|
Tim and Roy Stitely, an enthusiastic father-and-son team from the Washington, D.C. area, have their buying formula down pat: They don't close a deal unless they walk away with cash--a lot of cash--in their pocket. The Stitelys currently buy property from an investor who renovates row homes and quickly flips them for a modest profit. In addition to the amount the investor pockets at the end of closing, the selling price includes a $5,000 rebate for buyers as well as $5,000 for closing costs. For example, in a recent transaction, the Stitelys borrowed $39,000 from the bank for a property appraised at $50,700. The contract specified that the investor receive $29,000 and the Stitelys receive $5,000 cash and $5,000 toward closing costs. That meant a quick profit for the seller, who picks up the fixeruppers for between $5,000 and $15,000. For the Stitelys it meant cash back at closing--and it's a lot easier to do than you might think. "It gets the deal done for the seller and we actually come out with $5,000," says Tim Stitely. Negotiate with sellersThere are a number of ways buyers can leave the closing table with more money than they walked in with. The two critical ingredients are these: finding the right sellers and not being afraid to negotiate for cash back. Motivated sellers are most receptive to cash-back requests. They need to sell their property quickly, such as the buy-and-flip investor the Stitelys work with. Perhaps a divorce is in the offing and the property is vacant. Maybe the house is owned by the bank or has such poor curb appeal it's been on the market awhile. If you think the sellers might entertain a cash-back offer in order to move their property, then ask. All they can do is say no. Investor David Miller used this technique when selling his house. The buyers needed $1,000 to install a pet fence before moving in. Miller added that amount to his selling price (which was less than the house appraised for), and the buyers pocketed the $1,000 difference between the bank mortgage and the amount they paid Miller. A variation on this technique is to rebate cash to the buyer for rehab work, especially effective in bank-owned properties where the bank may be more interested in getting close to its asking price than in getting cash. For example, you could offer to buy a $100,000 property that needs $10,000 work if the seller rebates you the $10,000 at closing. Often, the work won't cost as much as anticipated and you can keep the difference. One investor included in her offer a provision for $1,000 cash back from the seller to cover unspecified "one-time non-recurring" costs. The seller was happy to agree to the provision in order to clinch the deal. Although the buyer had anticipated fixing the furnace, no repairs were necessary and she was able to keep the entire amount. Very motivated sellers--those just a step away from foreclosure, for example--may flat-out pay you to buy their property, especially if they have little equity in it. Offer to buy it for the amount of the mortgage and pay all closing costs, if the seller gives you cash at closing. It could be worth it to them to get out from under a problem. Remember--the key to making a successful play for cash at closing is to ask. Motivated sellers could mean money in your pocket. Penciling out the numbersRebating cash to buyers is especially effective in bank-owned properties that may need repair work. Estimates for such work are often high. Here is how one deal might pencil out. Selling price: $104,000 Estimate for repairs: $12,000 The transaction: Mortgage amount: $116,000 Actual cost of repairs: $8,000 You pocket: $4,000
|
