When investing in real estate the ideal thing would be to have the process go as smoothly and easily as possible. One thing new investors may not know about that can allow them to profit in investing even if they have to pay full price is looking for property that may have an existing mortgage. The mortgage should be large, and privately held. Generally these properties were sold to the current owner quite recently. The seller also would have quite a large amount of back financing.

You’re probably already asking, “How am I going to know if the property has been sold recently and where am I going to find them?” These types of property are not hard to find and are usually right in front of your nose if you know where to look.

Search the MLS
It isn’t just used to find regular property. The MLS (Multiple Listing Service) truly is an asset to buyers and sellers worldwide. You need to access the Board of Realtors MLS. Once you have accessed their computer you will find an option to search properties. When you search just look for those properties for sale with private loans, and depending on your state, you can also find out who the loan was made out to. If it is a private loan (which you are looking for) it won’t tell you anything except the words private.

You can also do a search for a specific type of loan. If you want you can look up a Contract for Deed. All you have to do is put in “CT”. That is the abbreviation for the kind of contracts you are looking for. Nearly every time you will find that these homes have private loans. You will be on the right track to finding the right property for you.

Downloading Information
You will find that some of the information you seek from the Board of Realtors will be not accessible to you. You also could have a hard time navigating to find the information you want. All you have to do is download the entire database to your computer. Then you can easily search through everything without having to worry about not being able to access them.

Friends in High Places
You are probably wondering how you can access the MLS if you are not a real estate agent. You may want to befriend one, or hire one to help you. The second option is usually better than the first. The agent can access the information for you, guide you through the search and have a list of properties for you to scan through in less time than it would take you to find someone with access and convince them to let you use their agent number to scan the MLS. Not only do I not recommend agents do this, it’s also poor real estate etiquette and could get them in trouble.
Lets assume that the buyer has paid 20% down on the property and after a 15% yield along with a decent monthly payment the property may be worth only a little more than half what the property originally sold for (this is just an example to give you an idea of how you can benefit from purchasing this type of property).

Contacting the Seller
Once you have found a property that interests you, contact the seller. A real estate agent can make the initial contact for you, and set up a time to meet. You will want to make sure that you have some sort of “subject to” clause in place. This is a safety net for you, and if your agent doesn’t mention having one bring it up to them. The subject to clause allows you to specify that you want to re-negotiate the current loan and if it cannot be negotiated to your satisfaction you can back out of the deal. You can also set a time limit on how long the negotiation will last, and if it is not done to your satisfaction within that time the entire negotiation is null and void.

Time Limits have their Benefits
If you set a time limit on your negotiation you have that much time to negotiate with the loan holder. You do not have to have a lot of time. A usual negotiation period is 5-10 days. The loan holder will have to decide if he or she is willing to give you a discount. At most expect up to 30%-40%. It is rare to find someone on your first try that is willing to give you any more of a discount. If he won’t you can remind him/her that many others will be willing to do so (they are out there in large numbers. You just have to find them!). This may nudge him/her toward some sort of compromise. If he/she simply won’t budge the clause will allow you to move on and not waste your time on something that isn’t going to benefit you.
Negotiate the Collateral

You also have the option of substituting the collateral. If the holder isn’t going to give you very much of a discount on the actual loan you have quite a bit of incentive you can use to ensure that the deal for the holder is nearly as good as your own deal.

Some things you can use to sway him to your side are:

1. Higher Interest Rate or Payments
2. Better collateral (LTV ratio)
3. Cash
4. Principal Reduction
5. Other Incentives

Finding the right incentive allows you to substitute notes (as collateral).

Basically you’d be paying the down payment (the same as the original down payment) + what the home is worth now (remember it is usually going to be a little over half the original buying price).

So say you had a home that was bought for $140,000 with $30,000 down payment. The amount of the home is worth $72,000 (thanks to depreciation, down payment rate, and interest). That would be $102,000. You would save close to $40,000 dollars on the deal.

This is possible. It can happen. In fact, it does happen every single day. The seller doesn’t face any type of discount (in what they receive) so he/she is happy. The equity he/she receives will be given in cash.
Sellers with Large Equity

This is one thing you may have to deal with if you are looking for these types of properties. If the seller has a large portion of equity that they are already carrying things are going to be difficult. You face two main roadblocks. If you can get past them though, you can turn a nice profit.

1. Finding a way to convince the seller to carry a note
2. Convincing the seller that there is a different type of collateral to use (not the property itself)

Benefits of finding these types of Property
Properties with existing loans have their advantages. Someone is already carrying the note. The loan holder probably has no emotional ties to the property. The seller probably will. If you do not have to deal with the seller you can usually convince the loan holder to substitute collateral.

Another benefit is that there aren’t very many investors that are privy to the knowledge I have just shared with you (yet!). With less competition you can hope for cash prices, higher flows of income into your pocket, and more chance for substitutions.
Properties with private financing are usually easier to find than sellers that carry paper.

If you have any questions about investing please let me know. I am more than willing to help you out any way I can.