Saturday, November 28, 2009

Goodbye 2009- A Great Year For Some

The year is nearly gone, and many of us are saying "Good riddance". And I apologize for not keeping this blog more up to date, but it has been a very busy year. I will admit it has been a tough year in many ways. And to hear most folks tell it, real estate took the biggest hit.

But that isn't quite so. Sure, those who choose to do the same things, in the same ways, even when circumstances change will find themselves behind the 8-Ball. But for those of us with many "tricks" in our bag, and with the will to innovate and come up with new ideas, this has been a boom time. Why?

Because regardless of the economy, people need places to live. And regardless of the economy, the population grows. And BECAUSE of the economy, the wise investor will find the best bargains among the many bargains available, and repackage them to make them more appealing to buyers, using unusual incentives.

During these times, sellers are desperate because there are fewer buyers. And the seller is probably in financial trouble and must sell. So here is one strategy I have been using with tremendous success...

The seller needs to get rid of that mortgage payment. He knows he cannot sell for a profit as values are down. But there are no buyers. If he doesn't find a solution ASAP, he will lose his home to foreclosure and his credit will be shot for a decade.

So I step up with a solution (money is not made from real estate - it is made from offering solutions to people's problems).

First, an example:

In an area where the average home is selling for $175,000, I find one that is worth as much, but the seller is desperate and has reduced the price to $160K. I specifically choose one where the mortgage payment is lower than average (older mortgages, as the property was purchased for much less several years ago, before the boom).

My offer: I will lease option the property and pay him a monthly payment that will cover the mortgage, so he is "out from under" and his credit is saved. I also offer the full $175,000 purchase price at the time I exercise the option - more than he was asking (but still not more than it is worth).

The option period is at least 3 years, and $500 of each monthly lease payment gets applied to the purchase price when I buy.

I then sublet to a tenant for at least the amount I am paying the seller each month, so the place costs me nothing. (I also get first month's rent & security deposit which goes in my pocket now).

In three years, the economy should be brighter, and the home value should have increased at least a little. If I can find a buyer, I exercise the option and flip the property to my buyer (which may even be the tenant).

I resell for $185K
My purchase price is $175K
Remember the $500/month being applied? Times 36 months is $18,000 applied, so I only owe $157,000 at closing, and I pocket the difference between $157K and $185K (that's $28,000 profit).

In this economy, it is not difficult to lease option at least 4-5 a month. With an average of $2500 deposit per, that's at least $10,000/month in pocket, now. And beginning in 3 years, I start flipping 4-5 per month, for a net of roughly $100,000+ per month.

Now, just try to make that kind of money at the 7-11. Or even in a cushy office job.

This is just one of the methods my students are using today. Of course, it would not be wise to try it unless you have the specifically designed contracts provided in "The Simple Man's Guide to Real Estate", as they protect you from liability and insure better profitability. And having a professional coach is great, especially if you are new to this. He or she will "hold your hand" through the entire routine.

Now, back to this blog - I will try to do a much better job in 2010 of keeping it moving for you...