How I Buy Junk Houses For 12 Cents On The Dollar And Sell Them For Full Price Without Doing Repairs
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Read Transcript for “How I Buy Junk Houses For 12 Cents On The Dollar And Sell Them For Full Price Without Doing Repairs”
One man’s junk is another’s treasure, but only if you do it this way. Let me tell you how I bought properties in horrible condition, fixed them up and then rented them out or sold them for a heck of a return and how you can, too.
“Dear Joe, not too long ago you sent an email out, selling junk houses in depressed areas for $4,000 to $5,000 apiece. The areas are horrible. The pictures of the houses are frightening and I can’t figure out how they would make sense for me to buy. Can you tell me how I’m supposed to make money on these kinds of houses? I sure don’t want to work in these areas or even go to them, for that matter. Does this kind of deal make sense?” – Ben Asad, Atlanta, Georgia.
Joe: Not too long ago, I sent out these emails, selling these properties. I had some properties that were $4,000 or $5,000 apiece. They were in Detroit, Michigan. They were in Cleveland, Ohio in pretty tough areas. I also had pictures of these properties that I put up on the website and they were in terrible condition. These houses had been completely gutted. They have no furnace, most of them anyway. They had no furnace, no water heater, no plumbing, all the copper has been ripped out of the house, etc. Some of them didn’t have windows in them. They were absolute messes.
Joe: I got them cheaply. My goal was to sell them for 5 grand and just make $1,000 or so on each deal and get them to an investor and let them take it to the next step. I gave them some ideas on some exit strategies on things they could do to sell them, but to my surprise (maybe I shouldn’t have been surprised) nobody took me up on the offer. I had one guy who was interested in the deal but then he backed out on the deal once he went over to the property and took a look at it, even though the pictures were there. The pictures were bad, too.
Joe: Anyway, I didn’t sell the properties. I have 60,000 investors on my list and nobody wants this. There’s a reason. Either it’s not a good deal like I thought it was (because I think they’re good deals) or people didn’t understand what they could do with them, and they’re afraid of the area, they’re nervous about the process and they don’t want to sell it. I knew that there’s plenty of people on my list that have $5,000 they could easily come up with if they thought it was going to make them money.
Joe: So what I decided to do instead is to sell them myself. I had somebody go out there (because this is Detroit and I’m in Indianapolis) drive round to the houses, put lockboxes on all of the houses that actually had doors, and they also nailed a sign (and I don’t usually nail signs to my houses but I wanted them to stay up) Coroplast signs on there that said, ‘$1,000 down, $250 a month’ and my phone number and my website. I would put it on all of these houses.
Joe: I bought a whole bunch of these houses. I bought them in bulk from an REO thing, so I had a bunch of them that I just paid cash for, which is not something that I normally do, but eventually you’re going to make enough money to where you’re going to have cash and you’re going to want to do something with that cash, and you don’t want to put it into the stock market because you’re just going to lose money there. You want to put it into real estate because if you learn this business, that’s what you know — you have control over your money and your business and you’ll make a lot more money that way. Anyway, I bought these properties and I couldn’t sell them to my list after just one email. I suppose if I had changed things around, I might have convinced people to do it.
Joe: But then I had these signs put up for me and suddenly the phones just starts ringing and ringing and it won’t stop and I’m going, ‘Oh, my. This is going to take a lot longer than I thought it was going to,’ and we immediately started selling these properties. The way I structured it was that I sold them for $20,000 a piece with $1,000 down, $250 a month, which is about 8% interest over a 10 year period amortized. So, they pay for 10 years, $250 a month plus the $1,000 up front to buy this property from me on a land contract. They’re responsible for the taxes and taking care of the different properties.
Joe: I also created this long disclosure to explain to them that this property was in terrible condition. When people would call me, I’d tell them exactly what I just told you about the property. These things are horrible. They’re in awful, awful, awful condition. They don’t have any of the functions of a house. If you’re buying it, you’re buying it as is. I’m not going to be responsible for anything on these properties. So just be aware of that when going in.
Joe: It was in my documents that they had to sign when they signed it. They all knew that when going in but they all felt that to have their own house and to be able to get into a house for $1,000 and $250 a month, even in a tough neighborhood where rent by the way is $600 to $700 a month for a house like this… Actually, I’ve seen them at even $900-$1,000. Even in these tough neighborhoods, these rents go pretty high. And I can’t tell you how excited these buyers have gotten about these properties.
Joe: If you look at the houses and what they’ve been assessed for (and they’ve been assessed for $40,000 or $50,000 in good condition so when they fix these properties up, they’re probably going to be worth $40,000 or $50,000) it’s a great deal for them and it’s a good deal for me, because I’m making five times as much as I’d make if I sold them to my list.
Joe: So, I’m making great money on them, plus I’m getting the money over time, so I’m going to build sort of an annuity. It’s also being sold outside my Roth IRA, so it’s nontaxable. I don’t have to pay taxes on any of that income that’s coming in, which is cool, and its working out very well.
Joe: By the way, I still have some to sell and if you’re interested in buying some of these properties, send me an email and I’ll send you the link to the website and we’ll get you that and you can see what I’ve got available right now, although they seem to sell pretty quickly. But, we keep replenishing them.
Joe: The next thing that I started buying was properties in Indianapolis and Detroit and starting to fix them up and rent them out Section 8. We bought property very cheaply and were able to get them for around $20,000, maybe a little bit less or a little bit more (we’ve been buying several of them) and then those were rented out for $900 a month to Section 8.
Joe: So, we have to put maybe five grand into them to fix them up and then fill them and have this income that pays off this property in just a few years. You can do the same thing in almost any community. We were buying these from the MLS. These were not difficult to find.
Joe: You have to act quickly and you have to know what to do and you have to have some people you trust to do the work. I don’t do any of the work myself. I don’t manage the properties. I don’t find tenants to put into them. I don’t want to be a Section 8 manager. These happened to be in Indianapolis, so I suppose I could do them if I wanted to, but I don’t want to – I’ve got good competent people to do that for me. If you bought one of my properties from me (because we’ll sell them for more than that) we’d give you that person to work with.
Joe: Anyway, this is exciting stuff. It’s new stuff that we’re doing. It does require some cash, but its good long term investment stuff. Even though they’re completely trashed, you don’t have to do the work to them. If you do decide to do the work to them, you can make money as well. The return on the investment on these properties is amazing and if you put it into a retirement account, it’s even better.
Joe: So, it’s exciting stuff. These are exciting times right now to make a lot of money in real estate. You just have to take advantage of the opportunities that are out there. Thanks a lot. Bye, bye.