Buying

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Buying Properties

Okay, buying properties is a foundation of this business.

You’re either going to buy with cash or terms.

Not just cash.

The terms business means that you’re using creative Finance and we creative financing because we prefer you to use creative finance and NOT use cash.

But let’s talk about cash or terms.

In real estate investing we use OPM or other people’s money.

Private lending let’s talk about that.

There are many people that have money in their retirement accounts, their IRA accounts, their 401K accounts.

We help people that have money in retirement accounts

and use some of that money for IRA real estate Investments.

The money stays in the IRA.

And the IRA is like a company that buys property and borrows and lends money.

To create a real estate IRA is fairly straightforward here are the steps:

Wherever your regular Ira is, it doesn’t matter
You open up a brand new IRA that’s called a self-directed IRA through what’s called a custodian.
The custodian places an order to sell some mutual funds that are in your old IRA, and that money is wired to the custodians account.
Now the money is ready to be loaned for the real estate private loan.
The money is wired to either the title company or the closing attorney.
Let’s say that $20,000 was long to a real estate investor for Fix and Flip. The agreed interest was 10%. On $20,000 that would be $2,000.
Let’s say the property was bought and fixed and resold and the loan was paid back at $20,000 plus the $2,000, and it was paid back to the IRA.
Let’s say it only took 3 months for that to happen.
When you think about it, what was the real rate of return? Was it 10%? Well the annual rate of return is more than 10% isn’t it? There are four three month periods. So that’s like getting 40% on your money isnit?
Once your private lender is paid back, the self-directed IRA continues. The self-directed IRA can constantly give private loans and earn interest.

Joint Ventures

Another OPM tool that we use is joint ventures with people but “have money but no time”.

These are business people, doctors, lawyers, people that have a good amount of money.

We like them to use their IRA money because they don’t have to pay any taxation on a profits of the investment.

We use joint venture agreements with these people.

One joint venture partner (active investor) …

finds the property
fixes the property and
resells the property and
does all the work.

The Silent Partner (passive investor) just funds the purchase of transaction, and the repair.

Then property is then sold and the profit is generally split 50/50.

That’s our favorite way to do larger projects.

Joint venture.

Now there is hard money.

Hard money lenders deal with rehabbers.

They use 65% of after repair value. ARV is what we use in hard money.

Here’s an example:

let’s say we have a property that is free and clear of mortgages.

It’s a real mess and it needs $20,000 in work and the ARV is 100,000.

So after we do all the repairs and sell it we’re going to list it for $100,000.

65% of ARV minus repairs = $65,000 -$20,000 equals $45,000.

That’s the most we can pay for the property.

The hard money lender will lend us $45,000 plus $20,000.

Then we need to go fix it

and resell it for $100,000

and pay off the hard money loan.

So, what’s the creative financing all about?

Creative financing with a lease option is a great way to make money in real estate and it’s a lot easier than doing wholesaling or retailing.

Start at the About Page and learn about the 4 types of transactions that we get involved with:

wholesaling ,
retailing,
seller financing and lease options, and
long-term buy and holds.

Wholesaling

So here’s the definition of wholesaling: you find a property that’s a mess, the messier the better. It’s in a reasonably good neighborhood, a run down house in a really good neighborhood.

The thing about wholesaling is the formula is 65% of after repair value minus repairs minus your fee. So you need to get a contract that will reflect the ability for you to assign your contract or sell your contract for your fee.

An example would be, after repair value is $100,000, the repairs are $20,000, it’s free and clear of mortgages, How much would you offer the seller?

65% of $100,000 is $65,000, minus repairs is $45,000, 5,000 assignment fee is $40,000

Wholesaling is not easy, and it’s not quick. You need to make a lot of offers. But you can do it with very little capital.

One of the biggest challenges to wholesaling is getting a really good buyer’s list, cash buyers that will buy your contract. If you have a great buyers list, you can have a lot of confidence when you write these low offers to sellers.

Rehabs

Retailing or rehabbing is the second way to make money.

You have to have your funding sources in line

before you get involved with retailing or rehabbing.

You also need a very good general contractor as a partner in rehabbing. With a seller to do a rehab job you need the general contractor to walk through and it make a really good repair list to figure out what it’s going to cost to repair the property.

If you don’t have any contracting/building skills, there’s a lot of people that get involved with rehabs, and they run into trouble.

Pricing the job is not an easy feat. Lots of things can go wrong pricing the job, especially if you’re going to resell and pay off your funding source.

Funding sources can be:

Private lender, where you get a private lender to lend you the money to buy and the money to fix.
Joint venture partner, where you get someone to fund the entire purchase and the repairs, and you split the profits on the sale.
Hard money, where you get enough money to buy the property and to fix it, and then you resell it and pay off the hard money loan.

Creative financing

Many people don’t understand creative financing.. There are legal ways to buy or control property, which I will list here:

No equity or low Equity transactions:

Depending on the state that you’re in, there are creative financing techniques.

Here are some creative financing techniques for low equity:

lease with option,
contract for Deed,
wraparound mortgage or all-inclusive trust deed,
seller carrying second mortgage,
subject to the existing financing plus land trust, and
buying on a land trust.

Because there is very little equity, many times these offers are accepted.

Middle equity

Let’s say there’s a 50% Equity position, and many times the tools above can be used.

High equity

Many times we can pay more for the free and clear house than the appraised price by using an installment sale.

Let’s say we had $100,000 house, and the cost to sell would be 10 to 12% of the value of the house, so net to the seller would be $90,000 to $88,000.

If we offer $105,000 for the house on installment sale, with payments of $1,000 a month, there would be 105 payments. We could create a note in first position for 105 payments.

What is nice about this is the pay off for the house would be $105,000 / $1,000 equals 105 months, 105 / 12 = 8.75 years.

Let’s say Market Rent for the $100,000 house is $1,500 a month, and you pay the owner/seller $1,000 a month, you are still responsible for insurance and taxes. This may be a really good way to accomplish building a rental portfolio without using banks.

If you’re interested in one on one coaching please fill out the form.

We’ll set up a time to talk on the phone or on Zoom,

Best of luck to you and your family!

REISkills.com Staff