How to sell buyers on Higher Payment's or Higher Interest Rates in the NEW MARKET.

This is a technique talked about on one of the recent Level 2 Mentoring Calls.

It is the way you present the payment to a buyer than can make your deal happen sometimes.

If a buyer is currently paying X amount and the new home payment is a higher Y amount, then you want to always include a statement that due to the home payment being tax deductable (due to interest), his payment may seem a few hundred higher etc, but actually starting the first day of closing your home, you will be bringing in more money from your job. This is because, the IRS allows you to take additional deductions against the payment of your home. So you may find that even though you payment rose, so did your income which offsets the higher payment. The IRS even has a online calculator to help you figure out how much this will be so you can instruct your employer to increase your deductions which results in an instant raise (or increase in take home pay). Then give them this web address: http://www.irs.gov/individuals/artic...=96196,00.html

Now, what you should do as RE investors is to research this more so you understand the concept. When we last had higher interest rates, this is what I used all the time to justify a higher monthly payment to my buyers.
The concepts you need to understand going in is that owning a home at any rate is better than renting. That's why when I started in the RE biz, rates were 16-18% for A credit buyers. And they still bought and made money as homeowners when they sold. The only real problem with int rates is when someone can't afford to make the payment... but understand that is not a "rate" problem, that is an income problem and sometimes a lack of understanding how much an ARM loan can go up at the rate change.

So let's look at the core of how this works.

The normal monthly payment is made up of almost ALL interest. The first 5 years it stays (normally) above 95%. That's almost all interest... that means that 90-95% of the monthly payment is TAX DEDUCTABLE. The next part of the picture is that people fall into a TAX BRACKET. Most people who can afford a home will fall into a 28% tax bracket, some will also fall into the 15% bracket, but we will assume things will increase for them once they buy a home anyway... wife goes to work etc. Now if the new homeowner doesn't adjust his monthly deductions. He could get back a massive tax refund at the end of the year and then be really mad he let the IRS use that money when he could have used it to help make his monthly house payment. So what he needs to do is ask a tax person what his tax bracket is and how many more deductions to claim to off set an addition tax deduction of (the amount of a year's worth of interest payments).

Now for your own thought process, here's a math formula to make it fast... Using a 28% bracket and a year of payments of $2,000 as per their new loan.

(2000x90%x12mths=21,600tax deduction x .28%bracket =6,048/12mths= 504.00 monthly Raise)

Now translate it into words that "sell" a higher rate to someone...
Say to your buyer...

So which choice is going to get you what you want?
Continue renting now at $1600 a month and no appreciation/equity growth on the best investment anyone can make... a home. And be forced to live in a small home? And keep your income as is now.

Or Buy a home at $2,000 a month, but get an instant raise of $500 a month from the IRS, offset by the increased home payment, you still earn an extra $100.00 a month. And you move into a bigger and nicer place to live and one that will pay you all your money back that you pay each month when you decide to move. Usually that will provide your next downpayment for your next home in 5 -10 years and pay for your kid's college on top of it all.

Feb 2007

Inverse Purchase® Newsletter

John Alexander Wealth Systems (www.paperbiz.com)

Home Prices will Continue to Drop this Season

(by John Alexander)

While the people in the RE biz would like everyone to think

‘A’ credit buyers are going to start showing up this month and

next month; don't count on it. Sometimes you will read under

the headlines from companies that are not "tied" to having a

growing RE market.

Here is one.

Consumers Still Jittery About Housing While many on Wall Street

suggest residential real estate has hit bottom and its time to

invest in anticipation of a housing recovery, a new

Experian/Gallup PCI poll suggests just the opposite: the

potential for a housing price collapse in many local markets. As

a result, the stronger than expected economic growth of the

fourth quarter is not likely to continue as 2007 unfolds.

Don't get tied into a house at top prices in a flip, the next price drop

should occur within the next 2 months. If sellers wait... they

will wish they hadn't. Educate them as you help save their

equity in the buy/sell process.

The NEXT YEAR will be the 2nd greatest year to be in the

business of flipping homes. As prices lower, you are going

to be able to negotiate higher profits on every deal.

********************************************

Flipping Legal or Illegal

(by John Alexander)

From: Fannie Mae Newsletter: Dec 2005... Legal Counsel for FNMA

states:

‘Property flipping generally refers to purchasing

existing properties with the intention of immediately reselling

the properties for a profit. It is not illegal per se. When,

however, an immediate resale is accompanied by acts of fraud or

misrepresentation, including but not limited to appraisals with

inflated property values and other misleading or fraudulent

documentation, it can result in fraud’.

