The Power of Creating No-Qualifying Financing
Whether you’ve ever dealt in real estate or not, you can easily imagine the number one obstacle most sellers encounter when selling a house: Getting interested buyers who can qualify for a loan. It’s not enough to have somebody interested in buying a house. They can absolutely fall in love with the house, even agree to pay the full asking price. But if they can’t get approved for a loan, chances are they can’t close. Time after time, banks seem to find some weasel reason to deny the loan. They have a “point system” to rate a buyer, and if the person doesn’t “add up,” they pass on the loan (or require what seems to be an endless stream of supporting paperwork; if the buyer jumps through enough hoops the loan committee might, just might approve them). Imagine you are an owner/seller who has been through that mill once or twice, with ready and willing buyers, waiting for several weeks each time, effectively taking your house off the market while you wait. Wouldn’t you be ready for somebody with a better idea? Someone who can create a way to get the house sold to an interested buyer without forcing them to jump through a bunch of loan committee hoops? What a valuable service that would be! When you’re the bank, the loan is always approved! The solution is creating financing yourself that requires no qualifying, no banks, no loan committees—where only you decide which buyer will get the wonderful house you’re offering. It’s a win-win solution for the seller and the buyer. And when you include your profit, it becomes a win-win-win situation! Best of all, these houses are all around you—pretty homes in nice areas, and the sellers have a simple sign in the front yard to let you know. It says, “For Sale By Owner.” "But how can I be the bank if I don’t have the money?" We call this lucrative technique “owner financing.” You’re dealing directly with private sellers (instead of through agents or auctions), and you’re literally creating the financing with their help. In the process, you’re matching this financing with buyers who can’t quite qualify for a bank loan to buy a house. There are literally millions of hardworking, honest people who can’t get approved under conventional bank financing, who dream of the day they can own their own home. These aren’t deadbeats, unemployed, or former ax murderers, they’re just working people with good incomes who for some reason—perhaps a divorce, self employment, a distant bankruptcy, serious illness, relocation or whatever—don’t fit into a bank’s narrow description of “acceptable.” But they can afford down payment, and that becomes part one of your three- or four-way profit picture. Once you master the secrets of owner financing, you’ll be able to profit from any house no matter how it’s financed or how much is owed. You’ll be able to get in with very little (or no) investment and produce several profit centers at different times during the life of the transaction. And you’ll be working with beautiful houses in great condition that are ready to sell just as they are. So if there’s nothing wrong with these houses, why don’t the owners just sell them themselves? The secret is in your ability to structure new financing using skills very few entrepreneurs—and even fewer owner/sellers—are even aware of, much less mastered. If you have a pretty good mind for basic financial concepts and enjoy working with people, you’ll be able to generate tremendous profits just by concentrating on these “For Sale By Owner” houses (or FSBOs, normally referred to as “fizzbos”) Just as a bank relies on other people’s money to make loans, with your knowledge as a real estate entrepreneur, you can utilize the seller’s motivation to structure win-win owner-financing. Sometimes, you may decide to solve the seller’s problem by agreeing to a small down payment and monthly payments to buy their house. Often, nothing more than a small earnest money deposit ($10, $50, or so) is necessary. They’ve “financed” your purchase without any qualifying on your part. Next, you simply turn around and create the same type of no-qualifying financing for your buyer with payments that go directly from the buyer to you with no bank in the middle. We’re not talking about so-called “assumable” mortgages at this point. These houses can have any kind of underlying financing—bank, finance company, credit union, VA, FHA, you name it. This program is designed to allow you to structure deals on houses with non-assumable loans. By collecting the monthly payment from the buyer, paying the seller, and keeping the difference, you become the bank. There are millions of people who can afford to buy a house but can’t get qualified because of the “red tape” rules at most banks. So when you ask for a modest down payment and monthly payments, your buyer is only too happy to buy the house from you because it’s the only way they can buy. Buying and selling a house using owner-financing creates at least three distinct profit centers for you: 1. Your first profit center is the difference between the down payment you paid the seller, if any, and what you collect from your buyers as their down payment. This can be anywhere from $500 to $30,000 net profit you collect within days of finding the deal. 2. Your second profit center is the monthly spread on your incoming monthly loan payment from your buyer and your outgoing payment to your seller. This can run from $100 to $1,000 per house each month, whether you are working or not, sick or well, at home or on vacation—even if you’re dead and buried! Remember, this is not coming from a renter with no interest in the house, but from a buyer, and that’s a big difference. 