I am well known for saying: “I don’t buy properties, I buy problems – I acquire the properties since they are attached to the problems. I solve the problem and make money”. Problems may be with the owner(s) personally, the property itself, or the title to the property. Once you realize that the best deals both financially and easiest to put together are these distressed properties you will be hooked. All other deals will look like too much work.

Next is to negotiate with a win-win-win attitude. The biggest part of putting an excellent and profitable transaction together is ensuring that everyone wins. This means that the seller is happy to “give” you his property, the real estate agent (if there is one) walks away with a commission, and you the buyer get equity, cash, and/or cash flow. With this win-win attitude you will succeed much more than the person who is only looking out for himself.

Thinking creatively in these situations is essential. This is the time to get your right brain working. Most people have trouble with creative thinking. This is when you have to “think out of the box” or “think weird”.

For example: Realize that No Money Down might not mean No Money Down but None of YOUR Money Down. In other words, put someone else’s money down for your real estate acquisition. Use “OPM” (Other People’s Money). Think of it this way: If you are buying a house using conventional methods, you will get a loan from a bank. The bank’s money is made up of a number of people’s deposits. You are actually using other peoples money that the bank is holding. Now just think a little deeper (right side of brain thinking): eliminate the middle man (the bank), and borrow directly from the depositors. That is creative financing. Think of the alternative again. Borrow money from the bank so that you can hand over cash at the closing table. The seller then goes to the bank and deposits it back in. If you eliminate the middleman bank, you and the seller can share in the money saved. The money saved is the difference between what the bank pays it’s depositors and what it charges to the borrowers. Now add in the points and closing costs that are saved and split them also. This is creative financing!

Now let’s move on to more negotiation so that both buyer and seller can both win using a balance of price vs. terms. Learn how to balance price and terms when negotiating a purchase or a sale. If you are buying and the seller is firm on his PRICE then negotiation must be under the Buyer’s TERMS. If the seller does not want to entertain creative terms, then he must move on the price. Take a look at the following examples:

1. The seller is stuck on a $200,000 sale price.

• Lender loans $170,000 for new first mortgage.
• Seller holds $20,000 in a second mortgage (terms)
• You put down $10,000 cash

2. Three siblings have inherited a free and clear property and they do not get along. They are demanding $50,000 cash each, bringing the sale price to $150,000 FIRM! With repairs, the house will be worth $200,000.

Repairs needed:
Roof $15,000
Windows $5,000
Paint $5,000
TOTAL $25,000

Estate Appraisal is $135,000

What questions should I ask?

I ask the brother who is handling the transaction what he and his siblings are going to use the money for.

• He says that he is going to have an $80,000 addition put on his own personal house and has $30,000 in the bank but needs $50,000 from the sale to avoid having any loans associated with the addition.
• His brother wants to buy a new Porsche for $45,000. He is just going to blow the money all at once!
• Their Sister has some credit problems and owes about $41,000 in credit cards She is planning to use the money to get out of debt.

How can we make it work?

• On his behalf, use your negotiation skills with his contractor who will be building the addition. Possibly negotiate with the supply house for materials. Possible result: $13,000 saved.
• For his brother, use your negotiation skills with the auto dealer to get a lower price, and possibly finance the new Porsche with your good credit for better payments. Possible result: $7,000 saved.
• For his sister, negotiate with the credit card companies or work with a credit counseling company. Possible result: $22,000 saved.
• The total of these is a possible result of savings up to $42k cash that you deduct from each respectively for your efforts.

They can hold three separate mortgages for their respective differences from the amount you saved them and the balance that you now owe each of them. Assure them that you will pay them off very shortly, say within six months. You then fix up the property then apply to a traditional lender to refinance and pay off the mortgage balances totaling $108,000 based on the after repair value of the house being $200k.

That’s a good deal! Here’s a better deal: The sellers jointly hold one single mortgage for a longer period of five or more years. The entire amount of the mortgage is $108,000 which is the total amount owed to them jointly since you reduced the balances through your negotiation skills. Then sometime in the future, you tell them that you are coming into some money within the next month. If they can agree to take $80,000 for the balance, you tell them that you will have all their cash within that month. If not, they have to wait out the terms of the mortgage, which you negotiated to be the longest time possible. This saves you another $28,000. I have used this method many times. Total savings on this deal $70,000.00! That’s a 40% savings!

To be creative you may have to seek out a partner who has this right brain creativity, or with some off-the-wall and wacky thinking, you can develop some skills to begin making your own creative deals.

Either case you should use as much creativity when your acquiring properties. Most of your money will be made when you buy, not when you sell.

* * * * * * *

In each future article I’ll take you closer to more wealth through empowering and educational articles.

Until then, see if you can discover ways to immediately implement what you learned from today's message.

© Copyright 2008 Alan D. Kosinski

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