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How To Structure A Deal With A Seller To Make Finding A Buyer A Breeze
Joe: Hey, it’s Joe. I’ve got another zero down structure deal that I want to explain, and these are hypothetical deals that we’re talking about here. And I’m just giving you different ways that you can structure zero down deals on here that would solve the problem of the seller and make you money and give you ideas on how you can make money and how you can structure the deal when you buy and when you sell.
Joe: This particular property is a lower priced property, it’s a $75K asking price. The value is $75K in its current condition, but it’s worth $105K if you spend $10K in repairs on it. So, $10K repair, so you have $85K into it, it’s worth $105K, so you have about $20K spread on there. The mortgage on it is zero, so they don’t have a payment on it. The rent on this property would be $850 a month if it was repaired even though it’s not rentable right now, maybe it’s got a broken window or the furnace is out, or something like that, it needs that ten grand before you can actually fix it up, before you can actually rent it out.
Joe: So there’s a couple of ways that you can do this. You could do it, you can’t do it as a lease option because it’s not habitable. It doesn’t have a furnace. That furnace is going to cost $2,000, the seller doesn’t have the $2,000 to do it. They own the property free and clear, but they don’t have $2,000 that they can go fix it and make it habitable for a tenant. So what you can do instead is do it on a land contract. And you can sell it as a fixer upper on an assignable land contract. So you can go out there and find somebody who wants to take over a property on a land contract. You have to have a property that’s in decent condition. It has to be habitable to rent it. But to sell it, it doesn’t have to be habitable. So do it on a land contract instead of a lease option and you can still make your assignment fee the same way.
Joe: You could also keep this property for yourself, or you could sell it to an investor. If you keep it for yourself, let’s say you take the $75K property and you pay that off over time with an interest-free loan where every bit of your principal goes towards paying off that loan. You could do that and cover your costs and every month you’re going to have all that money that’s being paid to them is going towards paying off that mortgage. So within seven, ten, twelve years you could pay off this property. You’d have to still put in enough money into it to fix it up to get somebody in it, to rent it, but if you put, you know, if it’s going to cost $10K to get it fixed up and you’re able to get $5,000 as a lease option fee, at least half of that money would be covered. Plus, you know, you’re going to have income on that property and hopefully you’re going to have a couple hundred dollars of positive cash flow that’ll feed you as well. And all your money is going towards paying down that note every month. So that could be a very lucrative deal for you in the long run, but not very much cash flow for you.
Joe: You could also take that property, structure it the same way and sell it to an investor for more than that. So, let’s say you sell it to an investor for $20K because you’re getting them into a property that’s a great deal because it’s structured properly. It’ll be easier for you sell. So you could get $20K for it, maybe $10K down maybe $10K later after they’ve fixed it up and start having cash flow for the property. And then they can pay you the cash flow on that property. But they would get the equity on the property. So something like that might work for them as well. So, this would be a good way to do this.
Joe: Now, these people could also put it on the MLS, they could get $75K for it and get in and out of it and they’re done and they walk away. They have to pay capital gains on it, not such a great deal for them. But if they, if you want to keep them from having to pay capital gains they can either do a 1031 exchange and I’ll let you Google that to find out what that’s all about, but basically it’s a tax free exchange so you don’t have to pay capital gains on properties, investment properties, that you sell, or at least you defer it, you don’t have to, it doesn’t get rid of it, it just defers it. And you can keep deferring it until you die if you keep transferring to other properties.
Joe: But they could, but they don’t want to pay capital gains, but they could take the income on that property and they could pay capital gains on just the income that’s coming in if they do it on a land contract. So something like that might work for them as well.
Joe: So as you see, there’s a lot of ways to make money on a deal like this that could be very lucrative that can either put it into your portfolio, or be long term investment for you even with a lease option because you can get a long term note and make a chunk of money on this. The better deal that you can structure with that seller, the more likely it is that you’re going to find a buyer to do it. A lot of times what I see my students do is, they structure the deals in a way that it’s not attractive enough to find a buyer for it. So, make sure you structure these in a way that’s attractive enough and most buyers are concerned about monthly payment, they’re concerned about coming up with cash and they’re concerned about having to get a loan.
Joe: So if you can get rid of those things in the transaction it’s much easier to find a buyer. Otherwise, you’re going to have to go to the MLS and sell it that way.
Joe: All right. Hope that helps.