Equity Purchases
The easiest way to change the
perspective on any offer you make is to change the amounts of money being discussed.
Instead of telling an owner you'll give them $1,000 for their $100,000 home
"Take it, or leave it", work with them on solving the problem.
If you read the page title "Is This Property
Worth My Time", you read about the costs involved in bringing a property to market
value and selling that property on the open market.
The current owner will have
to work with those same numbers.
Use the numbers as part of your presentation.
If you walk the owner through the costs they will have to pay to list and sell the
property, you will arrive at their true "net equity". That is what you'll
want to discuss, and any offer you make should be based on the purchase of that equity,
not the possible market value of the house.
Using the example of a $100,000 home needing
minor repairs totalling $1,500 located in a fairly active real estate market and the owner
has an existing loan for $60,000 with $4,000 in past due payments.
$100,000 Property Market Value(after repairs)
-$ 6,000 Realtor Commissions
-$ 1,500 Title and Closing Costs
-$ 1,500 Repairs to the Property
-$ 3,000 Holding Costs (while property is repaired and marketed)
-$ 4,000 Past Due Payments
-$ 60,000 Existing Loan Balance
$ 24,000 Actual Net Equity |
Without discussing property values,
except as part of your calculations, you want to base your offer, and have discussions,
only of the "net equity". A common philosophy is that a split of the net
equity is fair to both the homeowner and to the investor. Keeping in mind that the
investor will need to pay $4,000 to bring the loan current, then pay $1,500 in repair
costs and will likely need to pay $4,000 in holding costs in order to be able to obtain
market value, it certainly seems to be one way where it is "win-win" for
everyone involved, and will make negotiation much easier.
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