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AFS Q's

ryanlake

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Jan 14, 2011
Messages
97
I was reading the REIN blog on AFS agreements and the potential uses for them. Essentially, they would be more likely benefit the investor if there is already a plan in place for said property, such as an RTO agreement, or wholesaling the property that is now currently under contract.



I am wondering if this could fit my strategy of buying and holding onto property for cash flow (besides RTO). It appears this would be worth the time if there is some immediate equity in the deal, or why go through all of this work to attract and locate these sellers?
That being said, if there is equity already, then they probably wouldn't be in a predicament to begin with, unless I can just save them a few bucks in commissions and what not.

So with my strategy, I would target folks who are just trying to save on commissions and penalty money? Is there something else I am missing?

Also, as far as being able to finance the property when the AFS comes due, I will still have to go through the traditional process of obtaining bank financing of 20%, so I should not get into a deal that comes due in a years time if I am unsure if I cannot come up with the money (if I want to hold it). This leads me back to my original strategy of regular Buy and hold locating motivated sellers essentially.



So it only makes sense when

a) There is some OK equity (help with trying to finance future payment or sale to other buyer for 2nd exit strategy) and

b) If I am confident I can save the funds to supply the down payment upon the end of the AFS.



Lastly, I see other investors advertise that they will buy property in any condition in any location with an offer within 24 hours. This seems like quite the claim, how would this be a wise strategy without inspections and time to do proper diligence? Is this where the deal ready documents comes into play? Is that more a claim for marketing purposes? I don't see how buying a house that needs a tonne of work is a good strategy. This is where a clause would come in but it sounds as though these deals are purchased in cash the next day no questions asked. How does this work?
 

Sherilynn

Real Estate Maven
REIN Member
Joined
Oct 22, 2007
Messages
2,803
It seems you answered your own questions, save the last one. Ideally, your AFS term is at least 2 years with renewal at the buyer's option. (Four years is a good number.) Ideally the mortgage will have been paid down and possibly the value will increase enough so there is no need for a cash injection for a new mortgage at 80% LTV. If not, one must be prepared to either renew the AFS or throw money at it.

The sale can't close in 24 hours because lawyers need time to work. However, a deal can be struck, contracts can be signed, and the buyer can even take over payments on the property within that 24 hour period. I once bought a property where the seller needed immediate relief, but she also needed a home for another 2 months. I took over the property within a week and rented it to her for two months. I also paid her arrears at closing and deducted that from the purchase price. In effect, I made her payments dating 2 months before possession (but I normally wouldn't make the payments until closing day). If both parties are in agreement, anything is possible.
 
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