youcanbuycashflowrealestate.com

 Real Estate Investing - Nothing Down Strategies (Realtor)

Written by Robert Allen author of “Nothing Down”

The third major source of down payment capital is the realtor. By convention, most people assume that the real estate commission for listed properties is a fixed cash element of a transaction and that a seller is responsible for paying it. In fact, the commission is not fixed in any of its dimensions: rate, form, or source.

Like almost anything else, the percentage rate for calculating the commission is negotiable. Indeed, there would be legal problems if the real estate industry were to publish uniform fixed rates. Moreover, there is nothing written dictating that one must pay a commission in cash and cash only. Of course, almost all real estate professionals would prefer cash. It makes a deal clean and tidy and allows one to buy bread for the family table.

However, most informed agents know that some transactions may involve commissions in the form of paper - promissory notes that may provide for monthly payments or a single payment balloon note at the end of an acceptable period. Generally the time involved does not exceed a year or two. Occasionally the commission may be in the form of a share of ownership, with cash emerging upon sale of the property down the pike. Still other possibilities include commissions paid in personal property. In Technique No. 14, the agent received a beautiful 0.81-carat diamond for his services. He was delighted, as are most agents who are shrewd enough to realize that a commission in an alternative form is better than no commission at all.

One of the important techniques available to the buyer who is interested in reducing the cash down payment for a deal is the technique of “Borrowing the Realtor’s Commission” (No. 19). While it is true that according to current agency practice, the seller pays the commission, the buyer is at liberty to negotiate alternative arrangements with either the listing or selling agents (or both). If the buyer can induce the agents to defer the commission, the down payment can be reduced by the same amount because the seller’s immediate obligation is relieved.

Who pays for the deferred commission in the final analysis? It is negotiable. If the buyer can strike a nothing down deal with the seller paying the commission over time, all the better. In many cases the buyer himself assumes the seller’s obligation (Technique No. 11) and pays the deferred commission. Occasionally they share.

The whole point is that the flexibility of the realtor may be an important factor in whether the deal comes together. Since the commission is usually the largest cash obligation of the seller in a transaction, the power of this technique cannot be overestimated.

There are examples that illustrate how “Borrowing the Realtor’s Commission” works in practice. In one Albuquerque transaction we heard of recently, the seller of an 8-plex arranged to pay $3,000 of the commission on a note, the balance being paid in the form of a real estate contract invested in the deal by the buyer’s partner. The two notes not only constituted the entire commission, but the entire up front cash needs as well. In another deal, this time in St Petersburg, Florida, a 35-unit motel and restaurant were acquired using, among other approaches, the technique of borrowing $30,000 in commissions ($15,000 in the form of a personal unsecured note signed by the buyer, and $15,000 in the form of a third mortgage on the buyer’s home). Similarly, a note for the commissions was instrumental in closing a deal on two duplexes acquired by an investor in Homestead, Florida. This technique is very frequently used. As a matter of fact, our research among the Robert Allen Nothing Down investors shows that as many as 20% of the transactions involve some degree of realtor carry back of commissions.

cashflow Cindy
Join Robert Allen and I; Winner’s Circle http://winnerscircletraining.com/index.php?
email cashflow Cindy to join at cindee@dishmail.net

Real Estate Investing -  Nothing Down Written by Robert Allen

(out of Robert Allen’s book - Nothing Down)

THE SELLER

Among the nine major sources of down payment funds for property acquisition, the seller is no doubt the most important. If the buyer has done his selection job well he will be dealing with a person who is anxious to sell and therefore flexible with financing arrangements. The seller will need to take on a role that might be new for him - that of lender. But if the buyer is sensitive to the needs of the seller, he will foster trust and see to it that both parties win. (Lending can, after all be a lucrative business with its own slate of benefits, even for property sellers.)

This section reviews eight nothing down techniques involving seller financing.

Technique No. I The Ultimate Paper Out

An investor in Milwaukee was able to acquire a $48,000 triplex from a banker who not only arranged for a new low-interest first mortgage, but also carried back virtually all the remaining equity in the form of second at below-market rates. Another investor in West Palm Beach, Florida, picked up a single family home for$66,500 by putting on a new first and having the anxious seller carry back all the rest of his equity ($36,500) for five years, no payments, no interest. Both of these investors were using the technique known as - “The Ultimate Paper Out”. Here is how it works.

When we are talking about buying or selling a piece of real estate, we are really talking about the problem of defining and dealing with the seller’s equity. Equity as a concept is straightforward enough. Everyone knows that it represents that portion of the value of a property that is not encumbered, that belongs lock, stock, and barrel to the owner. But equity is a fluid concept. It can be specified only in relation to that mysterious and shifting quantity called the “fair market value.” The owner has dreams about an equity of such and such - usually an optimistically high number. But the truth of the matter is that market forces determine his equity by determining how much his property is really worth at any moment in time. The members of the market club - you and I - gang up on the poor old seller and say collectively, “You have a nice little place, but we’ve taken a vote around town, and the best we could come up with is a price of such and such.” At that moment in time, the seller’s equity is defined, and the problem becomes how to transfer to him value equal to the equity involved.

The majority of sellers, of course, will want to hold out for a selling price at the high end of the scale. They want their equity to be overweight. No one can blame them for that but among the army of sellers in the marketplace at any given time, there are always a few - perhaps five percent or less - who say to themselves, “We like our equity and want to preserve it and derive benefit from it, but we are very anxious to sell. So anxious in fact, that we might give up some of that equity in order to get rid of the property quickly.” Alternately, these don’t-want sellers might be thinking - I don’t really feel like discounting my equity for a quick sale, but I would be willing to wait until later for a part or all of my equity to be converted to cash.”

And that is the issue when it comes to “papering out” a deal. After the seller and the buyer have determined what equity is involved, the next step is to decide how soon the equity is to be converted. It all boils down to a matter of patience. The seller with infinite patience (and infinite desperation) will say, “Here’s my equity, take it all and just get me out of this place.” In a case like that the selling price is equal to the liens. But such cases are rare.

The next best situation is the case in which the seller says, “Here’s my equity, pay me for it when you can. Let’s work out the schedule.” That is the technique referred to as - The Ultimate Paper Out”. All of the seller’s equity is converted to paper before it is converted to cash. When the buyer takes over the property, he gives the seller paper for his equity and obligates himself to redeem the paper according to mutually agreeable terms.

Not all sellers will agree to an “Ultimate Paper Out” But creative buyers should always ask. You never know exactly what the seller is thinking or how anxious he really is to sell. Perhaps only one seller in twenty will be willing to enter into a nothing down deal and of these, perhaps only one in ten will agree to an “Ultimate Paper Out” That means that Technique No. I will show up in only one out of every 200 creative deals. But it does happen from time to time - much to the surprise and delight of the creative buyer.

1. cashflow Cindy