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Structuring Deals #5: Assignable Cash Deals
Joe: Hey, it’s Joe. This is video No. 5 of the deal structures, the zero down deal structures. And this is the fifth zero down structure that we use in the hierarchy. It’s called assignable cash deals and it’s also known as wholesaling. Basically, where you go out and find a property that’s substantially under market value. You get it under a purchase agreement, for cash, and then you turn around and find somebody to buy it from you for a little bit more money. You take the profit and you take the buyer and they pay off what’s owed on that property. So, let’s take an example here.
Joe: Let’s say you’ve got a property that’s worth $100K and the guy want’s $50K. You get a purchase agreement with him for $50K, you add $5,000 to the price, now it’s $55K. Somebody comes in, gives you the $5,000, they give $50K to the seller, they get in for $55K, they put in maybe $10,000 to fix it up. Now it’s worth $100K, they’ve just made $35K on their deal. So it’s a good deal for another investor. It pays off the person who sells it, and you make a profit in the deal as well. That’s wholesaling.
Joe: There’s two ways that you make money as an investor. One is, you buy properties at or below market value, but you buy it on terms. You don’t have any money coming out of your pocket. Two, you buy properties substantially under market value and you can do it for cash. Ideally, you want to do both of those of those things. You want to get it under market value and you want to get it on terms. Or, you want those, and you want those terms to be as attractive as possible, and with as small as interest as possible. So, you can do that both ways. A lot of times when we’re buying less expensive deals that we’re flipping, if you can get them on terms, let’s say you have a $50K property that’s worth $100K, you can ask that guy well, let me buy it on terms. If you know it needs some fix up, let’s say it needs $10,000 worth of fix up, you get it on a $50K with a six-month land contract, then you can go and find somebody to give you $10,000. All they have to do is take over the land contract and they have to pay it off in six months. But they’re going to fix it up and sell it in that six-month period anyway.
Joe: So they can do it with having only $10,000 that they’re paying to you, plus another $10,000 to fix it up, and then they’re cost to sell it and they can, you know, get in and out and make a quick $30K on a deal like that.
Joe: As long as you look at these deals and decide, hey, that makes sense for an investor. I can see how that would be profitable for an investor. And the less money that they have to come out of pocket, that means the higher return on their money. So, you always want to find better ways for them to do it. So, on an assignable cash deal, if you can make that cash that they have to come up with smaller and smaller and smaller, it’s more and more likely that you’ll get it sold. And, if you’re dealing with cheaper properties, those are easier to sell than more expensive properties. There’s a lot more people that have $20K or $50K than have $100K or $200K or $500K. There are still deals, if you found something for half a million dollars, that’s worth, realistically, $1 million, the likelihood that you could probably sell that is still high as well. And you can make a good profit on things like that. But, it’s going to be easier for you to sell a $50K property that’s worth $100K.
Joe: And when you talk about substantially under market value, it has to be substantial. It can’t be 10% under market value, 20% under market value. And the cheaper the property is, the more of a percentage that it has to be under market value because it’s a smaller number. The higher that you get the less that percentage has to be. So it’s going to be anywhere from 30% to 50% under market value before you’re likely to be able to sell it on a cash assignable deal.
Joe: Anyway, so that’s assignable deals. On the next video, I’m going to wrap up the explanation of these structures and talk about the zero down hierarchy and how all these structures fit together in the hierarchy.
Joe: All right, thanks a lot.