Structuring a Deal

Today I researched more markets. This time in Arizona instead of Nevada. I learned about some good neighborhoods from city-data.com. It’s amazing what information is available on the world wide web.

The latest book I am reading has some solid sounding information on deal structuring. The author says that fundamentally there are two ways to make a profit when purchasing real estate: Either buying all cash at a very steep discount – 70% of the as-is value, or lower. Or, getting the deal on great terms.

For terms he recommends one of the following:

• Lease options ( Rent to own )
• ‘Subject to’ existing financing ( Taking over the sellers payments )
• Seller financing

Those sound good. But I can see how I’d have to be confident and ‘in the know’ so the seller trusts me when I bring those to the table. I’d need to find out what the seller’s situation is, and what he needs (not wants), first.

Lease options sound interesting: I lease the property with an option to buy at a fixed price in x number of years. At least 5 sounds about right in the current market.

Subject to sounds dicey. I take over the sellers payments. The seller still owns the loan, and I own the property. If I default on the sellers loan the bank can take the property, that is the ’subject to’ part.

Seller financing sounds nice. The examples in this book had sellers financing at lower than market interest rates for conventional loans. I wonder what time period these examples took place in, the 80s?

I am hoping my first deals will pencil out with conventional financing: baby steps, if you will.

I read about some of the usual marketing techniques, too: Bandit signs and such. However this book emphasizes building systems for your marketing channels, so you can hand the channels off to your employees down the road.