December 9th, 2006 8:45 pm
Good Real Estate Agents, Creative Real Estate Investors and Sweet Deals
The latest episode of Flipper Nation named “The Blame Game” made me think about my experience with my team players: real estate agents, loan officers and contractors. I have much to say about all the different players. However, today I will focus on real estate agents.
To tell you the truth, I haven’t used real estate agents that much because I like to structure my own creative win-win deals directly with the seller.
I learned a bunch of unconventional buying and selling techniques in real estate investing seminars. In my experience, if a real estate agent does not understand the technique, he or she automatically assumes that it must be illegal / unethical.
Real Estate Agents = Standard
I have nothing against realtors but too often they are un-equipped to solve challenging problems for motivated buyers / sellers. That’s because real estate agents are taught in realtor school to list houses and do everything the “standard” way.
Don’t get me wrong. I’m not hating on the realtors or the standards. I think rules are necessary to keep the industry in shape. I respect the fact that a licensed real estate agent had to attend and pass several real estate classes and learn real estate law. I wish they covered real estate law in my seminars.
The issue here is that most real estate agents are trained to deal with a NORMAL buyer / seller. The kind of seller who has a nice home and is not in any hurry to sell. This way the seller can afford to keep the home on the market at top dollar until a highly qualified buyer comes along.
On the buying end, most realtors are trained to deal with NORMAL buyers. The kind of buyers that have excellent credit, a good job and 20% down-payment.
There is nothing wrong with that. Simply, a real estate agent is trying to make their commission in the most efficient way possible. A realtor has a family to feed and cannot afford to waste time with problem houses and looser buyers. Real estate agents by nature are trained to deal with good inventory and A credit buyers.
That’s why most real estate agents will never touch pre-foreclosure houses (like mine), especially if there are repairs needed and no equity to drop the price.
Real Estate Investors = Creative
Creative fix ‘n flip real estate investors are not much different from real estate agents. Like agents, we are paid to put together sellers and buyers and collect a profit in between. The difference is that we act as principals in the transaction.
We buy the house, fix it up and re-sell the finished product to an end user for a quick profit. (Not to be confused with buy ‘n hold investors who are in the deal long-term for cashflow and/or appreciation, although, they too shouold use creative buying techniques.)
The big difference between agents and fix ‘n flip investors is that we’re trained to deal with MOTIVATED buyers and sellers. We get paid to solve real estate problems. Solving problems takes expert knowledge and most of all creativity!
Helping Motivated Sellers…
We work with sellers who need to sell YESTEDAY and have no money or time to do repairs or no equity to drop the price. Perhaps the seller is facing foreclosure (like me) or need to relocated because of a job transfer or are selling because of a divorce or death in the family, or whatever.
In all these cases we are dealing with a seller who needs to: a sell fast and sell as-is. Only a creative real estate investors can help here. Instead of listing houses we buy houses.
Helping Motivated buyers…
We help “hungry” buyers as well. These are credit-challenged buyers who may have trouble qualifying for a conventional mortgage but would love to own. They have a dream of home ownership but don’t know how to achieve it.
If these credit-challenged buyers have some money to put down and have a stable job we can help them realize their dream! With seller financing (or lease options) we give them a chance to move into the home, help improve their credit and help them refinance into a traditional loan down the road.
Most real estate agent will not “waste their time” with a credit-challenged buyer unless they can show them a valid pre-approval. That’s why there is a need for creative real estate investors.
The Nature of a WIN-WIN deal
As creative investors we get paid to solve real estate problems for buyers and sellers.
- Priority #1: take care of the seller / buyer (their win)
- Priority #2: make money (my win)
- 1 + 2 = Sweet RE Deal!
If I am NOT doing #1 then I am letting greed drive my business and I will not be able to sleep at night. If I’m NOT doing #2 then I won’t be around long enough to help many sellers. The more people I help, the more money I make and vice versa.
My Bitter-Sweet Deals
Every single house I bought was from a motivated seller who needed a fast, as-is sale to solve their problem. That’s the only way I can buy a house at a discount, solve the seller’s problem, and still stand to make money.
I say “stand” because I obviously lost money on most of my deals. And it wasn’t because I didn’t buy below market. I failed in the fix-up and re-sell stage. True, I should have bought at a deeper discount to account for this. However, the cliché among investors “You Make Money When you Buy” doesn’t tell the full story. Besides buying you have to know how to fix and flip too. That’s what I need to improve on.
