Make money like a bank

There is a lot of chatter about buying REOs and foreclosures, making a fortune in real estate, and getting rich quick. A lot of big promises and under-developed plans. How do you protect yourself? Where should you put your money? What type of properties should you invest in? What should your exit strategy be? There is one program that addresses all of these concerns offering a safe, secure and steady cash flow opportunity with a solid exit strategy. It’s called contract for deed property programs. These programs offer affordable entry level prices for under $35,000; guaranteed monthly cash flow; no rehabbing; ancillary services such as sales and marketing, doc prep, inspections, property management and refinance services; and most importantly; 50% to 60% ROI or more. Let’s look more closely how this program work.

 

   

 

 

 
A reputable service buys directly from banks at super discount prices and then resells one of the houses with a FMV of $85,000 to you, let’s say for $34,900. Acting on your behalf, the service then resells your house to a homebuyer for $53,000 with a land contract. A Land Contract (also called a “Contract for Deed”) allows the owner of a property to sell real estate to a buyer while financing the purchase price — keeping a bank or mortgage company out of the transaction. Essentially, you are acting as the bank. Sounds messy and complicated? Keep reading.

What exactly did you get? First, you just printed yourself money by creating a note worth $52,000 (minus $1,000 down payment). Second you have equity of $19,100 ($52,000 – $34,900). Third, you are paid the down payment of $1,000 plus a mortgage income stream of $500 per month. Fourth, your buyer owns the property so they are responsible for any cosmetic upgrades required. Fifth, you cash out when the homebuyer refinances, or you can sell your mortgage note after one year. How’s your perspective now?

You are probably thinking how can I buy an $85,000 house for $34,900, and why would I resell it for $53,000? Let’s break it down. First, the service buying from the bank and reselling it to you needs to keep your price low enough so that you could cash flow a property after all principle, interest, taxes and insurance are paid. Second, you simply will not get FMV for your house so trying to sell it at 80% FMV will just have the house sitting collecting dust. Third, in most of these neighborhoods rents go for around $500 – $600 per month. Why would a buyer pay rent when they can own the house for the same monthly amount? The buyer knows the house is worth $85,000 but they are getting a discount because the house needs a few cosmetic upgrades which they are only too happy to complete themselves. Everybody wins!

Let’s recap:
- Created money
- Instant equity
- Strong ROI
- Monthly cash flow
- No renovations required
- Hands-off turnkey solution

What should you look for in a contract for deed program:

INSPECTIONS: The service should have a crew inspect your new property and verify market prices and rents in the area. They should also change out the locks, prep the yard, and put a “For Sale” sign on the property.

RENOVATED HOUSES: Provide houses that have been professionally “rehabbed” by the service on-the-ground team, so each one is 100% occupant-ready.

CASH FLOW: Provide a house at a price that guarantees you monthly cash flow when your house is resold.

SALES & MARKETING: The service should handle all sales related calls, screen buyer applications, and help you choose the most qualified buyer for your property.

DOCUMENT PREPARATION: The service should be able to provide the purchase and land agreement, mortgage instruments, deeds and other related documents to your buyer.

CLOSING: The service should have a reputable title service handling your closing.

MONTHLY GUARANTEE: Provide a monthly guaranteed payment (perhaps around $400) until they resell the house for you. This should cover most of your monthly expenses.

EXIT STRATEGY: The service should work to refinance the new buyer with an FHA lender.  If they can get the buyer to refinance, you get cashed out in full early or you could simply require your homebuyer to hold the mortgage for a period of time such as one year to receive monthly cash flow.

Let’s look at a typical cash flow and ROI example:

Mortgage Example
Total Sales Price: $53,000
$1,000 down payment
$500 per month, 30 years, 11%
Note Amount $52,000

$6,000 – Monthly Mortgage Payment for one year
$1,000 – Down payment
$52,000 – Note amount
$59,000 – Gross Profit

$1,000 – Closing costs on purchase
$1,000 - Closing costs on resell
$34,900 – Purchase price
$36,900 – Total costs

$22,000 – Net profit

ROI of 60%.

Now, imagine this. You buy one investment property for $349,000, rent it and if you are lucky, you may have cash flow of a few hundred dollars per month. You hope that you rone and only tenant does not break the lease and bail. If they do, what happens? You have no income coming in until you find another tenant and if you have a mortgage, you have to come out of pocket to make the payment. Is that a good deal?

However, instead of buying one property for $349,000, you buy 10 each at $34,900 with a contract for deed program using the above mortgage example. Let’s break it down.

$5,000 – Monthly cash flow ($500 x 10)
$60,000 – Yearly cash flow ($5,000 x 10)
$520,000 – Total note values ($52,000 x 10)
$191,000 – Total equity ($19,100 x 10)
$220,000 – Net profit on sales ($22,000 x 10)
$280,000 – Total profit ($220,000 + $60,000)
ROI of 80%.

The question is, why aren’t you doing this already?

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Tagged as: Buy and Flip, Buyers, Buying, Contract for Deed, REO, Wholesaling