Students are always sharing amazing and unique stories with me about how they use creative real estate investing strategies to help them close some incredible (and otherwise unlikely) deals.
There is one particular scenario that intrigued me recently…
I think you’ll find it just as interesting as I did and a great lesson about how thinking creatively in real estate investing can really work out in your favor!
The Back Story…
A student of mine had an investor friend (who also happened to be a property manager) who was trying to liquidate his properties – we’re talking 10 or so. One particular property was about $5,000 below market value…
Now, it’s important to note that these properties were turnkey with occupying tenants and, most importantly…CASH FLOWING. And, I’m not talking junkers here either! Some may have needed a few repairs, but categorically speaking, these properties were in good shape.
These properties were NOT, however, right for wholesaling. Had my student tried to wholesale, he would have found that the max purchase price would have landed way below what the investor was asking.
For the record, I wasn’t trying to discourage anyone. Rather, I was encouraging my student to use CREATIVE real estate investing methods. I firmly believe we all need someone to push us to think outside the box.
Do you have someone that pushes your creativity?
This entire conversation is very similar to the types of topics and lessons I share with my Inner Circle members each month. If you like the idea of having me and my team in your corner each month to discuss your deal-related questions, then you need to check this out now!
Now back to our lesson…
It can be tough to buy properties from investors because you’re both looking to extract the same thing twice. It’s like trying to get two glasses of water out of just one cup. You can do it, but you won’t get the amount you’re looking for, right?
In short, this was nothing less than a challenging scenario (and process)… but one that was worth pursuing! It may be for you as well if you find yourself in a similar situation. It will just require some creative thinking.
Time to Talk Numbers
Here’ the thing… if a landlord owns properties free and clear, then you can most likely pay his/her asking price. It’s possible for sure, but with a ZERO interest mortgage.
Let’s see how this could work…
Hypothetically speaking, let’s say a house has a fair market value of $100,000, and a landlord owns it free and clear. He’s asking $95,000and he rents for $1,100 monthly. From that, said landlord pays per month:
- $100 in property taxes
- $100 in insurance
- $100 or more for maintenance reserves
- $100 in cash flow to – the investor
So…what exactly does that leave you?
About $700 dollars of net operating income in your pocket.
Did I raise a brow or two?
In this case, you could offer the $95,000, but only put a small amount down. REMEMBER: this only works if the landlord owns properties free and clear, and the waters become muddied if Realtors are involved.
You’d pay $700 monthly until the property is paid off, so we’re talking 136 months. That’s an 11.3-year commitment.
But is it worth it to wait that long to own a property like this free and clear?
For me, that’s a definite YES!
But, you might be thinking –Cam, 11 years sounds like a lifetime. I know, I hear that! But, a normal mortgage takes 30 years to pay off!
Here’s the best part though… EVERY $700 payment you make to the seller goes to reducing the principal that you owe the seller, who is now your lender (as this is a private loan, and you’re the borrower).
Now let’s rewind for a quick second.
You’ve got a tenant in the house who’s paying $1,100 in rent (after you deduct taxes, insurance, maintenance and cash flow), but who’s getting credit for reducing the principal?
You could have the property paid free and clear in just over 11 years. Would it involve the hassles of landlord life? Sure. But it just may be worth a few headaches and last minute fixes.
One other food for thought – you could take another $100 out of the bank for a professional property manager and make a $600 payment to him (and from there the numbers change a bit), you still benefit from the deal but don’t have to worry about managing the property and tenants.
In the end, it may take an extra year or two for you to own the property free and clear, BUT someone else can manage it for you. What’s more, every payment your tenant makes gets applied to the principal for your long-term benefit.
Pretty Cool, Right?
Look, this is a good strategy that can absolutely work to your advantage, but you have to know WHEN to apply it – when it makes sense.
You’ll need to crunch some numbers, but in the end, a little math, a motivated seller and the willingness to incorporate creative real estate investing just may land you a sweet deal that your competition passed on!
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Have you ever used a creative real estate investing method to land a sweet deal? If so, do tell below…I’d love to hear it!
P.S. How would you like expert recommendations on deals like the one in this post or even access to my private knowledge base? Then click here to become a part of my Inner Circle where you will receive DIRECT access to me and my team on a monthly basis (at a ridiculously affordable price)!