What to Do When Your Buyer Needs Financing (LA 1655)

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What to Do When Your Buyer Needs Financing (LA 1655)

What to Do When Your Buyer Needs Financing (LA 1655)

Transcript:

Steven Jack Butala:
Steve and Jill here.

Jill K DeWit:
Hello.

Steven Jack Butala:
Welcome to the Land and House Academy Show today, Entertaining Real Estate Investment Talk. I’m Steven Jack Butala.

Jill K DeWit:
And I’m Jill DeWit, broadcasting from the Valley of the Sun.

Steven Jack Butala:
Today. Jill and I talk about what to do when your buyer needs financing. Of all time, since we’ve been doing this, since 2014, ’15, this has been, consistently been at least a top 10 question, maybe top five.

Jill K DeWit:
It comes up often because people fall in love with your property and they go, “Oh, I don’t have the money.”

Steven Jack Butala:
What I brought, I wanted to make this an episode today because it’s really different for houses and for land. Very, very, very different financing animals for a bunch of reasons. Before we get into it, let’s take a question posted by one of our members on the LandInvestors.com Online Community. It’s free. And please don’t forget to subscribe on the Land Academy YouTube channel and comment on the shows you like.

Jill K DeWit:
Greg wrote, “Nobody has any money or credit and everybody wants a land contract.” This is why I won’t want to do … I don’t want to do land contracts. Number one, I can earn way more money over the course of the contract by buying and selling more properties with cash up front.

Jill K DeWit:
Two, I have to deal with this person for years and who knows what will happen. Three, I have to deal with the neighbors for years. You’re driving down my road. There is a homeless encampment on the property, et cetera. Dream it up. Four, liability? What if someone busts a leg or gets shot in a pistol fight? Where are these properties? Am I liable for that risk for the next three years? In my-

Steven Jack Butala:
Opinion.

Jill K DeWit:
… opinion, land contracts are only good when nothing else is possible, like no buyers.

Steven Jack Butala:
Which never happens.

Jill K DeWit:
Right. Tell me why you love land contracts and what I’m doing wrong with them. Liability clause, litigation clause. Should we just jump into the show because it all ties in?

Steven Jack Butala:
Yeah.

Jill K DeWit:
Okay.

Steven Jack Butala:
Today’s topic, what to do when a buyer needs financing. This is the meat of this show.

Jill K DeWit:
I have a lot of notes, but do you want to go first or do you want me to?

Steven Jack Butala:
Oh no. I would love for you to.

Jill K DeWit:
Okay. So I put a plus. I have a minus and then I have pluses. So your buyer needs financing, whether it’s land or a house, the first instinct is, oh, seller financing. They always like, they ask that too. Will you carry back on a house? And sometimes it’s a good solution, but most of the time, it’s not my first choice. It’s never my first choice. Let’s just say that. I will be open to it. This is the House Academy Show so I’m going to talk about that first.

Jill K DeWit:
I would be open to it if it was a 30 day, 60 day, 90 day thing. We can see on paper what’s coming down the pike. I am cashing in my retirement. Here’s everything. We all know it’s coming. Can you carry me just until this happens? And here’s how it’s going to play out. Those would be really the only situations I’d be open to.

Jill K DeWit:
But what’s interesting, there’s a lot of people that like this. They like them because they’re note people. They want to buy them and have a note and sell the note and that’s their thing. That’s not who I am. I’m an investor. I’m not a note person. And I want to get my money and move on and do more properties. So before I talk about other solutions, you want to talk about seller financing?

Steven Jack Butala:
Here you have two options when you buy a piece of property correctly, the Land Academy way. Let’s say you buy a piece of property for $10,000 and you know it’s worth $20,000. You can buy the property for $10,000 and then put it on the market, however you do choose to do that and sell it for $20,000 cash. Or, and here’s the positive, maybe you sell it for $30,000 on terms. So you collect $2000 or $3,000 down, $500 or $600 a month. That’s what a term sale is. That’s what seller financing is.

Steven Jack Butala:
Same thing with a house. All the numbers are just much higher. So the positive to this type of this scenario is that you sell it for a lot more money and you create this payment stream. For some personality types it’s really, really positive as a seller. Here’s the problem. You’re going to attract, just by the nature of the deal, the nature of the structure of the deal, a different type of person.

Steven Jack Butala:
The person that’s going to come up with $20,000, I can tell you right now, cash sees value at around $30,000, which is how … that’s the Land Academy model. Buy for $10,000. It’s really worth, $30,000, sell it for $20,000. Everybody wins, including the person you sell it to.

