Land Contract v. Subject To

[JaredfromIndiana]

I'd like to get some input from the experts out there that actually do either one of these practices.  My mind was opened to taking properties subject to the existing financing and then turning around and selling them via lease option or land contract.

Well, we met with our new attorney today and he had a different approach.  He suggested that we purchase properties on land contracts instead of subject to and then turn around and sell them on a land contract also.  His big concern was the due on sale clause, even though he said in all of his 30 years of practicing he has only seen the clause called in 2-3 times. 

I was attracted to subject to's because of the obvious, no money out of pocket.  What I have found is that when I talk to people about it I always get the same reaction...  "Who the hell would do that??".  Obviously not them... 


So if you have an opinion here please share...

[$Cash$]

Jared,

My favorite line when someone called me from my marketing is "This isn't one of those damn deals where the loan stays in my name is it?"

"Sir, we have several ways we buy properties, however I would need to see your property before a determination is made on the best way to help you."  I will come by at 1:00 PM this afternoon to make that determination (period)." (Slight Pause) "Your address is?"

Once I have the address in about 10 minutes I know more about his house than he does, balance of mortgage, interest rate, neighborhood demographics, etc.

Then my scripted presentation takes over when I am at his house and at the end I make a decision on whether I want to take over the property Sub 2 or not.  The loan staying in his name never comes up again.

I purchase Sub 2 and sell on Contract for Deed (Land Contract), in my 500+ deals never a loan called, guess I just do it right.

Anyway this is how I do it.

John $Cash$ Locke

[JaredfromIndiana]

Jared,

My favorite line when someone called me from my marketing is "This isn't one of those damn deals where the loan stays in my name is it?"

LMAO.  I've heard that a few times.  Thanks for your input John.  It's appreciate as always. 

[CharlottePlayer]

hey Cash, i see you mentions sale on contract for deed.  are you nervous that you would have to foreclosure on the property if they don't make the payments.

i was always told that it would be best to sell on a lease option so if worst comes to worst all you have to do is eviction the tenant.

i am assuming that for your new buyer you are getting at least 5% down and checking their credit.

[$Cash$]

CharlottePlayer,

Never had to do a Judicial Foreclosure, the same way I purchase Sub To is the same way I have a Buyer leave the property.

"U-Haul" money works every time.  However, you cannot let them get into "self denial" which is what happens with most people who go into foreclosure.  I am there on the 16th of the month that the payment is due.  Not confrontational, just there to see how I can help.  At this time you get a firm date the payment will be made or you find out that they are out of money.

If they are out of money, then you present the U-Haul way and say "let me help you get started again."  Instead of a "Promissory  Note" I use a "Cognovit Note".  "A cognovit note is a confession of judgment given to a plaintiff, agreeing to pay a certain sum. The defendant acknowledges the claims asserted by a plaintiff against him in a complaint are valid and waives all defenses. It is usually given to avoid the expenses of protracted litigation. Laws relating to cognovit notes vary by jurisdiction, and are disallowed in some jurisdictions.

I will point this note out to them reminding them they signed it, if the Smart Mouth me then since everything they own is tied into the note, I ask them if their car runs good.    This gets them off the dime quickly.

I like bread and butter houses, these houses are found in every market.  I get a minimum of $6K down to $20K down and this is based on the house rather than a percentage.

Now read very closely...If they have the down payment I hold my thumb on the underside of their wrist, if I feel a Heart Beat their credit is good with me.  Now I do put them with a Mortgage Broker immediately to work with them so they have a good chance of qualifying at the time their Contract for Deed states they must re-finance.

Just the way I do it...

John $Cash$ Locke

PS:  One other thing I thought of, when the Buyer says to the Judge I have an option on the property, watch the Judge say to the Seller, you will need to do a Judicial Foreclosure as the Buyer has an equitable interest in the property.  I have personally seen this happen a few times, so I know it happens.  Maybe not all the time, but this is a chance you will be taking on a Lease/Option no matter how anyone tells you to word the documents.

[CharlottePlayer]

PS:  One other thing I thought of, when the Buyer says to the Judge I have an option on the property, watch the Judge say to the Seller, you will need to do a Judicial Foreclosure as the Buyer has an equitable interest in the property.  I have personally seen this happen a few times, so I know it happens.  Maybe not all the time, but this is a chance you will be taking on a Lease/Option no matter how anyone tells you to word the documents.

it seems like the same thing will go for the contract for deed.  now let me make sure we are on the same page here, with the lease option, you have the tenant sign two agreements, one the lease and two the option.  the option agreement is fully contingent on them completing certain terms of the lease.  Second the lease isn't to mention the option making the lease and option two different agreements.

every contract has terms that need to be met which is consideration, so if the option references the lease and the tenant violates the lease, then a properly written option clauses will cause the agreement to be null and void.

is this the way you see it?

[$Cash$]

CharlottePlayer,

Absolutely the Contract for Deed falls under the Buyer having an Equitable Interest in the property, which requires a Judicial Foreclosure unless you know how to handle the situation should eviction be required. without having to go through a Judicial Foreclosure.