3. Your third profit center is the difference between your purchase price and your sales price, which can be from $5,000 to $150,000 on each deal. These cash paydays can come immediately or later in the deal. The best part is, you have nothing more to do to get them, except show up at closing when the buyer is ready. When you structure this kind of financing, you get paid several times for doing the job once. But how do you do all this when the loan isn’t assumable? Let’s use an example to help clarify this opportunity. Suppose a seller calls you with a house worth $100,000 in excellent condition, with a non-assumable loan balance of $92,000 and a payment of $800. Mr. Seller just lost his job and is two payments behind. The seller isn’t too concerned about his equity because he knows he doesn’t have any to speak of. He’s more concerned about a potential foreclosure ruining his credit. If he lists his house with an agent and pays a commission, he’ll net nothing and be lucky to break even (often in these cases, the seller has to pay more to the agent than what he nets in the deal). Most sellers in this situation are simply looking for a solution, any solution. If you can provide one, you’ll be a hero and make money on a deal that nine out of ten investors wouldn’t even touch (so much for your competition). Solution one is to simply have the seller deed you the house for no money or perhaps $500 “moving money.” You agree to make up payments only when and if you find a buyer to pay you a few thousand and take over his loan. Always get the seller to sign a CYA (cover your assets) letter to confirm that he understands you make no promises to do anything except try to solve his problem. This seller is about to be foreclosed by the bank, so he has nothing to lose by selling his house to you. His house has a $92,000 non-assumable loan. Most people would think this is enough of a problem to prevent a sale. This simply isn’t true, and those who believe this conventional wisdom are walking past a fortune as they listen to so-called experts. Conventional wisdom is almost always wrong. Either you provide a solution or he loses the house anyway. Anytime someone wants to deed you a house, nothing can prevent them from doing so. The loan is only a lien against the house. It does not have to be assumed to transfer the title. Of course, our $92,000 loan is still attached to the house but you now own the home. You are not liable for the debt unless you assume the loan, which would be foolish and would screw up a perfectly simple, risk-free deal. Any seller can deed you their house, regardless of the underlying financing. Their ownership of their home is linked to the liens on the home, but they can sign over their house to anyone they choose. Simply get the deed to a pretty house for little or no money, and pass the deed on to a new owner/occupant for several thousand dollars. There is no qualifying. The seller deeds to you. You pay the back payments to bring the mortgage current. You deed the property to your buyer. You set up an escrow account for the seller’s peace of mind. The buyer starts making payments on the loan (to the escrow company, who forwards the funds to the mortgage holder), and owns a house he probably couldn’t get any other way. The whole transaction shouldn’t take more than 10 days to complete after the seller vacates. So, if you “buy” for the $92,000 loan balance with $500 to the seller plus paying the back payments, and you sell for $100,000, getting $8,000 from your buyer ($100,000 minus $92,000 loan = $8,000), your profit looks like this: Sales price $100,000 Loan balance 92,000 Payment to seller 500 Back payments 1,600 Net profit $5,900 Isn’t this a simple concept? Every seller who bought their house within the last five years with a small down payment and 90-97 percent financing is a candidate for this type of deal. They have very little equity and a real problem when it comes time to sell. These deals are easy to do, very plentiful, and require no credit and little or no cash. The best part is the houses are very easy to sell because you make it so simple for a buyer who can’t qualify anywhere else. If you are worrying about non-assumable loans, forget it. You can make all non-assumable loans assumable. No bank will control your income or tell you what to do. It’s all legal and ethical and you’ll be providing a service to your sellers and buyers that will make you their hero. In fact, you’ll even be helping out banks by saving sellers from foreclosure. Everyone wins. No one loses. Banks, by the way, don’t like foreclosures. They cost the bank a lot of money and put the bank in the real estate business. Banks do better in the banking business, turning down new loans. Banks have a heck of a time getting rid of their “real estate owned” (REO) properties. As long as payments continue to be made on the loan, banks generally don’t care whose name is on the check. It’s possible the seller will not want to deed the property over to you. In that case, consider a lease/option deal. Whatever problem the seller has, you need to come up with win-win solutions. Never take a loan or own a property in your own name. You can have all the same benefits of ownership with none of the liability associated with owning property. You really don’t need your name on file as being an owner. From a simple legal perspective, the less you appear on the courthouse records, the better. In our litigious society, the first thing paralegals are trained to look for in a possible lawsuit is how much property you own. From a financial standpoint, your control is what is important, not your name. Likewise, you should never, ever personally guarantee a loan, for a seller or buyer or anyone else. You should build your business as liability-free as possible. There Are Three Keys To Successful "For Sale By Owner" Deals: First, the house must be in good condition. These are pretty homes, not junkers. Second, you must be able to get into it with only a very small cash investment. Third, the property should either have an assumable non-qualifying loan, or else an assumable loan that you create using any of the several owner-financing techniques we teach. You don’t have to trot down to your local bank and get a loan to buy a home, regardless of what they would like you to believe. You can create win-win no-qualifying seller financing, even when buying a home for your family, regardless of underlying financing. There are several ways for you to own a lovely home in any area you choose, with payments you’ll love and with little or no cash required, no banks and no credit: You can have a negative net worth, lousy credit, and be totally bankrupt—it just doesn’t matter. You can own your own home using these methods, and in reality, you shouldn’t waste your money buying one any other way. This is a part of the business that works everywhere, and it’s especially great where you have a bumper crop of those mid- to high-priced beauties just aching to be bought. “For Sale By Owner” homes are all around you right now, and you can find plenty more wherever you go—just waiting for someone with the right combination. Remember, there are hundreds of thousands, even millions of distressed homeowners who need to sell their home for a variety of reasons. There are also millions of people who want a home, who cannot get approved for conventional bank financing. When you develop the mindset that “you are the bank,” you turn these buyers’ and sellers’ problems into opportunities and create win-win deals that make you fast cash. |
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