Recent posts on the Real Estate Investing Forum have asked about taking over the seller’s payments and not being able to find any houses with equity.
Here’s the truth. There are still houses with equity, but most investors are marketing without targeting or filtering their lists, so they only get calls from over-leveraged deals.
Here are the recent statistics by the U.S. Census Bureau and by a recent article in the The Wall Street Journal. They quoted Corelogic data, but it correlates with the U.S. Census data very well.
One-Third of All Single Family Homes are Owned Free and Clear
Out of 76 million homes in U.S., 10.9 million are over-leveraged, and 24 million are owned free and clear of any mortgages. Looking at that data, you can see there are plenty of deals to work, even if you don’t want to do short sales.
Out of 7 houses out there, 1 is over-leveraged, 2.4 are free and clear, and ~4 have equity.
Yes, that data is different in certain parts of the country, but not so much different to conclude that there are only over-leveraged houses in your area. There are motivated sellers in all of those groups.
Some may say that the sellers with equity would not be as motivated to let you take over their payments. But Think about this… back in 2006 we were buying houses with equity, 20-30%+ below market, and the sellers were motivated even in what was then a “sellers market.”
So there will be motivated sellers in all the groups, at all times, in every city or town.
Plus, think about this. Some of the over-leveraged sellers are not broke and they will pay you to take over their payments and rid them of the problem. This is the strategy that can make you money. I call it…
The “Get Paid to Buy Strategy”
Here’s an example from one of my students. The house was in beautiful condition, worth $150,000, and the loan was $136,000 (not enough equity to do the deal). So the seller paid $15,000 to my student, who took over the seller’s payments and then sold the house on seller financing with $10,000 down, a good positive cash flow, and a pretty nice back end profit.
Notice that he collected $25,000 up front when you combine the payments from the seller and the new buyer.
Create Your Equity with the “P-J-L Strategy”
The “National Mortgage Professional” states the average time-on-market for short sales is 16.6 weeks, with the majority of that time spent waiting for short sale approval.
That’s a 4-month wait. And in a market flooded with foreclosures and requests for short sales, the “P-J-L Strategy” can work wonders for your pocketbook.
“P-J-L” stands for “Payoff Junior Liens.” Here’s what you need:
- an over-leveraged house
- the LTV (loan-to-value) of the 1st mortgage is 80% or less
- junior liens (2nd mortgage, 3rd mortgage, etc.)
In a situation like this, the junior liens know they will get wiped out if there’s a foreclosure, so they’re willing to take pennies on the dollar for their mortgage. We short sale the 2nd mortgage to create equity, and take over the 1st mortgage “subject-to.” This again gives you long-term financing, allowing you to sell the house on owner financing and get the premium price and a quick sale.
We are selling with this approach to the majority of people out there. You don’t need “transactional funding” or “proof of funds” or any of the other hassles involved with short sale flipping.
So, the bottom line is this: There are many ways to do deals in this economy. “Knowledge is power, so get armed.”
This a great time to be in real estate. So take action, start learning, and get yourself out there. Call sellers, go on appointments, and make it happen!
I’d love to hear what you think. Post your comments in the box below.