subject: Some Basics Information For Sellers To Make Profit With Hard Money Loans Texas [print this page] Welcome to Real Estate InvestingWelcome to Real Estate Investing. Today, we are brought to you by Hard Money Loans Texas. Today I want to talk to you little bit about why a bank or a seller would be willing to sell a property for less money than they could potentially get in the future. I think it is really important that sellers have all different types of motives. Some of the motives may be financial. Some of those motives may be just to get rid of a hassle and some of those motives may be to stop a problem with all kinds of siblings like a state sale example.
It is really important to realize that the seller has to have a benefit or they are not going to be willing to sell you the property. It is important to recognize what that benefit is and to continue to tell the seller that that benefit is what they will get if they sell the property to you. Regardless, if it is a bank or financial institution or whatever the case is. Most of our clients at Hard Money Loans Texas are looking to make a 10% margin and when they are very upfront about that 10% margin that they are trying to make, they simply tell that to the seller. What we are in the business of doing is buying, renovating and reselling properties to do that we are able to offer several benefits to the seller.
One of the benefits sellers drive is a risk transfer and what that basically means is that if the seller sells a property today and lets say it is a bank or financial institution and that bank takes a 10% decrease on what they could sell the property for and sells that property to you that is in bad condition. They are able to get their cash right then, so there is a time value of money meaning that the money today is worth more than money in future because you never know what the future will bring. But secondly, there is a risk transfer meaning that the risk is now transferred from the bank to you and you are accepting that risk and by accepting that risk you are willing to hopefully get a profit for that.
So that banks are basically saying; hey we will unload this asset, we will take a 10% discount and we will transfer the risk and you are going to pick up that risk. When they say a 10% discount, let say the property is in bad condition so that property is already discounted versus what it would be worth once you fix it up. Let say they can sell that property, if the banks fix the property up themselves and resell that property they are going to give more money than what they are selling the property to you for?
So lets say that property is worth a $100,000 and suppose there is $20,000 worth of fix up cost in that and you are going to have real estate fees whatever the case is so it takes you down to about 70%. And if that property is on the market for $80,000 and $70,000 somewhere in there and the banks are willing to take 10% less i.e. 7000-10000 dollars less on that. So it is really important to realize that the benefit the bank is going to receive is a transfer of risk meaning that they no longer have that asset and there is no longer a liability to them. They are getting the money today and they do not have to wait on the future and they do not have to do any of the work. So that is the major benefit and that is why a bank would be excited to sell the property to you. So that, they can transfer that risk so they do not have to have any of the liability moving forward and you can pick that up.
And I do not think there is anything wrong when you tell people we are looking to make it 10% profit margin when you have our cost, when you have what it takes to make this thing happen, we are looking to make it 10% profit margin. So knowing what a banker or financial institution is going to get out of the negotiation and relaying that to them and saying, hey there are two things you are going to be getting; one you are transferring risk to us. You no longer have to hold that risk property. You are now transferring to us. We may be able to sell and hopefully we can sell that property but we may have to reduce the price and we may not make any money and that is risk we are taking on and that is why you are taking a discount to get your cash today.
That is Real Estate Investing Today brought to you by Hard Money Loans Texas. We specialize in bad credit hard money loans. I appreciate your joining me.
Happy Investing
by: Do Hard Money
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