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How Do I Profit on a Property Without Spending a Large Amount of My Own Money
Joe: Hey, it’s Joe. I’ve got another one. This one is another example deal. He says, “I have a house that’s in terrible shape. It’s worth about $325,000 and the asking price is $150,000.” He says, “There’s a septic system problem and he had a builder give him a price of $10,000 to fix it. It would rent for $2,200 a month. The taxes and insurance come to about $350 a month but that is with exemptions and will go up three times that if an investor takes it over. It’s not habitable as it is and will cost about $40,000 to get it into great shape. I don’t have enough to pay for it. How could I make money on this deal without coming up with any of my own money?”
Joe: Okay. There’s lots of ways you can deal with this type of property, sell it to an investor and that type of thing, but let’s talk about this first of all. Does this make sense as a deal? You’re looking at $150,000 for the asking price, $10,000 for the septic. $40,000 to get into good shape. I don’t know if that’s in addition to the $10,000 or not, but let’s say it’s $50,000 to get into good shape. So now you’re at $200,000. If an investor’s going to keep it as an investment property the insurance will, or the taxes will go up because it gets rid of the mortgage exemptions. Some areas have this, some don’t. This one does. And it’s not going to go up from $350 to $900. It’s going to go from $350 probably to $500 a month for that tax, if he kept if for an investment property. But on a property like this it’s probably going to be sold to an investor that is going to then fix it up and flip it.
Joe: So what you want to do is make it as cheap as possible for the investor to buy the property. And, or, if you’re going to do it yourself, you know, if you have some capital to work with, then you could do it yourself that way.
Joe: But let’s say that you don’t have any capital, so you want to make this as cheap as possible for somebody to do it. $325,000 is the profit, or is the actual price here, so if you got it for $150,000 and let’s say you wanted to make $20,000 on this property. So, and you might be able to make more by the way, but let’s just say you make $20,000. That’s a nice payday. So, $170,000, you’re going to ask the seller to take it on terms at $150,000, so make it one-year land contract. And it’d be better if you can get a longer term on the land contract but even one year is good for a rehabber. So one year on a land contract with payments of we’ll say $1,200 a month on something like that.
Joe: So he’s got $1,200 a month on a one-year land contract. He’s going to have to come up with $20,000 down for your profit. So now he’s at $170,000. He’s going to have to come up with another $40,000, let’s say $50,000 for the rehab. So we’ve got $220,000 into the deal and actual cash out of his pocket is $70,000. So he’s got $70,000 into this deal, maybe another $10,000 in payments to hold it and keep it so $230,000. He sells, let’s say he sells it on the MLS and it costs him $30,000 to sell it so now he’s down to $290,000. So he’s making $60,000, $70,000, $80,000 on his investment of $60,000, $70,000. So he’s making 100% on his money in one year which is really good for a guy like this. Instead of having to come up with the whole $150,000 plus the rehab plus your cost. So this would be a great deal and fairly easy to sell to any investor because they don’t have to come up with $50,000, $60,000, $70,000 in order to make as much money in, between three and six and twelve months depending on how long it takes them to fix it up and turn around and flip that property on a straight deal on the MLS.
Joe: If you’re able to get a longer term, it might make it even easier to sell because then that seller could then turn around and sell it on terms and take money coming in on it and on the return, they could get a return every month on their property. They could sell it for $325,000 and not pay any realtor fees and take it over time or do a lease option it or do a land contract on it, you know, any of these other zero down structures that might work for it.
Joe: So this is a good deal. I would do this one. Good luck.