You would think this would end any misconceptions people have

about the legality of property flipping... but it won't, there

will always be the newbie into the industry painting broad

strokes with narrow brushes and claiming everything is "illegal".

The illegal aspects of Flipping have always been... and will

always be... LOAN FRAUD.

It is Loan Fraud that causes the "illegal" parts to occur... inflating

the appraisal, false income/loan application deception, fake insurance,

and other closing documents designed to hide facts from lenders.

Buying and flipping a property for a profit has never been illegal.

**************************************

Dual Contracts Legal or Illegal

(by John Alexander)

Lately, I've been hearing more and more about agents

who are saying that they are afraid to be involved in a transaction

that is dealing with "DUAL CONTRACTS". They believe dual

contracts on a home are illegal.

Once again, just like the word "FLIP" many ignorant people who don’t

bother to look up legal definitions end up with egg on their faces.

These people believe that All flips are illegal because they "heard" it was illegal.

They read something, somewhere about a scam and the word flip in the same sentence.

The same is occurring with the words Dual Contracts.

Dual Contracts has a definition in most

Cases and its meaning is very exact. Dual Contracts are a set of

contracts that are created to defraud a lender out of a loan. It

is done with the intention of inflating a property sales price so that a

buyer gets a "profit" going into the loan situation. Here is a

definition from one of the State's Code.

It shall be unlawful for any person to knowingly make, issue,

deliver or receive dual contracts for the purchase or sale of

real property. “Dual contracts”, either written or oral, are two

contracts concerning the same parcel of real property, one of

which states the true and actual purchase price and one of which

states a purchase price in excess of the true and actual

purchase price and is used as an inducement for mortgage

investors to make a loan commitment on such real property in

reliance upon the stated inflated value.

http://www.scstatehouse.net/code/t29c001.doc SC Code.

This has nothing to do with having an investor buying and

reselling to another party at a profit to the investor... (not

the buyer). The "true and actual" price is the price it is sold

at to each party, thus the definition of dual contracts cannot

be applied to an inverse purchase transaction or any assignment

or other type of flip.

The reason for the prevention of this type of fraud

is to insure that the buyer is not benefiting from a loan that

was granted them in which they were able to get some kind of

"Cash Back" at closing. It is illegal for a buyer to get cash

back at closing on many types of loans, thus the rule.

However, this type of definition can't be placed on investors

since it would rule out any investors from ever buying property

at a lower price and reselling at a higher price.

There is always a reason why laws are in place, they are there

to protect someone... in this case they are there to protect the

lender from shady buyers/sellers/agents/appraisers who wish to

pull money out of the deal for direct credit-buyer benefit.

So, the bottom line is that you are not in a Dual Contract

situation as defined by the code when read in it's entirety.

Defrauding Lenders is always wrong, even when just one contract

is used, but that doesn't mean use of a single contract on homes

is illegal, but a common use of dual contracts is to defraud

lenders, thus the code with some states have spelled this out.

Here is a good rule to follow when flipping homes... it is one I

have taught for over 10 years. If you lie, cheat, steal, materially

misrepresent, or hide anything from the buyer, seller, or lender...

you are doing something illegal… AKA "illegal flip" and you will get

caught at some point; however if you are not doing any of those

things in the flip, then flipping is perfectly legal.

We live in a great country. The law has a hard time convicting

people who haven't wronged anyone. Keep that in mind. And don't

be afraid to defend your actions when some fanatical idiot.. new

in the business, with a new "term", shows up delivering the new

Savior's Message to the infidels. He's right and everyone else

is wrong.

Listening to this type of public rhetoric drives the weak out of

this business. I have preached that message since I started

teaching nationally in 1994. The same idiots back then told me I

couldn't buy notes the way I bought them, couldn't do this or

that.. .same old story, I’m still here today; but their gone.

I'll but away my soap box until the next new convert shows up

with another new and improved message of doom and gloom for us

seasoned investors.

As always, I'm not a lawyer and you need to verify my opinion

with your attorney's opinion. If she's smart, she will mirror my

opinion, if not look for an attorney that does. Ya' gotta love

this country.

