Friday, September 30, 2011

Putting The Pieces Together

Once you have all of the pieces for a deal, you have to put them together to be able see the whole picture. When you find a motivated seller, you negotiate the best possible deal that you can with them. There are so many different ways you can structure a deal that you can make almost any property into a good deal by negotiating the price and terms. Some of the key points in negotiating deals will be covered in future posts.

After you negotiate the deal, you need to control the property before you can do anything with it. Notice that I didn't say you have to own the property, you only need to have controlling interest in the property before you can make money on it. The most common and easiest way to do this is to get the property under contract by writing and signing a purchase agreement. Both the buyer and seller must sign (and date) the purchase agreement in order for it to be "under contract."

Now that you've got the property under contract, you need to get the other two pieces of the puzzle ready. The title company or attorney is self explanatory. But what about the buyer or tenant-buyer? If you are doing a wholesale deal or any normal sale, then this piece of the puzzle will be a straight out buyer. If you are going to lease-option the property, then this piece will be a tenant-buyer.

It's normally a good idea to put together a summary sheet of the key information your buyer will likely be interested in so you can effectively market the property to your potential buyers. Once you have someone who is interested, you sign the appropriate paperwork with them to attach this piece of the puzzle to the first one (the seller). If it's a buyer, you will be either using a purchase agreement or an assignment of purchase agreement. If it's a tenant-buyer, it'll be a lease and an option to purchase agreement.

Finally, all the pieces get put together on the day of closing when everything is finalized and the once pieces of a puzzle are now one complete picture, and a stack of money for your pocket.  =)

Now of course, this is a very simple type of deal with only a few pieces to put together. As the complexity of the deal increases so do the number of pieces you must figure out how to put together correctly. For instance, if you are doing a rehab deal then you'll need pieces that look like various contractors (painters, window installers, roofers, landscapers, flooring installers, electricians, plumbers, etc.), an appraiser, inspectors, and unless you are using your own cash, you'll also need the all important financing piece (hard money, private money, traditional financing, etc.).

But again, since we are just starting out - we're going to try to keep it simple by doing wholesale deals and possibly sandwich lease options.

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