Quick Cash Profits with Split Funding

This method is well suited to very short term quick-turn deals. As seller financing goes, it is a very simple technique. The investor offers a small amount of the cash to close the deal, with the remaining amount due a few months later, with no interest and only one lump sum payment. You can buy a lot of houses with this one technique.

The investor repairs the house and sells it retail, which means the new buyer obtains a new loan, either FHA, VA, or conventional. The investor then pays off the previously negotiated seller financing. All you need to do is convince the seller to take a little money now and the rest in six months or so.

  Example…

$50,000

Asking Price

 

$ 5,000

Repairs

 

$75,000

Property Value After Repairs

 

The Deal…

$45,000

Purchase Price

 

$ 5,000

Down Payment

 

$40,000

No Interest, No Payments, Due in Six Months

Most people will not try to buy a house like this because they think they need a lot of cash to do it. But it really took only $5,000 to do the deal, and you save hundreds in interest.

If you can’t sell it within six months, just renegotiate the payment. However, you don’t need to wait six months since the note can be renegotiated at any time in the future, even if it’s only five days after the closing. The only agreement is between the buyer and the seller. Whenever you have two private people involved, there is always room to negotiate.

Working with an agent

Seller financing is what makes this deal possible, but you can also work through a real estate agent. You might have to put a little more down so the agent can receive his/her commission. If you do a lot of deals with the same agent, your agent may even agree to defer receiving the commission until you resell the property.

With this type of offer, you can use the agent’s MLS book to look for deals and make offers. Look for properties that are in need of repair. I used a real estate agent to make this kind of offer on the first 22 houses I bought when I was just starting out.

The key advantage to this approach is that it permits you to make more of the all cash offers that sellers always want. Even if they don’t get it all at closing, they get it shortly thereafter.

Example 1

I was called about a house with an asking price of $30,000. After repairs of $3,000, it appeared the house would be worth about $48,000. I handled this one with split funding. I gave some cash at closing and some cash later to satisfy the seller’s needs. That gave me some time to sell the house.

My Offer…

$20,000

Purchase Price

 

$ 2,000

Down Payment

 

$18,000

No Interest, No Payments, Due in Six Months

I also made a second offer of $15,000 all cash at closing at the same time because I knew I could net that amount if I had to borrow it from a private lender. This is how the offer was made:

“Mr. Seller, I’ll give you $20,000 with $2,000 down and $18,000 within six months, or I’ll give you $15,000 cash at the closing table. Which do you prefer?”

In this case, he took the higher split funded offer. It is usually better to make both offers at the same time and let the seller decide which one works best. In our two offers, either one will work for us.

Example 2

I was once called about a property that was owned free and clear. The purchase price was $20,000. I gave $4,000 down and $16,000 due in 120 days (no interest, no payments).

After $3,000 in repairs, the property would appraise for $42,000. I didn’t want to do the work, so I flipped the house “wholesale” for $27,000. I was able to sell the house before I even bought it.

The buyer put $6,000 down. I took $4,000 of that and gave it to the original seller. So $2,000 went into my pocket at closing. The new buyer still owed me $21,000, and I still owed the seller $16,000. When the new buyer paid me, I paid the original seller and made another $5,000 net on the property.

Split funding the payment by giving some cash at closing and the rest later is one of the secrets to quick cash profits in real estate. Many sellers will wait 6 to 12 months for their money if you ask. You’ll never know until you try…

 

A content contributor to the original CREOnline.com.