Two Sides to Every Deal

Thanks for that explanation Dallin! Understanding what problem the seller is having is key.

I agree 100%. I've found out just in my 6 month that you must be able to adapt to different circumstances. Thanks for the great insight

Hey Dallin Thanks for sharing. I had to take down some notes and I will use this when talking with my sellers. I have learnt that is always good to create like a good relationship with the seller and try to know what their situation is the REAL KEY

_____________________________________
TC
Miam, FL

My Journal: http://www.deangraziosi.com/real-estate-forums/investing-journals/144538...

we have two ears for a reason: LISTEN, LISTEN, LISTEN. Let your sellers talk, and listen to what they are saying....

Great post Dallin, thanks for sharing!

First, thank you all for your kind comments, I'm glad that this information is helpful to you. To me, these are the critical components necessary to really use leverage in your transactions. The consummate professional real estate investor is the one who can most effectively use leverage--other people's money, other people's skills, other people's time, other people's brains, etc. in ways that are beneficial to both them and us.
An interesting additional idea in working with people is the idea that most people believe that they need all their money right now to complete a transaction. Since it is the most traditional way to conduct a transaction, they have fallen victim to the idea that the most common way is the only way. Real estate agents tend not to help this a lot, because they fear that if we get creative, they will not receive their commission.
I am a huge proponent of seller financing. In fact, I have concluded that under almost all circumstances, I would rather seller finance the sale of a property I own rather than sell it traditionally. Why? Because banks are not stupid--they lend money to people because they make a boat-load of money by doing so. As sellers of properties, we can do the same thing as banks by structuring seller finance deals to make more money on the sale of properties.
But what if we are looking to buy a property from a seller? Wouldn't it be nice to make them some extra money in selling their property by cutting out the bank? It helps you to quickly and easily buy another property, and it can help them to make more money from the sale of their property--both sides win! Most sellers do not understand this idea, and, as stated above, have been indoctrinated into believing that there is only one way they can sell their property--traditional.
If we wish to arrange a seller finance transaction to buy property, we are going to have to help sellers understand that they can sell their property that way, and that there are cash benefits from doing so.
But let's suppose that you are communicating with a seller who tells you that they need all their money from the transaction. A really good question would be: "Okay, so what are you going to use the money for?" The most common answer would be: "To buy our next house."
If that is their plan, then let's list the incorrect perceptions they may have and the reality that goes along with them:
1) Perception: Need the money for a down payment
Reality: If their credit is good, they may require 3% or less as a down payment on their new home.
2) Perception: Need to pay off my old mortgage to get a new mortgage
Reality: If they can show that the property attached to the old mortgage is now an income producing property, they can still qualify for a new personal residence mortgage.
3) Perception: Need to pay down my new loan balance to be able to afford the monthly payments.
Reality: It may be possible to structure some seller finance payments to them on the property they are selling that will equal or exceed the lower payment on the new property. In other words, instead of having a $1200 mortgage payment, they might have to pay $1400, but what if they are earning a $400 positive cash flow on the other property. They can still make the higher payment and have an extra $200 in their pocket at the beginning of each month.
These ideas are different than the way most people think, so they need some explanation. But it is worth it to spend the extra time explaining things if we can cut out some bank financing. No one has a bottomless pit of money or credit, but there is literally a bottomless pit of potential seller finance since every new transaction contains its own new possible source of funding. And as stated in my post above, when you combine seller finance with wholesaling, you have a more complete set of tools for putting together deals.

I've been reading your post about seller financing when wholesaling. And i understand that when a seller is looking to get their price for a property, even if they have to wait, i should suggest a seller financing option such as lease option. my question is how do i suggest this option to the seller, after I have identified that they are trying to get their price and its not flexible?

