Creative Real Estate Offers for Your Next Deal

In the process of acquiring properties, making a creative real estate offer is probably the most nerve racking thing you will encounter.

Do your best to push yourself through it and get the offer on the table.

Like all things that get easier the more you do it, presenting an offer is no exception.  What it comes down to is if you are meeting the needs/desires of the seller and are creating a win-win in transaction.

It may be good to practice presenting the offer to someone you know and would be able to get feedback on how you do.

Nerves are a good thing to have and can keep you humble.  Try your best to stay calm when you are presenting the offer to the seller but don't worry if you are nervous.

People do not really like cocky, rude, or arrogant people. If you stay humble and helpful, you will get a lot more deals done because of your attitude.

The offer needs to be written in a way that the seller will accept it even though it is a lower amount than they are asking for. The price you are going to offer is based on the numbers you calculate from the income and expenses of the property.

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Creative Deals for Real Estate Investing

Let’s look at the property on 321 Main St. for this example with the $100,000 asking price.

Conventional Financing 0% Down Payment: $0 Total Loan Amount: $35,000 Rate: 5% Term: 180 months Monthly Payment: $277

Seller Financing No Down Payment Total Loan Amount: $65,000 Rate: 0% Term: 180 months Monthly Payment: $361

Insurance: $75 Taxes: $100 Note Payments: $638 Total Monthly Expenses: $813

In order to run the numbers properly, you need find the income and expenses.

Now take all this information you have collected about the income and expenses and use my Investment Property Calculator to see if the property will make you money each month or not.

I did all the hard work so you do not. Just put in the numbers you have and the calculator will do the valuation for you. http://masterpassiveincome.com/resources/investment-property-calculators/investment-property-calculator/

You can play with the numbers you put in so you can find the price you actually may want to offer. For starters, use the asking price to see what type of cash flow you will get from the property. Then you can adjust the number down until you get the total dollar amount per month that you are looking for.

I personally like to get over $250 per “Bread and Butter” property if I am to invest. Anything less makes the margins too tight and may end up costing you in the long run.

You Make Money When You Buy the Property

Remember that you make your money when you BUY the property and realize your money when you SELL the property. Use creative real estate offers to make even more money buying it lower than the asking price.

One way to quickly find a price for the property is to use my 70% Rule calculator on my site: http://masterpassiveincome.com/investment-calculators/70-rule-calculator/

This calculator will take the AFTER Repair Value, minus repair costs and profit you desire from the deal and find the purchase price.

This will give you a ball park figure to start with in your numbers.

By no means should this be used as your only way to value a deal but it does get you started in the right direction.

If you did purchase this property, you would already have the repairs and desired profit already built into the offer price.

Private Sellers and Creative Real Estate Offers

If you are working with a private seller, you can present a few different offers. One would be with conventional financing and the other with seller financing and another can be a blend of the two.

The conventional financing offer would generally be a lower offer price for the property because of the costs involved with the financing.

With Seller financing, the owner is the bank and your job is to sell them on how much money they will make if they are to carry the note on the property and make interest from the property.

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Creative Real Estate Offers

Conventional Financing Offer

If you go to a bank for conventional financing of a rental property, they will require you to put down at least 20% of the purchase price ($100,000*20%=$20,000) and will give you financing for the rest.

Depending on your credit, your interest rate may be higher or lower which adjusts your monthly payment and total cost for the property.

Use the Rental Property Investment Calculator to find your desired total monthly cash flow by adjusting the purchase price.

Since the calculator works seamlessly, you can adjust the purchase price to see how much your total monthly cash flow will be.

Since you are trying to replace your income with passive income in rental properties, making your offers based on the cash flow amount will help benefit you to quit your job.

There are other ways to value a property but this is the Master Passive Income way.

Example: Offer price: $85,000

20% Down Payment: $17,000 Total Loan Amount: $68,000 Rate: 5% Term: 180 months Monthly Payment: $538

Insurance: $100 Taxes: $125 Mortgage Payment: $538 Total Monthly Expenses: $763

Monthly payment: $538 + Expenses of $225 = $763 per month payment

Rent of $1,100 – Total Expenses of $763 = $337 per month CASH FLOW!

Seller Financing Offer

You can make a creative real estate offer to the seller their full asking price of $100,000 with him holding the note as if he were the bank.

You can ask for a no interest loan from him for the property and pay him the asking price over 15 years.

He would benefit because he is getting his full asking price which is $15,000 more than he would get if you were to get your own financing.

You will pay $556 per month which is a little more than you would pay for a note but you have no money down which would make this deal have and infinite rate of return because no money comes out of your pocket.

Example: Offer price: $100,000

0% Down Payment: $0 Total Loan Amount: $100,000 Rate: 0% Term: 180 months Monthly Payment: $556

Insurance: $100 Taxes: $125 Mortgage Payment: $556 Total Monthly Expenses: $781

Monthly payment: $556 + Expenses of $225 = $781 per month payment

Rent of $1,100 – Total Expenses of $781 = $319 per month CASH FLOW with NO MONEY DOWN!

If you present both of the offers to the seller, you give them the option to choose what he desires. Plus you benefit because the seller can give you an idea of the type of deal he is looking for.

Since the cash flow for each of the deals is the same, they are basically the same deal other than one big factor.

The seller financing option does not require any money out of your pocket in order to get the deal. The seller financing deal like this example is less common and would take some work to find.

This example is to show that you, as an investor, need to be creative in finding the right type of financing in order to get the deal.

You don’t know what the seller will choose in the end, or if he will choose at all so present the offers to at least give him the choice.

