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What is the Best Way to Buy a Property
Joe: Hey, it’s Joe. I’ve got another example deal here. “I have a house in Terre Haute, Indiana. It’s worth about $50,000 and the seller will sell it for $32,000.” That’s a good deal, sounds like. “Her husband died and she can’t keep it up any longer. She wants to move into an apartment. It’ll rent for $650 and is in pretty good condition. It maybe needs $5,000 in upkeep. She’d like all cash but she could take payments. What’s the best way to buy this one?”
Joe: Now, the way that I would suggest and the way that’s going to be most profitable for you is to take this property as a buy and hold. You keep this property. It’s in decent condition. You don’t have too much money that you have to put into fix it up. But if you don’t have $5,000 then you have to find somebody else to work with you to come up with that five grand or you have to sell it to somebody in a way that allows them to put their own money in to fix it up. You want to make sure that that $5,000 that’s needed is for cosmetic things, not for habitability issues. If it’s, and it could be furnace, but you know, it could be some habitability issues, but you don’t want it to be the roof. If the roof is compromised, that needs to be fixed before you take that property over. Or you need to fix it as soon as you get it, so you don’t destroy the house. A bad roof will make the house go downhill very quickly and it’ll depreciate it very quickly. If it just needs a furnace or something, then you could sell it on a land contract. You couldn’t sell it on a lease option. A lease option has to have a habitable property. It can smell bad, it could have terrible carpet, terrible paint, but it has to be habitable. It has to be able to close up, has to have heating, has to have electrical, has to have lights, you know, has to have all the functions of a house have to be in place for you to do that. So you can sell it on a lease option if it’s that.
Joe: But you sell it on a land contract if it’s a fixer upper. So it maybe this one you buy it, you’ve, you do it with a, you sell it on a land contract and you buy it on a land contract so it’s going to be an assignable land contract and you’re going to get a purchase agreement on it. You’re not actually going to, you’re not going to close it. You’re going to, if you’re going to flip it to somebody else instead of keep it for your portfolio you’re going to get a purchase agreement that’s assignable instead of close the deal and transfer it.
Joe: So you get a purchase agreement that’s assignable for say, $32,000 and you’ve got $650 a month of income that could come in on this property, which is what they’re going to expect so you maybe say $200 goes toward taxes and insurance. That means you’ve got $450 left. You want a little bit of money if you’re going to keep it yourself for your own income, so let’s say you’ve got $300 a month on that. On a $32,000 property, $300 a month is 106 months divided by 12 – you’re looking at eight years and this property is paid off. If you’re not paying any interest. So the goal here is not to pay interest. It’s an interest free loan that every dollar that’s paid towards a payment goes toward principal. That’ll make it pay off so much faster. If you’re doing a thirty-year mortgage on this, it would only be in the $250 range or $225 range. You know, but for $300 a month with no interest then you could pay the thing off in eight years.
Joe: So it’s really a beautiful way to buy this property and keep it for your portfolio or you buy it and you sell it to an investor so, let’s say you raise the price to $42,000, sell it to an investor, and they put a lease option tenant in there at $52,000. Or, you sell it, you keep if for your own portfolio and you sell it for $50,000 to a lease option buyer and they make payments of $650 to you and you make payments to the seller and you keep that other $150 a month for yourself as cash flow, but all the money that comes in goes toward paying the principal and it’s paid off in eight years and eventually you’re going to be in a place where you’re making $400, $500, $600 a month of income from a property that you only had for eight years. That’s a beautiful thing and these are the kinds of deals that especially in rural areas I’m seeing, I’ve got a lot of students that are working in rural areas and they see a lot of these types of deals and these are the kind, this is the way you should structure these types of deals.
Joe: So again, you can either structure it so you’re going to keep it and sell it, you know, on a lease option, or you’re going to immediately flip it to an investor and then sell it to a, you can also sell it to a lease option buyer, get a lease option payment you know, down. You could also get the down payment from the seller and you leave enough spread in there so that he’s got a little bit of profit plus he’s got income plus he’s got the buy down on the note. If they don’t exercise the option, he makes a bigger profit. If they exercise the option, he still makes a profit so it’s good for him. So there’s all these different ways to do this if you understand these zero down structures.
Joe: If you don’t know the zero down structure hierarchy, get that book “Structuring Zero Down Deals” by that famous author, Joe Crump, on Amazon. It’s Kindle book and you can do that.
Joe: All right. Hope that helps.