At least I was doing the right thing by solving the seller’s problem as my #1 priority. That’s the beginning of a sweet deal. All my sellers were happy to do business with me and I can sleep at night knowing I treated them fairly. (I should have collected some letters of recommendations, oh well, next time.)
This makes me want to do more deals to help more sellers (and of course make money this time). As I learn from the bitterness of my mistakes the “sugar content” on my future deals should increase.
Now some personal examples of doing sweet deals with and without a real estate agent…
Example of Using a “Creative” Agent
Salmon Falls Dr, Sacramento, CA.
This was my first ever real estate purchase back in 2002. It was a fixer-upper condo I bought for $105,000 to use as my personal residence. I was 19 and got tired of living in an apartment. With the help of a competent loan officer I used a no-money-down full-doc first-time-buyer FHA loan to get in the game. (I was only making $35,000/yr as a programmer.)
This was an out-of-state seller and who got tired of putting up the the tenants. The condo was a big mess inside. Even with no construction experience I can tell there was a lot of deferred maintenance. Seller was motivated and didn’t want to deal with evicting the tenants and doing any repairs. This is an example of a problem that needed to be solved.
The awesome realtor who I used was a referral from my parents. I had no RE experience at this time but she held my hand through the whole thing and thought me a few tricks.
She showed me how to ask the seller for a $5,000 cash-back at close for repair money. The “repair money” was fully disclosed as such on the contract and settlement statement and everything was above-board. (I’m proud of that!) The seller was happy to get rid of this thing and not have to worry about repairs.
The deal closed quickly with no problems, I got my first-ever cash-back-at-close. Win-Win! I fixed up the condo by myself with my dad’s help (Yes, I can swing a hammer), lived in it for a year and sold it for a $35,000 net gain. Sweet!
I used the same realtor on the the sale because she already proved to be creative and competent. Not bad for my first fix-n-flip deal and I wasn’t even trying to be a real estate investor at this time. (Granted such profit was only possible because of the hot California market at that time, but still…)
Example of Not Using an Agent
Calla Way, Sacramento, CA.
After I got married in 2004 I wanted to become a full time real estate investor (still feeling good from my first flip). After reading books, listening to CDs and going to seminars, I bought the Calla Way house. There were not agents involved.
I followed the instructions and found a motivated seller. It was a nice family who needed to relocate because of a job situation. I structured the deal on my own using a sweet home-cooked one-page contract.
Before that they had the house on the market with a realtor since May. The house was nice, no repairs needed, and had plenty of equity. However, the market just started to show signs of a slow down and the realtor was over-pricing the house.
By August the seller got frustrated and searched for a “private investor” online. That’s how they found me. I gave them a low-but-reasonable as-is offer and promised to close in a week. They initially refused but after a month of no activity they let the agent go and called me to see if the offer is still “on the table”.
After looking at the changing market I lowered my offer to be on the safe side. I still promised the one-week as-is no-hassle close. They agreed.
I performed as promised and closed it in 8 days - funded on the 7th and recorded on the 8th, I think. Even though I was using a conventional 100% loan, my awesome mortgage broker was able to get everything ready ahead of time and pull off an amazing 7 day close.
The seller was happy! It was a WIN for them as they got to finally move and buy their dream home in another neighborhood. True, they sold the house at a discount and gave up some equity. However, the convenience and the speed of my buying service was well worth it to them.
It was a WIN for me because I got $30,000 cash back at close in order to have money for a few mortgage payments until I resell. I also used the money to pay off my almost $30K of credit card debt to improve my credit score so I can do more 100% loans. My conservative wife was very happy to have our consumer debt payed off! Win-Win-Win. Sweet!
I sold this house creatively as well. Again, because there were no realtors involved I was able to structure a sweet deal here too. I bought the buyer’s old house on Burdett Way and helped him get financing to buy my house on Calla Way. We did a simultaneous escrow that closed on Jan 3rd.
The buyer was very happy to be able to move up to a nicer house in a better neighborhood AND sell his old house in a so-so neighborhood all in the SAME transaction! What kind of a realtor would help him do THAT?
True, I’m still stuck with the Burdett house. And yes I did pay a little more than I wanted to. Through this experience I became friends with the buyer, his wife and his kids. I was glad to be able to help them out. It was a true win for them. And since I was able to get rid of Calla Way and secure my $30,000 gain, it was a pretty good deal for me too.
A creative investor can put together win-win deals with or without a realtor. But in my experience the truly creative deals happen when you work directly with the buyer/seller.
They say there is always more than “one way to skin the cat” and “you gotta think outside the box”. All true. I like to say “WIN-WIN or NO (SWEET) DEAL!”
Related Link: Real Estate