I have a guest post for you today from Michael Quarles. You might remember that I interviewed Michael a few weeks ago on a podcast for “Let’s Talk Real Estate Investing”. If you missed that phenomenal interview on negotiation you can Click Here to listen to that show.
Investors are always looking for creative ways to buy property without using any of their own money or credit. Buying houses “Subject To” the existing mortgage is a great strategy especially when there is little equity in the house. You can often pick up a nice house in a great neighborhood with this strategy. You just take on their existing mortgage and in most cases you can put a tenant right into the house without making costly repairs.
In this post today Michael not only teaches you about this particular strategy, but he tells you exactly what to say to put a subject to deal together. I have broken this comprehensive post down into two parts, so look for part 2 tomorrow.
That Initial Meeting with the Seller
At times we buy houses Subject To the existing loan. Subject to happens to be a great way to buy property with little money invested in the property.
When buying subject to there are two basic property equity positions, one a property with between 5 to 20 percent equity and two a property with massive equity.
The advantage for a seller who has limited or marginal equity is that when they need to sell typically they cannot sell their property without feeding the closing if they use a real estate professional where if they sell subject to they can.
That said it is important to have a purchase presentation which outlines the advantages to the seller in a way which causes them to understand and agree to. The following is one I have used with great success.
It Begins at the Front Door
REI Statement: “Here is my business card.”
Again, hand a business card to everyone in the room.
And once again, if there are people at the kitchen table whom you haven’t met yet, introduce yourself to them at this time.
REI Statement: “Thank you for inviting me out to buy your house today.”
Right from the beginning I am letting them know that I am there to buy their house and that we are going to accomplish that task today. The conversation is already heading in my direction.
Questions: “How did you happen to find our company to call?”
Seller Answer: “We got one of your postcards in the mail.”
REI Statement: “You got a postcard in the mail—terrific. I guess it pays to advertise.”
If they use broken English, so should you. You will want to mimic your seller every step of the way. I always like interjecting with a little humor and my statement of “…it pays to advertise,” does just that.
Figuring out What the Seller Wants
REI Question: “When would you like to have your house sold?”
Seller Answer: “We are moving into our new house in a couple of weeks.”
REI Statement: “You’re moving out in a couple weeks. Oh, my!”
You will repeat everything the seller tells you, back to them. In the event there is an urgency statement like “We are moving,” and you follow that statement with “Oh, my!” you will be planting fear in the minds of the seller that doom is around the corner unless they agree to sell you their house quickly.
REI Question: “So if I can close escrow on this house within a few days will that be okay for you?”
Seller Answer: “That would be great!”
This statement is letting them know that you can solve their troubles.
REI Statement: “Closing in a few days would be great. Fantastic!”
Note: Again, you’re reaffirming what they say.
REI Question: What do you think the house is worth?
You already know what they want for the house. This question is making sure that they haven’t reduced the price since the first time you asked the question during the telephone interview.
Changing the Seller’s Expectations
Seller Answer: “We had a Realtor tell us that it was worth $180,000.”
REI Statement: “You’ve had a Realtor tell you it was worth $180,000 in today’s market, really?!”
Again, you’re reaffirming what they say. And using “Really!” is putting doubt in their mind that the Realtor may have overpriced the house.
REI Question: “Did the Realtor indicate how long it takes in today’s market to get a home sold?”
You’re introducing the idea that it could take forever to sell their house.
Seller Answer: “He said it should sell soon.”
REI Statement: “He said it should sell soon, Humm.”
REI Statement: “How many houses are on the market for sale in your neighborhood?”
I am now planting into their minds the fear of competition.
Seller Answer: “There are a few on the street.”
REI Statement: “There are a few on the street, ouch.”
Setting the Stage – Why they should Choose You
I assure them right from the beginning that I do this all the time. I always make sure that their only conclusion of me is, I am a complete and total professional, and so should you.
REI Statement: “I pay all the costs – including the real estate commission, the title insurance, escrow fees, transfer tax, Natural Hazard Disclosure, etc.”
As I mentioned earlier, I handle the objections in my presentation, and the biggest objection is who is going to pay what. Most sellers are aware that it costs money to sell a house, however, most do not know exactly how much.
REI Statement: “Did the realtor tell you how much they charge to sell your house when they do find a buyer who is qualified and follows through with the purchase?”
I am bringing up some major obstacles that the seller may face in the sale of their house while, at the same time, building the idea that I am the right buyer. I am actually patting myself on the chest while saying the words.
Seller Answer: “He said it would cost six percent.”
REI Statement: “He said it would cost six percent, fantastic.”
I am using “fantastic” because I am reinforcing the cost to sale as a positive not a negative.
REI Statement: “I am going to take out my yellow pad and write down the numbers we are talking about.”
REI Statement: “Did the Realtor tell you how much escrow title and some of the other normal seller costs would be?”
Again, I am bringing up the cost and building anxiety in the minds of the seller about all of the costs involved. When I ask the question, I am not doing it in an upbeat tonality. I have a very sorry, unfortunate, tone about my voice. I want the seller to know how empathetic I am.
Seller Answer: “He said it would be about 10 percent total, six percent for him and four percent for the other costs.”
REI Statement: “He said it would cost 10 percent, outstanding.”
As long as the seller is in reality land, somewhere above two percent for seller costs, I will not object to their answer.
If the net to the seller is below what the Subject To liens are, I will end the presentation there. However, if the Subject To liens are less, I will bring up holding time and factor in for that.
REI Question: “Do you have a copy of your most recent payment coupon or statement?”
Wait for them to get the statement. Even if they blurt out the payoff, still refer to the statement.
This is the first time they have participated in the presentation and it is very advantageous to get them to interact with you.
Seller Answer: “Here it is. It’s from 3 months ago.”
REI Statement: “It’s from three months ago. That’s okay; the payoff amount won’t be too different.”
Don’t subtract, or add, any amount to the payoff for recent payments being made. If the statement is within three months old, it is fine to go ahead and use those figures.
REI Statement: “So it says here that you owe $169,100.”
Write the amount they owe on your yellow pad along with the amount they will have to feed the transaction to sell the house.
REI Statement: “Are you prepared to spend $7,100 to sell your house?”
Keep quiet until they answer the question. Don’t offer up any small talk. This is a powerful time in the presentation.
Seller: We don’t have that kind of money which is why we can’t use the Realtor to sell.
REI Statement: “You don’t have that kind of money and can’t use a Realtor, ouch.”
If you would like to reach out to Michael Quarles you can find him at Buy Sell Fix Flip Michael is also the owner of YellowLetters.com
Setting the Stage to Close the Deal – Here is Part 2 of this Article.
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