How Well Do You Understand Money And Credit?

March 2009
Vol 32 No 6
                                                                                                   
HOW WELL DO YOU UNDERSTAND MONEY AND CREDIT?

          Despite the critical role they play in our daily lve cash.

          One enterprising broker who attends sales acts as agent for buyers who can’t attend, such as QEIs.  He is paid a flat $5000 for bidding at sale, a 6% override on any needed repairs or remodeling, and $5000 to sell houses he buys.  He buys at almost every sale, and is making a good living during the housing downturn without using cash or credit.  When he doesn’t need cash, he can take a percentage of the profits on those houses that have a large profit potential in lieu of a fee.   

          When it seems everybody has overleveraged property, it’s easy to overlook the 80% or so of homeowners who still have significant equity, but who need to sell because of personal misfortune, loss of a job, or sudden increases in living expenses that require them to down size.  Where not prohibited by law, feasible pre-foreclosure opportunities can be found among this group.  This is where created money and credit combined with existing financing come into their own.    

          A primary technique for creating your own credit is to take title “subject to” existing loans; paying sellers by creating payment terms that induce a sale.  A profit “spread” is generated by creating second and third mortgages, wrap-around loans, and Installment Contracts to induce and enable buyers to buy.  Somewhere in this process, houses will be bought low and sold high, or bought with lower terms that can be “wrapped” inside new loans that a buyer signs.  Leases, Options, and Lease/Options also play important roles in the process of creating credit too.  In the remaining paragraphs I’ll try to give you some examples of how to buy high equity houses from owners motivated to sell for personal reasons other than profit:

Give sellers 90% of fair market value and take title subject to existing financing.  Pay them their equity in cash only upon sale after prices have risen enough to create the profit you need.  In the interim, rent the house for enough to create positive cash flow over and above operating expenses plus mortgage payments.

Lease high equity, upscale houses for cash flow in excess of payments.  Negotiate Option terms that will share future profit in proportion to the cash flow from rents received by each party.  Trade off cash flow for a bigger share of profit upon sale.    

Buy departing sellers’ houses with zero interest loans that wrap around the existing financing.  Use rents to keep existing loans current, but demand a dollar-for-dollar rent credit against what you owe on their carry back terms.  Negotiate two dollars credit against what you owe them for every dollar of negative cash flow you pay.  This yield will attract 3rd party investors who will pay the negative cash flow in return for tax deductions, loan amortization, and capital gains on shared profits.               

If the seller needs cash, create several Notes with different terms; secured by the same Deed of Trust or mortgage.  Sell these at various discounts to raise the cash.             

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