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How To Double Your Income On Every Deal You Do
Joe: Hey, it’s Joe Crump. We just explained, I did a whole bunch of videos on the different zero down structures. Hopefully, you’ve listened to those. It’ll help you understand this next series of eight or ten videos that I’m getting ready to do here that are going to go into specific deals. And these are hypothetical deals, but they’re deals that are similar to things that we’ve done in the past and things that I’ve worked with my students on in places all over the country, in different price ranges and different markets and up markets and down markets, all over the place.
Joe: So, I’m going to give you the information that we get from the seller, or the things that we ask the seller about, and then we’re going to talk about different ways we might structure that deal that’ll solve their problem and be profitable for us.
Joe: So, this first deal, the asking price on this property is $125K. The value of the property is $135K so there’s not much equity here. They tried to sell it with a realtor but the realtor says, well, it’s going to cost you, you know, 10% to sell it, so we’re really looking at about, you know, $13,000 to get it sold and carrying costs and closing costs and realtor fees and negotiation fees and, you know, repair costs when they do the inspection, carrying costs, you know, the months that it takes them to get it sold, it’s going to take them 3 or 4 months to get it sold. And they just don’t have enough money. They’d have to come to closing with $5,000 or $10,000 in order to make this happen, even though they’ve got a little bit of equity in the property. So, they’re asking $125K.
Joe: You know, actually, they’ve got a mortgage on here that’s only $100K, so with a mortgage of $100K they do have the equity. They could sell it, but they’re not going to, they’re going to have to give away all that equity. It’s not going to actually cost them money at closing, they’re actually going to be able to sell it and get out of it and they could do that if they wanted to. But it’s going to profit them a lot more if they hold onto this property and don’t pay a realtor for it.
Joe: So they’re principal, interest, taxes and insurance payment is $850 a month on that $100K. The rent that’s possible on a property like this is $1,100 a month. It’s in good condition. And they want to know what you can do for them? So, you start looking at the structures again, look at the zero down hierarchy and decide is this a property that I’d like to keep? If you keep this property, you could have cash flow on it. You know, you’ve got $850, that’s about $250 a month in cash flow if it rents for $1,100 a month. That wouldn’t be bad. If you had to pay a property manager then that’s reduced by another $100, but still it’s positive cash flow and you can build this value over time and if you got it for $100K that might not be so bad because you’re walking into $35K worth of equity right off the get go. So you made $35K, you’re going to turn around and sell it for maybe $145K on a lease option. They pay you, you know, the buyer pays you $5,000 for the down payment. They’ll still owe you $140K. You only have $100K mortgage on it. If they exercise the option you make another $40K. If they don’t, you sell it to somebody else and get another lease option fee.
Joe: Also, while they’re holding it, you’re going to be making money on that monthly payment. It’s a beautiful to own property and it can serve you for the long term. You just need to make sure that you put aside some of that $5,000 as a reserve for when the property goes vacant. Because a lot of people don’t exercise their option. It’s less than 30% of the people who’ll exercise their option on this. So, that’s something you can do.
Joe: Now, a lot of people, when they’re just getting started with investing, they don’t think that it’s, they want to be able to spend all the money that they’re getting on their deals. So, what you could do instead is do a lease option. You could do the for rent method on this. And you could just have sign a lease option memo, you have control of the property now, and you go out and put an advertisement in Craigslist on Zillow, you put a sign in the yard, put a lockbox on the door, you get people into the property, find somebody who’s willing to rent it for $1,100 a month plus put a down payment on it and buy it on a lease option. You raise the price up to $140K, you promise them $135K. Let’s say you raise, they’re asking for, they’re only asking $125K on this, so let’s raise it to $135K because that’s the real value.
Joe: We ask for $10,000 down, but let’s say the buyer doesn’t have $10,000 down, they’ve got $5,000 down. We could take $5,000 and then we could take $5,000 as a promissory note that the buyer’s going to pay us over the next year or two years, get a couple hundred dollars a month payments from them over the next few years to pay off that promissory note. So that way, instead of getting $5,000, getting what they have right now, you’re going to get twice that for each deal. And this is something that a lot of my students are doing once they get good at this process. And, it means you’ve got regular cash flow coming in. You’ve got notes that you’re collecting on and it’s a wonderful, wonderful thing.
Joe: And, if the person moves out, and you keep a good relationship with that seller, they’ll probably come back to you and ask you to fill it again. And I’ve had students who’ve filled properties for the same seller over and over and over again, and they always come back and they stay on good terms with them and it’s not a problem. Nobody gets upset with them because these properties go vacant. They’d like them to stay solid, but the understand that it’s possible that your tenants might stop paying or you might need to get rid of them and start over with something else. Especially if you explain it to them, and explain to them and be honest with them about the likelihood of whether or not they’re going to buy that property.
Joe: Just because people don’t buy that property, or don’t plan on buying that property in the long run, doesn’t mean that the seller won’t work with them. Because the seller, it’s usually the best option for the seller and the most profitable for the seller, depending on whether they’re in a situation of need or they just want to make more money in a greed situation. It’s always a situation of either need or greed that’ll help you sell you these deals to the sellers.
Joe: So that’s the deal. You know, you can either put this one in your portfolio, or you can, you know, make a quick chunk of cash on it and some money over the long term.
Joe: All right. Hope that helps.