this in the Premium Training)
Then, you can sell the house with seller financing that wraps the underlying loan. You have two ways to do that:
1. You just advertise the house for sale with seller financing. Set the purchase price and decide how much you want to get down.
2. Sell with a Highest Bidder Sale for the Highest down payment. You still set the purchase price and advertise a low down payment but that the house will be sold to the person with the most down payment. People will fight over who will give you the most down payment.
You still need to buy the house at least 20% below market to make this work. The down payment you get will probably be 15-25% (or more)
Example:
House is worth $200,000 and in excellent condition.
You have an option contract to buy it subject to the $160,000 mortgage 4% fixed rate loan.You advertise it for sale with seller financing for $205,000 at 7% interest (yes you can charge more for seller financing)
with a starting bid for the down payment for $5,000One week after you get the option contract, you do a 2 day open house.
100 people come to your open house, 20 people submit a bid.
You sell for $35,000 down ( this is cash you get) PLUS you also make $220 a month cash flow with the difference between what you collect in monthly payments from your buyer and what you pay out for the underlying loan.You close TWO days later at a title company or escrow office or attorney office.
You sold to a retail buyer, full price, but they did not need to get bank financing. This is the only way I would work with a retail buyer.
Jackie,
Awesome response. Thanks for a detailed answer. It starting to be more clear now on how this all works. I have ADHD, so when you try to learn something with lots of moving parts, I have hard time grasping it. That’s why I was asking for case study. It always better for me when I see something, instead of hearing. I do appreciate the detailed answer.Don,
I thought you were trying to be condescending to me. Misread your attention, sorry about that. I do appreciate your help and contribution to the board.Hugh
Hugh,
Don’t worry about it. The written word can can often be mistaken, no inflection or empiricist. You are correct this can be a difficult business to wrap your head around. Most of us do deals way different than the traditional buy/sell. You will get the hang of things with study and time.
Don Wede
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