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
Gross profit $38,000
Cost of Rehab -$20,000
Your Net 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 technique solve the title seasoning problem for financing?

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.

If you try this technique, and it works out, contact me to let me know. I love success stories.

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Tom Hendersona.k.a. THE NOTE PROFESSOR

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Again the collectivist economists and followers are touting the increase of income and wealth inequality gap of the top 1% as a reason to raise taxes or to promote some wealth redistribution program. In effect, the statists are using income inequality to attack free markets. The standard rebuttal by those not familiar with free economic principles is to point out that the 1% pay 38% of the income taxes. They go on to explain the top 5% pay 59% of income, and conclude with the top 10% pay almost 70% of income taxes paid. From this stand point, what is more interesting is the fact that the top 1% begins at $380,354; the top 5% begins at $159,619, while the top 10% begins at $113,799.

WOW! These figures indicate that many federal employees are in the 5% to top 10% range. There is something wrong with this scenario, but it is a topic for a different issue. Also as a side note, one should never defend free markets by noting how much the top 1% is taxed. This also, is another topic for discussion.

Rather than explaining how much taxes the rich pay, it should be pointed out that wealth inequality, in and of itself, is natural result of individual liberty, free market principles, and indeed of Nature. If all income were equal, there would be no division of labor, and therefore, no growth, or innovations. Think about this a second. If income were equal across the board, regardless of skills, talents or toil, why would anyone go through the expenses, hardships and risks to pursue a skill or investment, only to partake in the same rewards as everybody else?

Take becoming an M.D. for example. Who would go through the expense and inconvenience to toil through four years of college, four years of medical school, at least three years of interning at long, strenuous hours with little pay, and come out hundreds of thousands of dollars in debt, only to be paid the same if you decided you wanted merely to stock shelves at Walmart. (As a side note, there would be no shelves to stock, because who is going to risk capital to produce or bring products to a store.)

One has only to look at North Korea to understand the results of a system where there is income equality. Income inequality is actually Nature's way to introduce efficiency and progress into our way of life.

Even though wealth inequality is natural and good, I do want to address the issue of the recent enormous increase in the gap of income and wealth of the upper strata. More and more we are hearing "Not since the Great Depression has the income gap been as wide as it is now". The implication is free markets have failed, and the need for more taxes and/or more wealth redistribution programs. What is overlooked is the reason for the surge in the income gap; the massive and prolonged credit expansion by the Federal Reserve (FED).

Remember, when the FED expands credit and sets interest rates at below market rates, the results are borrowers will borrow and lenders will lend when it is not financially prudent.. The result causes bubbles to form and eventually burst. Hence the boom /bust cycle.

In the boom phase of the cycle, especially prior to the bust, it is common for the upward income strata to increase the wealth gap, only to lose it during the bust phase.

Comparing the increasing wealth gap in the 1920s prior to the Great Depression to today is actually a good comparison; if the reasons for major increases of economic inequality during these time periods are also examined.

Let's begin our analysis with the fact that when the FED artificially expands credit, this expansion shows up very early in the stock market. Low interest and easy money tends to artificially drive up common stock prices, since corporations can borrow cheaply to purchase inventory and/or capital goods which increases profits. Since investors in common stock tend to be the more affluent, the rise in stock prices will not only artificially increase the net balance sheet of the affluent investors, but also increase the income of these investors when they sell their stock for huge profits.

Because the lower strata does not invest in stocks, they do not get to take advantage of the rising stock prices. Hence the wealth gap widened during this time. "The rich are getting richer and the poor are getting poorer" was the catchphrase of the time. However, when the bubble burst in 1929 the stock prices went down 40% in a month and "the rich" were actually jumping out of windows, there was no mention of the wealth gap. Instead you heard, "See, free markets don't work"!

The scenario in the 1920s is a snap shot of what is happening today. In the early 2000s, credit was easy and cheap for several years. The Dot Com era moved into fast forward where investors became rich overnight as easy money made it possible for even the lower income investors to join the band wagon. People were actually borrowing money from their credit cards to purchase stocks and IPOs of companies that had not made a profit. The collectivists again touted "the rich are getting richer and the poor are getting poorer". When the Dot Com era went bust, the cry from the statist was, "See, free markets do not work"!

Then came 2008 where years of artificially low interest rates initiated by the FED, along with government coercion to promote home ownership gave rise to subprime loans. Fannie Mae, as well as foreign banks, hedge funds, and investment banks were purchasing these toxic loans in the form of mortgage backed securities. They rationalized their malinvestments by purchasing credit swaps, which is insurance on the loans that were purchased.
"The rich are getting richer and the poor are getting poorer", was again the cry of the collectivists pundits. Alas, this boom was also built on a house of cards or artificial credit and crumbled. Except this time when the bubble burst, there were entities like Bear Stearns, Lehman Brothers, and Goldman Sachs that were collapsing. AIG, the insurance company that insured these loans was also going under. The Bank of Germany, along with other central banks was heavily insured by AIG. The end game was a massive government bailout of Goldman Sachs, Fannie Mae, and AIG. Those who were not political favorites saw their wealth disappear. "See free markets don't work" was again the slogan of the day.

With the taxpayers bailing out the political favorites, Quantative Easing 1, QE 2, QE 3, and who know how many more QEs, cheap money for the corporations, along with the FED pumping $80Billion a month into the system, stock prices are again rising artificially, as well is real estate. $40Billion a month of the money being put in the system is to pump up Fannie Mae to buy mortgages.

However, when the bubble bursts, which it inevitably will, do not look for the collectivist to point out that the massive widening of the income gap is actually caused by artificial credit expansion and government bailouts, but rather get ready for the chant, "See free markets don't work"!

Summary: Wealth inequality is a natural result of liberty and free market concepts. It is the difference of income that promotes efficiency and progress. However, there also is the phenomenon of the wealth inequality gap widening when the FED artificially expands credit, especially for long periods of time. Similar actions by the FED in the 1920s prior to the Great Depression are being repeated today. The results are going to be the same. The Wealth Gap will widen with the chant, "The rich are getting richer and the poor are getting poorer". When the bubble burst, the outcry will be "See, free markets don't work". In reality what "did not work" was the FED's creating easy and below market credit. History repeats itself.

If you have a question or comment, please CONTACT ME. It is from your feedback that I get many of my topics.

Remember, if you know of someone who has a note to sell, I will pay a referral fee, or split my profits with you

Tom Henderson /a.k.a. THE NOTE PROFESSOR .

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