Steven Jack Butala:
That’s just not the case with seller financing. The person that cannot … like the question today, has no money and no credit. They’re going to want seller financing and the default rate, there’s a reason they don’t have any money or any credit. There’s a very, very, very high chance, in my personal experience, that they’re going to default. So everything that the person said in the question is correct.

Jill K DeWit:
Right.

Steven Jack Butala:
Right down to the letter.

Jill K DeWit:
You’re going to be staring at and worrying about all those issues.

Steven Jack Butala:
When you get into the differences between selling a house on financing and selling … a house and a mobile home are about the same thing in the eyes of the law. And land, it’s very different. Land is never considered, for whatever reason, a primary residence. Well, unless you live on the land in a tent. Even then, it’s subject to different laws. So the vast majority of the time-

Jill K DeWit:
Do you need to get mail there? I don’t know.

Steven Jack Butala:
So now you’re subject to the Dodd-Frank Act for house financing, and that’s a whole different scenario of disclosure and liability for you, as a seller. So what does this all really add up to? It adds up to you and Jill just said it perfectly. We have people in our group that have hundreds and hundreds and thousands of these contracts that they’ve created or purchased from other people in the group.

Steven Jack Butala:
And they love the income stream. They sell it at a discount. That’s their whole life. They’re a collections company and they got 25 people working for them to collect money and establish relationships with these people to get them to pay. For us, that’s not the business we want to be in. So what’s the question in the title? What do you do when your buyer needs financing? And while you look at your partner, okay, go ahead.

Jill K DeWit:
I have a list. Can I talk about my list of things?

Steven Jack Butala:
Jill, do you want to do it? That kind of thing. That’s what I do.

Jill K DeWit:
Oh, do I want-

Steven Jack Butala:
And she always says no.

Jill K DeWit:
Nope. No, but you know what? I always have an answer though. So that’s the thing. I even had a broker come to me recently, “Would you do seller finance?” I said, “No, but please tell the guy go to his local bank.” I’ve seen Wells Fargo shop pop up on our closing deals that they’ve funded for rural vacant land. I know they would do houses. Hello. They would do houses way more than they’ll do land.

Jill K DeWit:
And then there’s companies like Rural First, that really do lend on vacant land. That’s kind of their bread and butter. So there are solutions out there. And what I was going to tell too, back in the old days for me, let’s just say 20 years ago. Oh, it was about in early, what year are we? Yeah, a good 20 years ago. I refinanced our house and you know what I did? I sat and this is what these buyers can and should be encouraged to do. I, back then, got the newspaper. Remember, there was always the money section in the newspaper. I looked in the money section and towards the back of the money section was two or three pages of nothing but banks. And-

Steven Jack Butala:
This is kind of turning me on right now.

Jill K DeWit:
Oh. Banks, their terms, their interest rates. And I would seriously take a day off work and I would sit and call all the banks and you bet … and I started at eight in the morning and you better believe by five o’clock in the afternoon I was a pro at this, man. I knew everything about points and percentages and what this meant and what that meant, every little term.

Jill K DeWit:
And because I didn’t take the first one too. So it’s not hard. It’s still a thing. I think it’s probably even easier now, but this is what people like us just need to know. They need to know they can pick up the phone, even for land. This is really houses, houses, it’s normal. And go down the list, start calling, start with your local bank. Start, pick up Wells Fargo, whoever it is in your area and go down the list. And then what I want you to know too is don’t stop. Just because this one bank says a version of “Shucks, I wish you had more credit history.” Because that comes up, say don’t just-

Steven Jack Butala:
I wish you were a better bank.

Jill K DeWit:
Or just like say, “Okay, well who do you think? Who could you recommend?” “Oh, well you should call this guy over here.” They always have a solution, by the way, I promise you. We just went through this with our teenage son. So he can’t afford our insurance. Lord knows I’m not putting him on our insurance.

Steven Jack Butala:
Car insurance.

Jill K DeWit:
Our car insurance, our teenage son needs his own car insurance.

Steven Jack Butala:
Every teenage son does.

Jill K DeWit:
Exactly.

Steven Jack Butala:
Every single one.

Jill K DeWit:
Exactly. And I am not letting him touch ours. But I said call my girl-

Steven Jack Butala:
And I don’t need me and daughter. I mean son.

Jill K DeWit:
Yeah, our son. Exactly. So I said, “But call our person and see what they say.” And of course it came back and he about fell over and said, “I can’t afford this.” I said, “No, you can’t. You’re right. And don’t look at me.” I said, “Call them back, ask him who they can recommend.” And they did. They always have a solution.

Jill K DeWit:
All right. For 18 year old sons, like you, I said, “Look, 18 year old, you tell her you got good grades, all the positives.” And they said, “You need to call this one or this one.” And he did and he solved it. So sometimes you have to work at this stuff.