AllstarProperty, you have to realize that my little mind likes things simple, but I have also found that most people are more likely to say yes to something that is simple to understand.
Proposing seller finance is really quite simple. It comes down to basically two questions followed by some explanation.
Us: "So, Mr./Ms. Seller, let me just make sure I am understanding, the most important thing for you is to make sure that you receive a high price in selling your property?"
Seller: "Yes"
Us: "Well, Suppose I could show you a way to receive the price that you want, and potentially even more, is there any reason why you wouldn't listen?"
Seller: "No."
Then we would simply explain that in order to provide them with their high price, plus added interest, we would need to spread the payments over a period of time. Usually they ask, well, how long? I typically respond 60 months. If they agree in principle, then it is a matter of working out the details. I always take a yellow legal pad with me, and a bold pen, maybe a fine point felt tip to write out what the arrangements would be. You can either have them initial the arrangements on the pad, or use that information to transfer onto an agreement form right there.
The simpler we make the conversation, and the less jargon we use in the conversation, the more likely they are to say yes. Any objections or questions about how it would work should not be considered as negatives--they are interested, and if you can work out an arrangement that allows them to do what they want to do, then you should be successful in working out your deal. Also remember that everyone has needs, wants, and desires. We will never be able to supply all of those, but if we can fulfill their needs, and help them get at least part of what they want, most people will find that satisfactory and acceptable.

I had 3 light bulbs go off in my head as you were explaining the two sides LOL! I have a few deals that were left in limbo because I couldn't meet their asking price and they wouldn't negotiate any further. Your post really brightened a dim deal for me. Now I'll check to make sure it is still there! Thank You!

First, TerryB, I hope this information opens up many deal opportunities for you and for others. I know that this simple realization about two sides to a deal opened many new possibilities for me.
Another topic I have wanted to address is a concept that I learned early in my investing career. It has to do with direct contact with sellers.
I was taught by my first mentor that "deals happen when buyers and sellers talk." It is somewhat ironic that the man who taught me this was a real estate broker for over 50 years, and yet, he had found that it is communication that makes deals happen--communication directly between buyers and sellers.
This is easy to achieve on a For Sale By Owner property, but not so easy on a listed property. Many, if not most, real estate agents find their job is simpler if they can keep buyers and sellers apart, so the buyer's agent takes the offer from the buyer, presents it to the seller's agent, who then presents it to the seller.
That puts two people in between the parties who are trying to do business with each other. Have you ever played the game where people sit in a circle and whisper into the next person's ear. Once the message has passed through several people, it has inevitably changed. So as mentioned above, real estate agents may find it easier to shove the sellers and buyers into their own corners, but the lack of direct communication costs these same real estate agents many finalized transactions every year. And of course, it costs the buyers and sellers as well.
It is possible to create this direct contact with sellers if you are making an offer on a property. Agents are required to present offers according to the terms that are included in the offer. If you include a clause in your offer that states: "Buyer reserves the right to be present at presentation of offer to seller," then your agent must arrange for you to be present, or they are violating the terms of the offer.
Sometimes it is not possible to be physically present, but it may also be possible to be on the telephone with a seller, in a conference call that includes the agent or agents. You may have to structure the best offer you can, but if you are able to converse directly with the seller about the offer, you may discover what their real needs, wants and desires are, and how best to assist them in getting the things that are most important to them.
Agents may be resistant to this change from their routine, but perhaps you can share the whisper circle analogy with them so that they will understand why it is important for buyers and sellers to communicate directly.
If you choose to take this course of action, do it in a positive way as you communicate with your agent. It is not our intent to alienate the people who are working with us, we are looking to create a solid team that converts more offers to transactions.
In another post, I also suggested the idea of an explanatory letter to accompany an offer. This is another way of having more direct communication with the seller.
If you want to test whether an agent is really in a knowledgeable position to help you negotiate a deal, ask them to provide you with a detailed explanation for why a particular seller is selling their property. This is the most important piece of knowledge we could have, and agents will not be able to supply details about a seller's motivation. What does that tell us about how effective they can be in negotiation?
We wish you successful negotiations, productive agents, and motivated, flexible sellers so you can create lots and lots of lucrative deals.

Dallin, thank you. You have simplified a part of wholesaling that I was unsure of and now can add it to my bag of tricks thank you so much.

Thanks for your expertise Dalin! I'll be in close contact with you as I move forward with this deal, I have all the necessary ingredients to get it done, I just have to make sure I "stir correctly."

