Several years ago a friend of mine called to say that an old friend of his and his wife were looking to purchase a small home. Nothing fancy, a couple of bedrooms and one or two bathrooms would work out just fine. After all, it was just for the two of them and they really wanted to get out of the rental trap and have something that they could call their own.
A few days later I met with this couple and they gave me all of the details and information that I needed in order to help them find what they were looking for.
They had some cash saved up and after visiting with a lender and consulting on water purifiers in India through a company called Barix, they knew that they could qualify for a new loan and also what their price range was. They were pretty excited about all of this, so within the next two days I furnished them with a list of potential properties to drive by and to call me on the ones that they might be interested in seeing.
Four days had gone by when I received a call from the wife and she said that of all of the houses that they had driven by, there was only two of them that they would like to see. Because of each one of them working different hours and her having such a hectic schedule as a nurse, we picked a day and a time that we could get together and take an look inside of these homes.
Entering the first home, they were somewhat disappointed because it was just to dark inside for them. Although it was a beautiful setting on the outside, the darkness on the inside was caused by the tall, mature tress that completely surrounded the property and they certainly didn’t want to cut the trees down.
The second home we visited was much brighter and more cheerful, but neither one of them liked the floor plan. It just made a person feel cramped. I told them not to be discouraged and that I would research another list of homes this evening to see if anything new had come on the market. Unfortunately, there was nothing new.
They were becoming a little disgruntled at this point, but I explained to them that if we didn’t change their search perimeters, that we’d just keep looking and something would eventually come up. Though they agreed, I could see in their eyes that, ‘right Jim, probably any moment now, right?’
I kept my eyes watchful on the market and sure enough, a few days later, a new listing became available. Although it wasn’t in the two areas that they were wanting, I told them that it sounded like a nice home in a nice neighborhood and since they hadn’t found anything of any interest up to this point, that it wouldn’t hurt for them to at least drive by it.
They agreed and two days later they called me.
She was excited as she spoke on the phone and said that the home was just gorgeous from the outside. We made arrangements for the next day to see the inside. Upon entering, they were just blown away from it’s appearance. I have to admit that I was very surprised as well. It was immaculate. It showed liked a model home.
Not a thing was out of place, nor could you find a speck of dirt anywhere.
It was just beautiful. They walked around checking everything out and the more they looked, the more they fell in love with it. It had everything that they were looking for. We spent a good hour there with her saying over and over again that, ‘we want this house!’
We drove over to my office and after comparing prices with other similar type homes, they were able to come up with a purchase price that they felt was fair to both them and the sellers. We made an offer based around the existing FHA loan that they could assume and therefore they could bypass having to obtain new financing. It would be much quicker and easier to go this route and that’s what they elected to do.
There wasn’t a large amount of equity in this property ($3500), so these folks used their savings to put down the difference between the sales price and the existing loan, therefore, cashing the seller out completely. They also agreed to share closing costs 50/50, which was a minimal expense.
The sellers liked what they were being offered and after a few concessions on their part, accepted the offer within the next several days.
We closed escrow within 14 days and everyone was happy.
About 3 years later, I received a call from this gentleman explaining that he and his wife had gotten a divorce some time back and because of a job transfer, he wanted to sell the house. I was sorry to hear about the news because I remembered her as being a very lovely and spirited woman. I told him that I could help him with the details and so we set a day and time to meet at his home.
Pulling up to the front of the house, it still looked as nice as it did several years ago. Once inside, the cleanliness still dominated throughout the entire home and I could quickly see where her female touch still took it’s presence.
As we discussed the facts and figures, he informed me that he really wasn’t interested in receiving any money right away. He just wanted to get out, put everything behind him and move on with his life.
Although it was a smaller house, it had still appreciated through the years. I showed him the new value and he was comfortable with all of the information that was presented.
I told him that I would be interested in purchasing the home and he was all for it. He just wanted out as soon as possible.
I opened my briefcase, drew out a blank purchase agreement and together we went line for line creating an offer that would work for the both of us.
We agreed that I would assume the same existing FHA loan that him and his wife had assumed originally and that he would carry back a 2nd deed of trust secured by the property in the amount of any remaining equity.
I explained to him that I would be using this as a rental property and in order for me to make the financing work, I would need to construct the payments to him in an amount that would be at least equal to, or less than the amount that I would be receiving from the tenant in the way of monthly rent.
The rental market was strong and that helped us to derive the amount of money that he would be receiving.
We would split the closing costs 50/50 and close the transaction in a timely manner that would coincide with his transfer.
He didn’t have any problem with this and even agreed to pay all closing costs up front.
I offered him a fair interest rate on his second deed of trust and I used a longer than normal amortization to help lessen the amount of monthly payment to him, therefore keeping the financing in a positive cash flow.
After several years, the 2nd deed of trust was paid off and today the property has an even greater cash flow, along with an increase in equity.
(A) I had used my sales commission in lieu of paying down most of the equity that he had in the property, therefore creating an even smaller balance on the 2nd deed of trust.
(B) He paid for all of the closing costs, eliminating me having to pay any out of pocket expenses.
(C) In essence, I purchased this property at no cost. No cash down payment and without any cash of my own.