Jill K DeWit:
When buyers come to me and they throw their hands up, like I said, I always have a solution for them. If they really want this property, I’ll help them. “Hey, call these guys. I know people that have got financing here, check them out. If they don’t have a solution ask them who will and you guys, and it can get done.” It doesn’t have to be you. And by the way, if they go through this process and they do what I did and they spend all day, it’s either going to work out, which it usually does, or if it doesn’t, that’s the last person you want to be lending money to anyway, too.

Steven Jack Butala:
That’s right. That was my point too. When people have to do stuff, look when it doesn’t cost anything and you just have to sign your name a few times and-

Jill K DeWit:
It’s too easy.

Steven Jack Butala:
It’s too easy. They’re not going to continue to pay. That type of person is there … something’s going to change in their life quickly.

Jill K DeWit:
Yeah.

Steven Jack Butala:
One or two months later. And they’re just going to say, “Yeah, I don’t want to pay for this anymore.”

Jill K DeWit:
But if they really want it and they go through the steps and they do get qualified and they can come back to you and say, “I got it.”

Steven Jack Butala:
There’s a reason that banks require when you go to buy a primary residence or any type of commercial real estate, for sure. Commercial real estate, they want you to show your skin in the game. My answer to that has always been, “Well, I need a massive price reduction on the sale price, the purchase price then,” which we usually get. We’ve mastered how to do that.

Steven Jack Butala:
That’s what Land Academy is, buying undervalued real estate. But they still want money down. I don’t care what the loan to value is. Loan to value is a fictitious phrase in my [inaudible 00:11:21]. We’re getting off track here, but you have to have skin in the game. That’s just how the world is.

Steven Jack Butala:
The real estate community as a whole in this country got in a tremendous amount of trouble because of 1% and 3% down mortgages between 2007 and 2011. It was a disaster. And no one can disagree with that. It was an absolute nationwide disaster. Banks were crumbling because of it. So charge them or don’t do it at all. And we choose to not do it at all.

Jill K DeWit:
But show them a way. That’s my thing. I always have an answer.

Steven Jack Butala:
She’s very positive.

Jill K DeWit:
Show them a way.

Steven Jack Butala:
I am. That’s just who I am. Happy you could join us today. Five days a week you can find us here on some version on the Land Academy Show.

Steven Jack Butala:
Tomorrow, the episode on the Land Academy Show is … well, it’s Jack Thursday. We’re going to perform the Land Academy word association test.

Jill K DeWit:
I’m a little afraid.

Steven Jack Butala:
On Jill.

Jill K DeWit:
Yeah, there we go.

Steven Jack Butala:
You are not alone in your real estate ambition.

Jill K DeWit:
It sounds like you’re going to give me a word and I say my first word. Is that what we’re going to do?

Steven Jack Butala:
That’s part of it.

Jill K DeWit:
Oh, great.

Steven Jack Butala:
There’s two parts.

Jill K DeWit:
Okay. Ready.

Steven Jack Butala:
Ready?

Jill K DeWit:
Ready.

Steven Jack Butala:
I say something and you say yes or no.

Jill K DeWit:
Okay.

Steven Jack Butala:
Like I agree or disagree.

Jill K DeWit:
Okay.

Steven Jack Butala:
Like spinach.

Jill K DeWit:
No. Butter. Hell, yes.

Steven Jack Butala:
And then we’re going to do another part of it, which I’m not that excited about or as excited about is, if I say spinach, not yes or no. You just give me a word, the first word that comes into your head.

Jill K DeWit:
Gross.

Steven Jack Butala:
Right maybe it is going to be fun.

Jill K DeWit:
Slimy.

Steven Jack Butala:
Slimy?

Jill K DeWit:
It kind of gets like that.

Steven Jack Butala:
How’s spinach slimy?

Jill K DeWit:
It gets like that. I don’t, I used to love spinach. I think I overate spinach. It just not my thing now. It’s just like, I don’t know. Maybe my taste buds have changed. Whatever it is.

Jill K DeWit:
Thank you for tuning in. We hope you find our content valuable and we really appreciate your support. And by the way, I wasn’t going with this one. It’s a Clubhouse ad. I don’t know what I’m doing Clubhouse. How about this? We are doing Clubhouse. You can catch us there on the first and third Thursdays, starting in January. Check out Land Investing on Clubhouse and you’ll find this stuff there. We are Steve and Jill.

Steven Jack Butala:
We are Steve and Jill. Information.

Jill K DeWit:
And inspiration.

Steven Jack Butala:
To buy undervalued property.

____________________________________________________________________________________________________________________________

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PatLive introduction at no cost We will help you establish your first script and get PatLive set up on your behalf to answer your phones.
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