You can also get creative and blend the two types of offers together into another offer. Let’s us the same example property with a purchase price of $100,000 and use both seller and conventional financing.

For this property, you do not have the 20% down payment for the full asking price, nor do you have any money for the deal. No problem! Blend these two together like this:

Blended Offer #1

You need a mortgage for the bulk of the loan and you need another for the down payment. Offer the seller full asking price for the property in exchange for him to assist with the down payment. By having the seller take a note for $20,000 for the 20% purchase price of the property you now have the down payment covered.

So, you effectively have a conventional note for $80,000 and a second note from the seller for $20,000 and you have no money in the deal.

Example: Offer price: $100,000

Conventional Financing 20% Down Payment: Paid by Seller Total Loan Amount: $80,000 Rate: 5% Term: 180 months Monthly Payment: $632

Seller Financing No Down Payment Total Loan Amount: $20,000 Rate: 0% Term: 180 months Monthly Payment: $111

Insurance: $100 Taxes: $125 Note Payments: $556 Total Monthly Expenses: $968

Monthly Conventional payment: $632 + Seller Payment: $111 + Expenses of $225 = $968 per month

Rent of $1,100 – Total Expenses of $968 = $132 per month CASH FLOW with NO MONEY DOWN!

Blend Offer #2

In this creative real estate offer, you will have the seller finance the bulk of the loan and get conventional financing for the smaller portion.

Offer the seller full asking price of $100,000 for the property and have him take a $65,000 note while the conventional financing would be for the remainder of the balance of $35,000.

Like the blended offer #1, you will not have to come up with the down payment because the mortgage company does not require it and you can talk your seller into a zero down deal.

Now, you have a conventional note for $35,000 and a second note from the seller for $65,000 and you still have no money in the deal.

Example: Offer price: $100,000

Conventional Financing 0% Down Payment: $0 Total Loan Amount: $35,000 Rate: 5% Term: 180 months Monthly Payment: $277

Seller Financing No Down Payment Total Loan Amount: $65,000 Rate: 0% Term: 180 months Monthly Payment: $361

Insurance: $75 Taxes: $100 Note Payments: $638 Total Monthly Expenses: $863

Monthly Conventional payment: $277 + Seller Payment:$361 + Expenses of $225 = $863 per month

Rent of $1,100 – Total Expenses of $863 = $237 per month CASH FLOW with NO MONEY DOWN!

With these different offers, you can see that there are many different ways to get creative with the deal and try to make the deal work for both you and the seller.

Try to make a win-win in all situations. If you find the seller needs to have steady income into his retirement years, seller financing may be the best option.

If he needs the cash now in order to move to a new location, then help him get as much cash as possible within your already calculated valuation. Remember to never do a deal that will lose you money in cash flow.

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Dealing with a Realtor

These same creative real estate offers we worked on for a private party seller can also be presented through a Realtor as well.

Think of a Realtor as a middle man who brings the offer to the seller.

A down side of working with a Realtor in these types of deals is that Realtors want quick sales with as little work as possible.

If the Realtors understand your deal, (big IF) then they may not want to take the time to present it to the seller because it is too much work.

Legally the Realtor is supposed to present all offers but some times they do not.

Another downside is you may have to teach the Realtor how these deals work as well. Most Realtors are just salesmen who sell a product.

That product is a home.

Not a house, but a home.

Most are not investors and just want to match up a buyer with a product they will buy and live in. They will tell you about the beautiful window coverings, nice lawn, etc.

These are all is useless to you as an investor. You know you are not going to live here and you are not buying the home for these reasons.

You are buying the house for the cash flow of the property and not buying a home for yourself.

It is very easy to get your realtor’s license and anyone is able to get one. Since you may be working with one of these types of Realtor’s you may have some convincing to do on your part for her to present the offer, and present it well.

It can be that you do your absolute best to create an offer that would work perfectly for the seller but the Realtor pitches it in such a horrible way that left the seller confused and possibly even mad.

Be ready to put in extra work with a Realtor.

Buying from Bank

When you are buying from a bank, it is usually best to present as straight forward of an offer you can put together.

If you have all cash, great, cut the asking price by a third and offer that. Banks are in the business of lending money not renting properties.

The longer money sits in a property that no one is making a mortgage payment on, the more money they lose.

That $150,000 property they foreclosed on is now a liability because of maintenance, taxes, security, etc. They want to get these off their books fast.

I have bought many properties from banks that had foreclosed on the previous owner because of non-payment. It is best to view banks as a business not a homeowner.

Don’t be concerned that you are hurting the banks feelings by offering as little as half the asking price.

Creative real estate offers helped me to purchase a property for 1/3 the asking price because the bank accepted the offer without and counteroffer.

After 6 months from the offer date, the bank got back to me asking if the offer was still on the table. It was so I bought the property and it has already paid me back in 2.5 years from the rents!

Writing the Contract

Now that you have some understanding of what types of offers you can give, check my resources page for sample contracts for you to use on your own deals.

The Contract for Purchase is a quick and easy one for you to use on your first deal. If you are presenting multiple types of offers like we just talked about, fill out a new Contract for each offer you are presenting.

This all may seem daunting to you when you do it the first time. Don’t let fear stop you from moving forward and putting in an offer on a property that will bring you passive income every month.

Once you have one under your belt, it will get easier and easier. Tell yourself that you are a super investor and this is a walk in the park for you.

Don’t give up, push on through!

Let me know what you think about creative real estate offers by leaving a comment below. I want to hear from you!