How many times have you found property that is perfect for rehab, but the owner is unrealistic about value of the property. This is particularly true if several investors have contacted the seller making offers. The sellers often believe that since so many are making offers, their property must be worth more than these bandits are offering. Here is a technique that you can use that will separate you from the crowd, and give you a nothing down deal.

Ole Walt and Wendy Wannasell have a house that is in need of repair. They really want to get rid of it, but are unrealistic as to the worth. Realistically, the house has an ARV of $100,000. Every month, another investor comes along and offers $40 thousand to $50 thousand for the house. They think that since so many have made offers, they can hold out for $60,000. You have analyzed the property and know that it is going to take about $20 thousand to get the property to the market price of $100,000. The neighborhood is moving fast, and you are sure you can sell the house for at least $100,000 in a short amount of time. You also want to keep your rehab crew busy, so they will not start looking elsewhere for work. What can you offer?

Explain to darling Walt and Wendy that you are an investor who rehabs properties, professionally, and would be interested in purchasing their house under these conditions.

If they will donate the house to the deal, you will donate your expertise and give them not only their $60,000 asking price, but also an extra 5% bonus of the sales price that is over $60,000. After the sale of the property here is what their position would look like:

Sales Price: $100,000
Seller Proceeds: -$60,000
Profit: $40,000
5% bonus: +$2,000
Total to Sellers: $62,000
This is their price and more!!!!

Here is what you end looks like.

Sales Price: $100,000
Sellers Proceeds: -$62,000
Cost of Rehab: -$20,000
Your Profit: $18,000

Here is a profit of $18,000 that was not there before. I know that for some of you rehabbers this might seem like a small amount, but realize that under this scenario, you had only $20,000 at risk to make $18,000. If you had bought the property at $50,000 and put $20,000 into it, you would have had $70,000 at risk to make $30,000. Moreover, you have kept your crew working, while still making a profit. Remember that you do not have to pay a hard money lender interest and points on at least $50,000. This is money saved and will add to your profits. You got in for nothing down.

You definitely want an attorney and CPA involved on this one because you are getting into some legal issues as to partnerships, joint ventures, trusts and partial interest in the property. I am not going to get into the best entity to place this deal. If you did gain only partial interest in the property and the sellers also had an interest, WOULD THIS NOT SOLVE THE SEASONING PROBLEM?

In this example, I was very lenient to the sellers. Just remember the concept. With proper negotiations, I am sure you will come out better.

This and other topics will be taught November 13th and 14th at CREATING WEALTH WITHOUT BANKS Workshop.

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To continue with last month's issue, another jewel of economic thought that is being touted as a reason for another "stimulus" bill is the concept of "recession economics". DOES THIS MEAN we can ignore the law of supply and the law of demand when the economy is in deep doo doo as it is now? Never mind the fact that ignoring these laws is what got us in this shape in the first place. The mistaken contention is when the economy is in a recession, the printing of money to finance government spending is not harmful, nor will it lead to inflation because factories and workers are idle, and government spending will put idle resources to work. Although this argument has long been defunct, it still does not prevent the "snake oil" economists and pundits from digging it up from the grave to justify the spending of your money.

The example used is Anytown, USA that was once supported by a factory that manufactured widgets. This town is now in a deep depression because the widget factory shut down. To overcome this town's plight of unemployment, the government offers to print money and spend this phantom currency to repair all roads and bridges around the town. Then, magically, the town's unemployment problems will be solved, because of all these newly created jobs.

There are major flaws with this argument. The problems lie with the false assumptions that the idle labor will be easily retrained to operate back hoes, bull dozers, and cement mixers, and at the same time, the idle factory machinery will quickly, and without cost, be retooled manufacture infrastructure repair products.

This argument is treating both labor and factory resources like lumps of clay that can be reshaped into whatever form that is needed to produce the goods selected and paid for by the government. The problem is that resources are not clay. Both people and machines are more productive at some things and non productive at others. In other words, the factory that that produced widgets cannot produce bridge repair products. Likewise the labor skills needed to run an assembly line to manufacture widgets are not the same skills to manufacture bridge repair products, and certainly not the skills necessary to operate the machinery necessary to repair bridges and roads.

Let's use some common sense, if you were going to rebuild a bridge, would you employ the services of a factory and labor that previously produced widgets, or would you employ an experienced company with a good track record.

Reality tells us when the bids come in, the experienced company will be hired, along with employees who already possess the skills to pour concrete and operate the machines to rebuild bridges. The end result will be the widget factory, along with its unemployed workers will still be idle, with ONE DIFFERENCE. The money supply will be increased to pay for the "infra structure" improvements. Printing money is a form of consumption without production.

But some will argue "what if" the town's idle factory could be converted, and the town's idle factory workers could be retrained? Although unlikely, let us say that the idle factory and workers were quickly converted and hired. Would this not displace other factories and workers who were already in the business of repairing infrastructure? Therefore the end result would be the same as before; some workers and factories would be idle. The ONLY DIFFERENCE is the money the government printed to fund the project. Moreover, think about what happens to the town factory and workers once the local repairs have been finished, and there is no more "demand" for bridge and road repair. Is the town not left in somewhat the same circumstance? Will they be any better off?

This economic quackery does not end with the above example. One "economist" even stated if the government just printed or borrowed money to hire everybody who is unemployed to dig ditches and fill it back up, this would not be harmful, because these were idle workers before, and now they are working. Guys, I am not making this up. (FDR tried this, and it did not work for him either)

Another problem with the "logic" if the printed money is spent on "idle" resources there will be no effect on inflation. Let's examine this logic. If there is $10 in the economy, and another $10 is printed, there is now $20 in the economy. This devalues existing money. It is a form of consuming without producing. Even with idle resources the concern that inflation will be the result is not only valid, but probable. There are other fallacies with "recession economics", but I do not have time to list them here. I only addressed the inflation argument.

So if you hear this example as to why the stimulus works, do not be misled. You know it is economic quackery.

Some have asked me why I continue to discuss some of the economic illusions coming out of Washington. Good question. The reason is economic quackery such as any "stimulus" program affects interest rates, the demand for money, and therefore real estate.

When you hear one political party spout that government spending and wealth redistribution is the answer to all our economic woes; then you hear the other party tout the answer is to limit wealth redistribution and government spending, while leaving the current economic system in place; You need to ask yourself, "How am I going to survive in the real estate industry?"

The economic and political witchcraft coming from our politicians is the problem, not the solution. All these "programs" coming from the imagination of politicians affects our business in a very negative way.

We cannot depend on banks for our livelihood as we did in the past. Why, because banks are now tight with lending and for good reason. They are fighting for economic survival just as we are. The "cheese has been moved", and the politicians from both parties are just making it worse. WE MUST ADAPT OR DIE.

Seller financing is going to be the realistic and primary way for real estate to be bought and sold in the times ahead. We witnessed some of the same difficulties in the 70s and 80s, and those who were knowledgeable with seller financing and notes, not only survived, but prospered. I strongly suggest you EDUCATE YOURSELF on seller financing now.

NOTE: Because I will be speaking at the NoteWorthy Convention November 4-7, and then be teaching my HOW TO CREATE WEALTH WITHOUT BANKS Workshop November 13th and 14th, I will not have time to write an issue THE NOTE PROFESSOR NEWSLETTER for November. I will have to combine November and December. 　

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If you have questions or comments. I look forward to hearing from you.

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