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“How To Own A Million Dollars Of Real Estate In One Year”
Joe: Hey, it’s Joe Crump. This is a new series of videos that I’m creating. What I’m doing this time is a whole series of videos of outrageous claims that I’ve made over the years and I’m kind of bringing them all together into one series. I’m going to make the claims again and then I’m going to show you how I can substantiate those claims and hopefully give you a better understanding of the stuff that I teach and why the stuff that I teach can work for you, even though it may sound outrageous on the surface. There is an underlying technology, there is an underlying science to what we’re doing and I’m going to show you that as we go.
Joe: This first one, the title is, “How To Own A Million Dollars Of Real Estate In One Year.” It is possible to do and it’s not that difficult to do if you understand the zero down structures. One of the easiest ways to do that is using Subject To deals. Basically, we’ll go to a seller, we use certain types of advertising. I use the Automarketer, www.PushbuttonAutomarketer.com to bring in a lot of leads.
Joe: We bring in leads from other sources as well, absentee owners, expired listings. I’m going to be talking about some of those different techniques that we use, how we automate those, as we go along.
Joe: But in this case, now let’s talk about Subject To deals where we go, we find a seller who’s willing to sell their property. It’s current on their mortgage but they may not have a lot of equity. So let’s take an example deal, pretty typical example deal of deals that I’ve done personally. We got a property that’s worth maybe $125,000. It’s got a mortgage on there of $100,000 to $110,000. It’s got a payment on there of maybe $800 or $850 a month and it’s got a rent capable of maybe $1,100 a month. So you’ve got a spread between the rent and the income of maybe $200, $250 a month of income on that after principle, interest, tax and insurance, and property management costs which cost about 10% of the rent. Because you don’t want to manage these properties yourself.
Joe: You’re going to buy that property Subject To. Which means that the seller who has that existing mortgage on there, the owner, this is owner financing, deeds you the property. They’re going to give you that property. You’re going to start making payments on that. I talk about Subject To and how to do Subject To’s and how to structure them and all that in other videos. I don’t have the time to do it on this video. Just know that they deed it to you. It is legal. We do get around the due on sale clause. We have ways to make all that stuff happen. And we start making payments on that property and we put a lease option buyer in that property.
Joe: Let’s say we’ll go out and find a lease option buyer. That lease option buyer will give us $3,000, $4,000, $5,000 on a property of this type and then they’ll also give us the first month’s rent, and then they’ll start making monthly payments on that. So we’ll be making the payments to the bank. We’ll get the initial $4,000, $5,000 in lease option fees and you probably want to put that money aside into an escrow at least so you have a reserve at least on the first couple of properties you want to do that, so you have that money in reserve.
Joe: Then you’re going to sit back and you’re going to collect the value of that property. So every month your mortgage is going to be bought down a little bit. If you’ve got a thirty-year mortgage on there, it’s only going to be bought down by $100 or $200 a month, depending on what your interest rate is. So that payment is all going to go towards that.
Joe: Also you’re going to get depreciation on the property, on your tax returns, depending on whether it’s a passive or active investment. But that will save you probably about $1,000 or so a month on this price of property. You’re also going to get appreciation if the property goes up in value and most property or areas go up a little bit every year. So maybe it goes up four or five percent a year and you add maybe $5,000, $6,000 a year in appreciate on the property.
Joe: Then you also get to keep the property. The lease option buyer, they’re going to pay you more for the property than you paid for it, so if you’ve got $100,000 that you’re paying on that property because that’s the note that you took over, and you turn around and sell it for $125,000 that means you’ve got $25,000 in equity on that property and if that person exercises their option to buy over the next three years, then you’re going to get $25,000 lump sum fee as well.
Joe: But if they keep it, or if they don’t exercise the option, and you keep the property, you’re even better off because then you can go sell it to another lease option buyer, get another $5,000 down, $4,000 or $5,000 down lease option fee, and you can continue to do that until the thing is paid off or until somebody exercises their option.
Joe: Typically, less than thirty percent of the people that buy on a lease option will actually exercise the option. But they’re good tenants to have because they typically will take better care of the property. You don’t wash a rental car. You tend to take care of your own property better than something else.
Joe: The likelihood that you could do one of these deals a month is very high. You buy one of these properties, you get some equity in the property. You get $125,000 worth of value in the property. And if you buy just ten of these you’re going to have a $1.2 million. If you buy one a month for twelve months, you’re going to have almost a $1.5 million in real estate in one year.
Joe: So it’s a great way to build your portfolio and make that happen. One of the biggest mistakes that people make when they buy properties this way is not keeping enough money in reserve. So every three, four or five properties you have, you should have at least $4,000 or $5,000 in reserve in an escrow account that you keep on the side that you know that when you have a vacancy or when you need some repairs, that you have somebody who’ll come in and you have money to be able to cover that and you’ll be able to fulfill your responsibility to the person you bought it from.
Joe: You’re not going to have your credit on the line. You’re not going to have any money down on the property. So it’s not going to hurt you if you default. But it is going to ruin your credibility with your seller and if you take this seriously, you’re going to want to make sure that your sellers are protected as well as your buyers. You want to make sure everybody’s taken care of in these transactions. That’s why we try to take control of them this way.
Joe: If you look at some of the other videos that I’ve got on the zero down structures you’ll see some of the other ways that we take the structure, we take these deals with zero down. And you can also get a better feeling for what type of structure to offer depending on your exit strategy, what you’re trying to do, and your role in the process. Whether you’re the buyer or the seller, whether you’re coming in to just flip the property, whether you’re coming in to keep it for the long term, the different structure that you choose is going to be based on the hierarchy that I’ve created with Subject To, Multi Mortgage, Land Contract or also known as Contract for Deed, Lease Options and Assignable Cash Deals.
Joe: If you understand those structures in my hierarchy and how they fit into the hierarchy, that’ll make it easier for you to do that. And we’ll talk about some of this stuff as we go along. It’s in some of the videos that are on the blog already. So you can go check out the blog for more details on these things.
Joe: All right. Hope that helps. Good luck.