Working with investors is not always an easy adventure. Often it is just !!!! backwards.
And I'm not just talking about my NJ Shore Investors-- any investors, anywhere. Since I handle investors from all over the country as well as International investors, I guess my world is crazier than most. There are mutliple strategies, multiple partners, creative financing, don't just watch for the pot holes-- watch for the loop holes, the jump holes and the A** holes.
What's great about investors: they know Real Estate, they don't make emotional decisions, they know what they want before they go looking, they know the market value, and they know the ins and out of listing, closing, buying, and legal issues. They also will buy in the worst market. Yeah investors.
What's NOT great: They often do not care about the rules, they might make ridiculous offers, they will easily walk away rather than stay because it is not an emotional sale, they will bend and break as much as possible, and they often do not have money-- but buy anyway.
So let's talk about why this is backwards:
A normal client comes in and you ask what they are looking for, take the information and then you qualify them for a loan: NOT the thing to do with investors. More times than I can tell you-- the Investors themselves don't qualify and that has nothing to do with the sale. Private lenders base the investor's loan on the deal, not the person. Real estate investors often go to private lenders for their deals. This makes your deal CASH. All CASH. The only qualification you should ask for then is proof of funds. However, again backwards-- Real Estate investors often do not have their funds until they have a deal. You see the private lenders fund the deal-- so the real estate investor has to get the deal (have an offer in or sometimes a contract) in order to submit to the private lender. then they get proof of funds. Backwards.
(Many Real Estate investors have standard proof of funds letters that they use to start a deal-- not the lender they will use-- but POF (proof of funds).) Another way investors pay for houses is by investing with an IRA. In this case, the investor is using their self-directed IRA to make the purchase. You actually can ask for POFs, but also be prepared that they will write a check for the total amount--- you have to get them to get their bank to write a cashiers check for closing. Remember, they must have a self-directed IRA-- not a regular IRA. So if they show you a regular IRA, you have to tell them to go get a self-directed account.
The question I'm asked often is, what makes a good deal? Well a good deal for the average person would be that they get the house at or slightly below the market price. For investors, this is a business deal. One in which they need to show ROI- a great return on their investment. Therefore, the lower they get the house, the cheaper they can rehab the property, the higher they can resell it or rent it: this is what makes the deal. As a Realtor we can only control the house offer-- the investors have to demonstrate the rest to the private investors. Could you qualify the deal yourself? Not likely as each private investor has their own algorithm they use. However, a rule of thumb is 15%- 20% return, might make the private lenders sing.
Next week I'll write about investor stratregies. Happy holidays: it's investor season!
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