The Art of Negotiation with Shawn Watkins April 9 and 10.

Happy Holidays!

This is how the constable operates in my local Utah market. 

I just got off the phone with an owner that did a subject to transaction 3 years ago with another investor. (She and her husband allowed an investor to take the deed to their home “subject to” the underlying debt @5.75% 30 year fixed). In exchange for $10,000 the owners were given an all inclusive trust deed (AITD) that “wrapped around” the underlying bank financing. The investor/buyer signed thereby agreeing to make the payments each and every month. The owner was just notified that NO payments have been made since May of this year. Now, the underlying bank wants to foreclose on the property. When she called the investor he said he intends to keep collecting the rents (YES it has tenants) until he makes back his $10,000 and has no intention of deeding the property back to them.

After explaining what they did RIGHT and what they did WRONG the owner has agreed to assign the AITD to me. (it wasn’t easy, she is NOT happy with investors right now) I will then foreclose out the defaulting investor and protect the owner from foreclosure. 

This kind of behavior on the part of the investor is just one reason why sellers are scared of doing subject to deals. I also think this kind of story contributes to crappy legislation that is intended to “protect” sellers from shady investors. 

PLEASE…. If you make a deal with someone then HONOR the terms even when it means you might lose some money.

Thought for day: 

To help you better understand the financial crisis in which our country finds itself, I have attempted to put it in terms common people, like you and me, can easily understand….. 

If you had purchased $1,000 worth of shares in Delta Airlines one year ago, you would have $49.00 today. If you had purchased $1,000 worth of shares in AIG one year ago, you would have $33.00 today. If you had purchased $1,000 worth of shares in Lehman Brothers one year ago, you would have $0.00 today. 

But, if you had purchased $1,000 worth of beer one year ago, drank all the beer, then turned in the aluminum cans for a recycling refund, you would have received $214.00. Based on the above, the best current investment plan is to drink heavily & recycle. It is called the 401-Keg. A recent study found that the average American walks about 900 miles a year. Another study found that Americans drink, on average, 22 gallons of alcohol a year. That means that, on average, Americans get about 41 miles to the gallon! 

Makes you proud to be an American!

I found a FSBO ad advertising “assume my mortgage” and sent an email. Below is the exchange I have had with him so far.

ME: Did you find someone to take over your mortgage yet? Please let me know.

SELLER: I have a few people interested and doing thier paperwork now.  Are you a investor?  I am not looking for someone to take over the payment but I am going to have them assume the loan.  Meaning I will have no obligation with it anymore.  I am on time and not late with my payments.  Just want to get off the loan so I can by something else.

ME: Yes, I am an investor. I understand that you want someone to do a formal assumption agreement with the loan. What I have been doing for years is to master lease the property using a net lease (like the commercial guys use). This allows you the ability to get another loan to buy something else because I am contractually obligated to be 100% responsible for the property (including repairs, taxes and insurance). 

What I then do is allow you to have the property back when it has doubled in value. I am able to gather the cash flow and you are able to have the benefit of “time” to allow your house to gain in value while I am paying down the mortgage. You then sell the property when the market is “up” again and take all of the profit.It sounds like you may have one or two buyers already working with you. I hope they come through. In case they don’t, I would appreciate the chance to sit down with you and explain what I do in more detail. I can move very fast, 3 days or less if we come to an agreement.

Save $$ by learning how to re-key your own lock sets.

Don’t miss our monthly meeting of Investors Workshops tomorrow night.

There are approximately 57,200,000 loans in the United States. 42,900,000 out of that 57,200,000 were originated between 2003-2007. (many of these at a 6% or lower rate) 

Delinquencies are skyrocketing for the following reasons:

Too much money was lent to unqualified buyers with too little skin in the game

Owners pulled equity out and spent it

Monthly payment hikes occurred at the worst time

Price declines have placed a huge amount of people in a negative equity position

Unemployment has significantly increased the problem

Owners are finding it acceptable not to make their house payment

Loans are often non-recourse

IRS lets people off the hook

*ABOVE INFORMATION COURTESY OF BRUCE NORRIS www.thenorrisgroup.com*

I do see an opportunity to acquire properties with fixed rate, long term debt that will cash flow as rentals. In most cases they will be worth less than they are owed but by implementing good property management skills these can pay off big in the long run.

2010…. The year of the tenant

My focus for 2009 was to concentrate on seller financed transactions. This would allow me to “stretch” my available capital making it possible to control more property with the funds I had available and hold them long term. Well….. It worked. Using this strategy allowed me to acquire over fifty rental “doors” in 2009. However, this success comes with its own set of challenges. In order to effectively control our inventory we had to build our own “in house” property management team. This involved recruiting staff, adopting property management software and making sure everyone was willing and able to deal with the dreaded “toilets, tenants and trash” that is so feared and hated by most investors.

What we found along the way is that most OWNERS hate property management as well. Eight out of Ten of our acquisitions in 2009 were from “tired landlords” that were raising the white flag. With property values dropping, they felt trapped and were more than willing to shift the joy of ownership and management to someone else. (I actually think some of them thought they were taking advantage of us!)

So, after developing our own brand of management, we were curious how satisfied other owners/investors were with their current property management. The answer was surprising. Most of those we contacted felt that their managers were not doing a good job and in fact hadn’t spoken to them in months. We began to offer “master leases” to these owners and were able to increase their rents while capturing revenue for ourselves as well by using our existing management infrastructure.

Our focus in 2010 will be to continue with our seller financed purchases. We will also be adding more master leasing in our business plan. These strategies do not depend on equity but rather controlling costs through effective management so that the properties can produce solid monthly income. I don’t know when the Nation will recover from housing price drops but I do know that people need housing and I want to be their first call.

Shawn Watkins