Recently an investor called to lament her problem with investing in todays' real estate market. She said, "I used to say the key to that great deal is to find a motivated seller, I find motivated sellers all the time in this market, but now the key seems to be finding a motivated seller who has sufficient equity to make a great deal. Unfortunately, lots of folks are very motivated right now, but don't have anything to offer investors".
Sure it is difficult to find motivated sellers with equity, I partly agree, but you can still negotiate profitable transactions that have little or no equity if you are willing to learn, understand and take the necessary action to make it happen.
Here are some ideas to consider:
1. Use an option with the right to assign and sandwich yourself for a profit with end user, while acting as an assignee. If there is very little equity and the seller is flexible with terms and the ability to solve the problem, offer to option the property, making option payments that equal the seller's mortgage payments with the right to exercise the option to purchase some time in the future. This will solve the seller's negative cash flow, have the property managed and collect an equity profit when the option is exercised.
2. An investor can offer to control a property that has little equity with a contract of sale with a long term study period with right of possession for a period of time. During that holding period, the investor can improve the property to increase the value and assign or sell during the holding period for an equity profit.
3. Put together a friendly joint venture partnership with friends or family contributing the needed funds. Others in a high tax bracket will be anxious to share a partnership and have tax credits. Putting up the needed cash for property while the investor contributes management for his share ownership is a good deal for all members of the joint venture partnership.
4. A property with little or no equity can really make for a challenge for an investor. The reason there is little or no equity is that the mortgages are as high as or higher than the market value.
Offer to purchase the first and second mortgage at a discount thus creating equity where there was done. When first and second mortgagee agrees, take an option to purchase the property. This will automatically force the debt down and the equity up. This is a great way to create an equity position.
The question that is on the investors mind is; where am I going to get the money to buy the first and second? As they say, "Build it and they will come!" I say if the deal is good, the money will come. Use the joint venture method to raise the money, sell the property before you need to settle, take out a first mortgage.
5. Another way is to offer to take over the existing mortgage, either informally or by assumption. Find a lessee to pay you more than the mortgage amount or sell your position in the property for a profit.
6. You could offer a Hybrid Offer to the seller and joint venture the negative cash flow, sell when the market is right, and split the profits. A Hybrid offer is one where the seller will sell at a discount with the right to a percentage over a certain amount upon re-sale of the property
These are some ideas to use if you've run out of motivated sellers with equity.
Charles Parrish
Auctioneer - Baltimore
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