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You’re Going To Make $10,000 On This Deal
Joe: Hey, it’s Joe Crump. I’ve got another zero down structure, hypothetical situation to help you understand how zero down structures work and to help you understand what kind of offers you can make on properties depending on, you know, where they’re at, what their price range is, what kind of market they’re in, what the situation is of the seller. And all these things that I’m giving you, the information I’m giving you about the price and what they’re asking, and, you have to ask the seller these questions. And we have a list of questions that you have to ask that’s part of the mentor program, part of the, it’s actually in the Automarketer as well, so you can go to the Automarketer and you can get the training to do this. But hopefully, these videos will give you enough so that you can actually get started and you can start actually making offers on properties that you find in Craigslist. Very simple process here.
Joe: So, and the Automarketer actually brings you leads and you can make offers to people in the same way, to all these people that you’re finding on Craigslist. Now, they’re not all, they don’t all have to be lease option deals. You can do the subject to, you do the multi-mortgage, land contracts, assignable cash deals in addition to the lease option stuff. So keep that in mind. You don’t have to, you don’t have to do only one type of deal.
Joe: At the beginning, when you’re just getting started, it probably makes sense to do just one kind of deal because it’s easier to get your head around just lease options. And that’s why I have my mentor students focus on lease options to get started. But it doesn’t take long after you’ve made, 5, 10, 20, 30, 50 offers to maybe start thinking about okay, let’s, how do, what if we did this subject to? You know, what if I gave these people other options? Then they could try it different ways and see if something like that would work for them. So that’s what we’re doing here.
Joe: So this particular property, hypothetically, is asking $650K. The value on it is only $375K because they’re in a market that crashed. So they bought it for $650K and they have a mortgage on it for $650K. And the only way they can sell it is if they get $650K for it. So. It’s a difficult situation to be in, right? But it’s only worth $375K. We saw this happen a lot in California during 2007, 2008, 2009. And we did deals to solve this problem. I’m going to show you how to solve this problem. The PITI on this, principal, interest, taxes and insurance, is $3,800 a month. It rents for only $2,500 a month in the property. It’s in good condition. So it’s rentable right now but the most it’s going to get is $2,500 a month.
Joe: So if he gets a tenant in there it’s going to cost him $1,300 a month negative cash flow. He’s going to have come out of pocket $1,300 a month in order to take a buyer that you bring him if you do it on a lease option. But, is it better to pay $1,300 a month or is it better to pay $3,800 a month, which is what his full mortgage is?
Joe: Now, he’s in another difficult situation whereas he cannot allow this property to go into foreclosure. If he as, you know, if his credit was bad, having bad credit wasn’t a problem, then he could just let it go into foreclosure. He could even live there for a while and do that. And sometimes that makes sense for people. You know, they just, okay, I’m going to stop making my payments. Hopefully, I’m going to get six months or a year, maybe even two years of, before they take that property from me. I’m going to get free rent during that time and I’m going to, you know, do it that way until they finally take the property back.
Joe: But this guy’s not in that situation. He’s got to make his payments because, you know, let’s say he’s, he works for the government and he’s got security clearance and he can’t have bad credit. Or he works for the military and they don’t like that, or he, he’s in the corporate fast track and he knows that whenever he jumps jobs they always check their credit and he doesn’t want to have a credit ding on his stuff.
Joe: Now, he’s got the high income, it’s why he’s able to afford a more expensive property and he wants to keep that credit clean. So it’s worth it to him to be able to do that. So it’s just a matter of how much pain he’s going to have to do in order to keep that credit clean. He can do $3,800 a month or he can do $1,300 a month if he puts a lease option tenant in there.
Joe: Now, we’re not going to buy a property like this as a subject to for ourselves. We’re going to help him solve his problem and get his payment down to $1,300 instead of $3,800 by putting a lease option tenant in there. So we’re going to go put it on the market for, say, $675K, way over what it’s worth. We’re going to do a five-year lease option instead of a three, because we want the values to come back. We know that values typically come back over that period of time. And we find a buyer who’s able to get into this property for $2,500 a month plus $10,000 out of their pocket. That’s a great deal for somebody who wants to buy a property and potentially the values go up above what it’s worth and they could actually make money in the future, or, if it doesn’t go up enough, then the seller might be willing to come to closing with some money to sell it. Or, maybe the buyer could come up with some of the money to make it work as well at that time.
Joe: But what matters is right now. And right now, making those payments to the seller and right now to the buyer, being able to have a property that they can move in to that’s nice that they can bring their friends home and say, “This is my house.” And they’re going to be able to get into it for a payment that would be less than what it would cost them to buy the property. So, the $2,500 would be less than if they had to buy that property right now for cash and they don’t have to come up with a down payment of $100K, they only have to come up with a down payment of $10,000. So it makes sense for the seller, makes sense for the buyer and it makes sense for you because you’re going to make ten grand on the deal. And you might even raise, if you raised it by $25K you might be able to make $25K on it. You know, maybe get $10K up front, and then maybe you get $10K or $15K as a monthly payment as a promissory note over time, over the next two or three, four, five years, break it up so that it’s still reasonable for the buyer to pay that to you.
Joe: All right, so a good way to solve a problem with a property that’s upside down. All right. Hope that helps.