$7500
in 24 hours
Thom called me up and said the magic words:
"Claude I have a problem, can you help me?"
My Tenants are moving out !!!!! I live 3000 miles away and I can’t
fly back and forth across the United States a dozen times. I can’t
afford to have this property empty for too long and on top of it all the
property values are dropping! My wife can’t sleep at night worrying
about our old home. I don’t know where to begin; is there any way
you can help me out of my dilemma?
I felt sorry for Thom and his predicament, but I do love problems and challenges
in residential properties. I call these O.P.P.s (other people’s problems
or properties). These situations usually lend themselves to great upfront
profits and residual income. I know from past experience that adversity
is nothing more than profitable opportunities in disguise.
A good problem can be worth more money to you, the creative investor, if
you have an inventory of practical Win/Win solutions like the Lease Purchase
(AKA: Lease with an option to buy).
Little did I know that Thom’s problem would result in a $7,500.00
upfront gross profit in 24 hours!
I explained to Thom that I would like to structure a Lease Purchase on his
property (what else?) and that I would begin to look for a suitable Tenant/Buyer.
Thom and I decided that I would put together an Assignment Lease Purchase.
This is essentially when I get all the terms of the deal in advance, lock
it up with a contract for $1.00 token consideration and then I will assign
my contract with Thom to a third party, the Tenant/Buyer. We agreed in advance
that I would keep the Option money and the positive cash flow from the Assignee
(new Tenant/Buyer). The best part was that I had no payments to make and
no liability on the property. I just had to find a qualified Tenant/Buyer.
The numbers on Thom’s home were as follows:
First Mortgage: $168,000.00
Mortgage Payment: $1,100.00 per Month
Thom wanted a Sales Price of $220,000.00 (wishful thinking) on a 1 year
Lease Purchase contract and he would give 50% rent credit for a one year
term.
I first checked my database for available Tenant/Buyers who were looking
for a property of this type; a three bedroom/two bath, 2000 sq.ft. upscale
ranch style home. I then called one of my favorite real estate agents (Bob)
to see if he had any clients who wanted to move into a home today, one they
could buy tomorrow and have half of the rent credited to the purchase of
the home.
I wanted a minimum of $5000.00 with $1400.00 per month rent.
Bob called later in the day and told me he had someone who was willing to
put $7500.00 down as non refundable option consideration. I instructed Agent
Bob to have his client drive by the property first and if interested I would
arrange for him and his wife to see the inside.
Special Tip: Always have the potential Tenant/Buyer drive past the home
first. It saves a great deal of our most valuable asset, TIME. If they like
the home on the outside, then they will call back and you can arrange for
the inside to be shown.
Our potential Tenant/Buyer saw the inside, loved the property and wanted
to do the deal. (for $210,000.00) We did a credit check and everything checked
out OK. I utilized my own Lease with Option to Purchase Agreement inorder
to protect all of the principle parties. The is a very specific Lease which
is designed to put the property on a management Auto Pilot.
We received a check for the $7500.00 and another check for the first month
rent of $1400.00 plus the credit check charge of $30.00. I paid Bob (my
bird-dog) a $2500.00 finder’s fee*.
Let’s look at my profit picture on this deal:
Option Consideration: ($7500.00 less the $2500.00 I paid Bob) $5000.00
Positive Cash Flow: ( $300.00 X 12 months) $3600.00
Total Net Profit for Claude: $8600.00
I called Thom the day after his original urgent phone call and gave him
the good news. He was thrilled with what I had to tell him! The property
was rented with an option to buy and his problems were over for now. Thom
has a new Tenant/Buyer who will cover his PITI (principle, interest, taxes,
insurance). The Tenant/Buyer must pay his rent on time inorder to receive
his rent credit and take care of the maintenance and minor repairs of the
home. Thom still keeps his tax benefits on the property and if the property
sells he will not have to pay a real estate commission or closing costs.
This is a Win/Win deal for all the principle parties concerned and a great
way to make money as a private investor on a consistent basis.
Now the only question that remains is whether I should take the rest of
the week off or go and do another Lease Purchase assignment ? Who knows
what fortune the next 24 hours will bring!
By the way, Thom’s wife is sleeping much better now.
* Hey, I’m generous to a fault. Seriously, I always pay well for quality
referrals. Bob will find me some more Tenant/Buyers or Properties to structure
Lease Purchases with in the future.
Money is a very good motivator ! |