Since I do not sell on Lease/Option, you will need to consult with someone who has the answer on how they do it.  However, if you think about it "the lease does not mention the option" all I am saying is be prepared to tell a Judge why the Lease does not mention the Option.

"Equity is a concept of rights distinct from legal rights. In equity, a judge determines what is fair and just and makes a decision as opposed to deciding what is legal."  Like I said tell it to the Judge, should a Buyer bring up the Option.

John $Cash$ Locke

[CharlottePlayer]

i see.

[$Cash$]

Jared,

Thank you, always my pleasure to help where I can.

John $Cash$ Locke

[nsu1997]

Then my scripted presentation takes over when I am at his house and at the end I make a decision on whether I want to take over the property Sub 2 or not.  The loan staying in his name never comes up again.

Sounds like your scripted presentation is tighter than a virgin's daughter!

My scripted presentation is very generic and usually ends up making the seller wary, ask a bunch of questions, or make them even more confused. What I normally say if I'm going for the deed (over the phone) if they have equity is "If I could make you a small down payment and pay the balance of your equity in monthly installments..." or if no equity "If I could make your payments and take this property off your hands with a quick purchase..." Like I said, my results haven't been that great.

I'd be in heaven if you'd share a bit of your pitch. 

[$Cash$]

nsu1997,

Glad to meet you.

YOUR JOB ON THE PHONE IS TO SET THE APPOINTMENT:

The people that call you are already motivated.

Here is the opening of my scripted presentation and I start in the Living Room:

Mr. & Mrs. _____________ let me begin by telling you a little about the Cash Now Team.  Present Credential Book (This is where I or my students show all of mine and their deals printed from County Recorder web sites, plus other information that gives us credibility in the eyes of the Seller.) 

We, as a team, have been buying and selling houses in various parts of the country for over 12 years.  To date, we have purchased over two hundred million dollars in property.  For those that qualify, we offer a unique opportunity.

The only way to tell if you and your house qualifies is to review specific information with you personally and evaluate your property.  If at any time during our discussion, I feel that we cannot help you, I will let you know at that point rather than disappoint you later.

What I'm going to do here today is explain to you step by step how I arrive at the figure quoted to you for your equity and the benefits of a purchase by Cash Now.  But before I continue, I want you to understand that I'm not going to paint you a rosy picture about buying or selling your house.  There are good points and bad points. I intend to point out both sides.

Then I go into inspecting the house, plus other techniques, when they are silent praying I purchase their house, then comes the Take Away closing statement, the most powerful sales statement you can make.  You can watch their body language at this point and tell if you want the deal... it is yours.

We answer all Questions before they become Objections when using a script.  This is just a sample, but it works every time, your closing percentiles will go to 80%-100% if you use a correctly worded memorized scripted presentation.

John $Cash$ Locke

[nsu1997]

John, pleasure to meet you as well.

Wonderful info and it makes perfect sense why it works - you immediately get over a huge hurdle (credibility) and I can imagine it's a cakewalk from there. Thank you very much for imparting some knowledge on us mere mortals. LOL

[$Cash$]

box2good,

Glad to meet you,

Thank you for you kind words.

Sometimes it is difficult to get across to some that basically we are salespeople, our closing percentiles are based on how well we are able to communicate with people we are trying to speak with, albeit buying or selling.

There are ways to receive the proper training so we can go out in our great creative real estate industry and become very successful.  First we must learn to SELL!

I have recommended to students to take acting classes at a local community college, how many times have we watched movies and it is so believable we forget it is a movie...think about how that applies when you are speaking with a new client.

Sales touches everyones lives, without it we would still be in the dark ages.  Every where we turn, we are introduced to new products & ideas to help better our lives. Effective sales presentations and salespeople help guide us to these services, products, etc.

John $Cash$ Locke

[Doug Pretorius]

Some interesting stuff there, John. My closing ratios aren't quite that good but once I get in front of a motivated seller I do get the deal more often than not (50-60% or better).

You say that sellers who call are already motivated. While I agree with that to a degree (they're motivated enough to call and see what you have to offer) I'd like to know what percentage of those calls make it to an appointment.

The reason I ask is that I've seen your postcard (or at least one of them) and it's pretty standard stuff to get them to call, no heavy-duty screening involved. I find that when I put that kind of marketing out there very few callers are truly motivated. Most are just calling to see if I'll pay more in cash than they can get through a realtor. In fact the number of motivated sellers are essentially identical to the numbers I get by cold calling. The only advantage to having them call me is that it's easier psychologically to return a call than it is to initial contact. With the cost of marketing these days that's an advantage that's hard to justify.

[hhiinvesting]

John....

Great thread!  I've read many of your posts and articles you've written.  I can already tell when i'm speaking to sellers that i'm more confident handling their questions/objections and sometimes even head them off before their even asked.

Once again, Thanks!

Darin