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Get In the Mind of a Potential Buyer
Let’s assume that you’ve already found the property that you want, made the purchase and marketed it to sell. It’s time to go over how to work with potential buyers in order to find the best match for your property.
Obviously, many people who contact you are doing so because of the financial incentives of having a low down payment and a small monthly payment. This means that you are going to have to wade through a lot of credit issues and other problems that might be associated with this particular demographic.
First of all, when you provide a contact number, it makes the most sense to have a number that rolls directly into voicemail or an answering service. An answering service, in particular, can be guided to gather all the information that will help you make any necessary decisions. Regardless, channel these calls away from your direct line. This way, you’re not tied up on the phone all the time, but can carefully go through the messages that are left to determine who might be suitable candidates for your property.
However, if you do speak with the client directly, you want to get their contact information immediately. Then you’re going to want to ask them what their credit score is. Chances are, you’re not going to get the full truth. Make sure they know that before you move much further, you’re going to have to pull their credit score. They need to know that a bad report won’t necessarily disqualify them but that you need to know if there are any problems that you should know about. Tell them if you know about any issues up front, you can probably still work with them.
When you have a handful of potential buyers, it’s time to start pulling their credit reports. If you’re working through a lender, they can pull the credit report, but if you anticipate having to pull a lot of reports, you might want to consider getting yourself set up for this task. Another option is to give your potential buyers a link to a credit report website and have them pull their own report to forward to you. In my guide, I have provided several websites where you can either do this yourself or provide to your buyers.
If they come back with a 520 score, you want to move on to the next potential buyer. This one is too much of a risk to work with. Ideally, I like to see a credit score of 640 in order to qualify your potential buyer. But if a buyer has really poor credit, you might want to consider raising the down payment from $1,000 to minimize your risk. The more money you can get as a down payment, the higher your yield will be on your note.
In my guide, I have provided you with a form for the potential buyer to fill out. This form talks a lot about how to find more cash or a co-signer. Also on the form is a section for additional credit references. It’s always good to have as much financial information gathered on this one form in order to make an informed decision on who to sell your property to.
You can assume that if someone has already contacted you, they’ve already seen the property and maybe even looked in the windows to see what the interior looks like. There are several different ways to go about showing your property. You can pay a realtor $500 to show the property to potential buyers. The payment would be contingent on someone actually buying the property, which you can pay to the realtor once you’ve completed the actual sale.
Another option is to collect the down payment, which will be refundable if they don’t like the property. When this is collected, you can give them the combination to the lock box. Before they even enter the house, make sure you have them on the phone while they’re looking around and you can “show” them the property without ever having to leave your own office. It’s critical to have them open the lock box, take out the key, open the door and put the key back in the lock box before they even enter the home. This way, the key isn’t lost or accidentally pocketed. You may have to show the house several times before finding a buyer and if the key gets lost, you’ll have to have the lock replaced before showing it again.
Once they’re inside, it’s pretty easy to talk to them as they’re going through the house. Don’t forget, these are low end properties, so the expectation level of this sort of house is going to be a lot lower than the traditional home buyer. With this type of property, the incentive is not the qualities of the house, but the easy financing that is motivating the buyer.
If they’ve decided to buy and you decide to sell to them, overnight them a one-page offer to purchase. This isn’t all the paperwork that will be exchanged; it’s simply the next step in their level of commitment to buy.
When that is returned, you need to put together the note, which includes the amortization schedule, what will go toward principal and interest each month, to the final month. Work with a title company to complete the transaction to make sure you are in compliance with your state’s laws. Record everything with your county recorder’s office and let them know that the property is deeded to them, along with the closing statement. They now own the house and you hold the $29,000 loan.
Say you’ve received a $1,000 down payment and you’re holding a note for the remaining $29,000 that they will be paying to you. If you only made an initial $5,000 investment in this property, the down payment will reduce that to $4,000. If you charge this buyer $399.48 for ten years, you will get back $4,793.76 that first year. This is already more than you initially invested in the property. The rest is pure profit!