First, thanks to AllstarProperty and Terryb for your kind comments. Wishing you much success in your deals, and Terryb, just so you know, I get to lick the spoon.
I have found that you can often use a rogue approach to some of the things you do as long as you know who you might offend and how to square things with that person.
I frequently mention that I look at some of the things we do as being like detective work, and "cracking the case" is getting the deal. So if you are trying to do research in making offers on properties, you might want to consider the following:
1) When a seller signs a listing agreement, they are agreeing to hire an agent, and their accompanying brokerage to market and sell their property. Specifically, the agree to let those agents receive offers on their property, but they do NOT agree to not talk to anyone who might be interested in their property. A listing agreement is not a "gag order" to prevent them from talking about this property to anyone who might be interested in it.
2) If I see a property with a For Sale sign on it for a particular real estate agent and brokerage, and I am interested in that property, I will put on my detective hat, and go knock on the door. If I can build a rapport with the owner, I can ask them about the property, probably get them to show it to me right then and there, and find out the details of why they are selling--which is the key to knowing their needs, wants, and desires, and what kind of offer they are most likely to accept. I can even "test" to see what they might accept with a "Suppose I was to offer. . ." approach.
3) I have not caused them to violate their listing agreement as long as I do not actually present an offer to them, and I will tell them that I plan to follow up directly myself with their agent in order to present an offer.
4) I will then contact their agent and "blow the whistle" on myself. I let them know that I did not want their client relationship to suffer or my ability to have an offer accepted because I happened to drop by at the house. Through this, I get to meet the homeowner, understand more what to offer, and then actually build a relationship with the listing agent. I will present my offers through my buyer's agent, but now the listing agent, the homeowner, and my buying agent are familiar with me, and I am much more likely to get an offer accepted.
All this is done in a friendly rogue kind of way, and plays from what I learned early on about the importance of relationships in this people-oriented business.

Absolutely Dwall that's a good one! Unfortunately I contacted the seller and the property had been sold already. No sweat to me though there are countless other deals waiting for me to find them. Everyday I'm on the hunt and now that I have your tips of obvious hands on experience, I feel much better and more confident with the action that I take towards getting my first deal.

FABULOUS information Dallin !! It is AMAZING how you can make interest when selling a property seller finance / rent to own !!!
When one sits down and looks at the numbers to see how much $$ they can actually make by going over an amortization schedule: ( which anyone can get via the Internet) for free or app for your phone.... The light bulb comes on to see being the BANK is sooooo rewarding #1.... $$ in your pocket as a down Pymnt 1-5 k ( or more)
#2. Cashflow of PURE profit( 100-400) per Mnth
# 3 INTEREST Of THOUSANDS just like your bank gets on mortgage PYMNTS, car PYMNTS, boat , bike, rv, furniture, and more:)) ............ THIS is what can make u rich !!!!!!
Thanks for all your value packed posts Dallin !!! LOVE your info sharing tips and ideas !!!!!
Jay

Great Additional Information Jay! Thought I might add the components from my Profit Chart for review here, these are the profit centers we are creating. I will provide the profit center, then provide the guidelines. In a sandwich lease option, you have a lease option on one side with the seller, and another lease option on the other side with a tenant/buyer. Your position is in the middle, and you create profits by negotiating spreads between the two. In other words, all the numbers on the tenant/buyer side should be bigger than the numbers on the seller side. That's how you get paid.

1) Purchase Price
Guidelines: Seller--Up to Fair Market Value Today
Tenant/Buyer: FMV Today PLUS 6% to 12% or more.

2) Option Consideration
Guidelines: Seller--1% to 2% of Your Purchase Price
Tenant/Buyer--3% to 6% of Their Purchase Price

3) Monthly Payment
Guidelines: Seller--Low Market Rent for comparable properties
Tenant/Buyer--High Market Rent for comparable properties

4) Purchase Credit
Guidelines: Seller--All of Option Consideration Plus 20-50% of monthly pymt.
Tenant/Buyer--Half or all of Option Consideration Plus 10% of monthly pymt.

5) Length/Term of Agreement
Guidelines: Seller--3 to 5 Years
Tenant/Buyer--12 to 18 months

Hope this is not too confusing, if you always create a spread, you will always be profitable on sandwich lease options. Oh, and the secret to a successful Sandwich Lease Option is simple: "Collect LOTS of money UP FRONT!"

Never forget that no one buys a sandwich just to get the bread--it's what's in the middle that counts, and in a sandwich lease option that is us!!!