I had lunch today with the investor who has sent some deals my way in the past (most namely the 12-property deal that fell through). He recently hooked up with a mortgage broker, whom he thinks was the best thing since sliced bread, so I had lunch with him to find out more. It turns out this particular mortgage broker does what my former broker did, but with more volume. He gets people that have credit bad enough so they can't qualify for conventional loans and provides investors who will buy them their houses. The guy told me he is in the middle of closing a deal now that will give him $300/mo cashflow. The person buying the house just went through a nasty divorce and his ex screwed his credit, so he couldn't qualify. My old broker used to send me the same kind of deals, but in the ~6 months I dealt with him, I got maybe 2-3 such emails. My friend says he gets that many EACH DAY from this broker. They're all around the Austin metro area, but even if I could get 1-2 of these deals every 3-4 months at a minimum, it'd be a heck of alot more than I'm getting now. The only concern I had was that it sounded a lot like a lease/option purchase, which was pretty much outlawed by Texas last year, although, I still need to get more info from the broker himself.
Either way, the lunch turned to be real beneficial, and I'm getting excited at the potential opportunities.
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3 comments:
It sounds like "equity share" deals.
Marillin Sulivan and Andy Sirkin have books out about this. I've read Sirkin's book. It's a pdf on his website:
http://www.andysirkin.com/
http://www.andysirkin.com/GetDocument.cfm?Resource=16&Hit=1
Could be (I haven't been to andy's site at the time of this reply). Here's how the guy explained it to me ...
1. The loan broker finds people who want to buy a house, but have bad credit and cannot qualify for a conventional loan.
2. The loan broker emails investors with a possible deal, giving the investors the info they need to see if the deal is doable.
3. If an investor feels the deal will work for them, they start the ball rolling on buying the house.
4. The people wanting the house sign an option to purchase that lasts two years. At any point during those two years, the people can exercise their option and buy the property for the option price. In the meantime, they are just tenants on a lease contract.
5. If the people decide before closing they don't want the property, the investor retains a portion of their deposit (to cover HIS earnest deposit).
6. If the tenants decide not to exercise their option, the investors retains the full deposit.
Now, two things really bother me about this whole process ...
First, L/O's are pretty much outlawed now in Texas. There are a couple of ways you can still do them (e.g., if the option period is <180 days, or you own the property free-n-clear). When I mentioned this to the investor, he said the loan broker told him that they are still done all the time and the chances of getting caught are - in his words - slim to none. Gulp!
Second, after the investor mentioned this to me, I asked him what the option price was he was giving the people. He said the same price as it was being sold for. I then had to explain to him that the option price for L/O's usually account for future appreciation. IOW, if the property is worth $150k and you anticipate a 5% appreciation rate in the market in two years, the option price should be around $165,000 - not $150,000. He seemed puzzled when I mentioned this. This tells me the loan broker is telling the potential T/B'ers the option price is the current list price. This takes out a huge chunk of potential profit in the deal.
I still haven't contacted the broker yet, but may today to find out more about his "program".
What you describe is different from "equity sharing" as described by Sirkin's book. In equity sharing both the occupant and the investor are on title with some sort of defined buy out agreement for the investor. I think that the investor also holds a lien to help protect his interest.
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