************************************************

Marketing with Signs (what our members are doing this month)

We Buy Houses Any Area, Any Condition Phone Number

SELL ME YOUR HOUSE, xxxxxxxxxxxxxxxPhone Number (Find out what the xxxxxx is as a Level 2 Member at www.paperbiz.com)

I know that sounds lame and uncreative, lol, but it works. They

dont have time to read much, stick to the point and tell them

what you do. "I Buy Houses".

*******************

This one works

very well very me.

NEED TO SELL YOUR HOUSE? CASH OFFER xxxxxxxxxxxxx! 1-800- (Find out what the xxxxxx is as a Level 2 Member at www.paperbiz.com)

One of my Realtor partners put out 18 of these this past weekend

and has had 20+ calls so far.

*******************

If every other house in the area has a For Sale sign, just place a few signs

saying:

Say GOODBYE to your xxxxxxxxx and HELLO to my xxxxxxxxxx!!! 1-800-123-4567 (Find out what the xxxxxx is as a Level 2 Member at www.paperbiz.com)

Joe

You'll get plenty calls.

******************

This works well.

SELL YOUR HOUSE FAST CASH xxxxxxxxxxxxxxxxxxxxxxx! 1-800- (Find out what the xxxxxx is as a Level 2 Member at www.paperbiz.com)

Remember you need to get lots of signs up. If you really want to

be serious about the real estate business, you need to have 100

signs up at a time. Yes, you'll lose lots of signs, but they are

much cheaper than using classified ads. You have to figure that

it's just a cost of doing business. You'll lose less signs if

you put signs up on Friday afternoon and take them down on

Sunday night.

If you put the signs up on Friday afternoon, and they disappear

only to have your competitors signs up in their place, then you

may have a war on your hands. I've heard that others then just

take some glue and glue posterboard with their message over

their competitors signs. I hear that their competitors, as a

result, will get the message fairly quickly.

*************************

Finally, Some things to keep in mind

as you negotiate with sellers in this new Buyer's Market. By

Frank of Ohio (our discussion board moderator)

Some of this has to do with your local market. In a 'buyer's market' it is 'much

easier' to get houses and to get a 'better deal' on them. I

don't know about your market.

Also I don't like to put percentages in the ads I run and if I do, I put 'buying at up to

80% of retail'. I have found that the initial phone call made by

a seller is very important to me. I totally control the

conversation and I ask 'tons of questions'. I start to 'beat

them down' on price on the phone and I don't commit to a price I

will pay until I go in person and see the house and talk with

the potential seller.

I 'educate them' somewhat on the phone on

'how bad things are', 'how I'm an investor and I have to get a

REALLY, REALLY, REALLY great deal' to even consider their house

as I am 'constantly' getting many, many calls' of people wanting

me to buy their house, I ask 'what is wrong with your house?',

'what all needs fixed?', I tell them that it is a 'buyer's

market' right now, if they have 'no equity' or the 'Sheriff's

Sale is next week', I pass, I find out WHY they are wanting/have

to sell...this is 'very important' how soon, I find out if it

was listed with realtors and how many of them for how long and

the different prices it was listed at, I ask them what was the

'feedback' from the people that the realtors showed the house

to,

I ask them if they got any 'written offers' from the people

the realtors brought thru the house, I find out how many

payments behind they are, if any, and why, I find out if there

is a Sheriff's Sale date scheduled, I find out what they are

'willing' to leave to go with the house...appliances, tvs,

washer/dryer, mowers, riders, boats, cars, trucks, guns,

motorcycles, etc.

They have to 'sell me' as to why I should even

'waste my time' to come and look at their house. ALWAYS REMEMBER

YOU NEED A REASON TO GET INVOLVED WITH THEIR HOUSE!!! You didn't

get them into 'their mess' and you are in business to make a

'large profit'. They have to give a 'whole lot of incentive' to

get me to 'pick their house'. I have had many people at this

point offer their house to me at 40, 50, 60, 70% of retail

BEFORE I even 'start on them hard'.

Also the sellers HAVE TO BE MOTIVATED! Someone that has just

started trying to sell their house is 'normally' not that

motivated. It takes 'time' for them to get motivated. That is

why you have to 'keep in touch' as Flip Master indicated in his

post so they will have your info when they DO become motivated.

Also Flip Master is right, if you 'ask' for a 'little

percentage' you will get a 'little percentage'

©John Alexander Page 1 2/10/2007 HOME PAGE (www.paperbiz.com)