Wealth Enhancement Real Estate Strategies

[Don Konipol]

I just read 5 books (out of print, published between 1979 and 1986) all related to wealth building thru real estate “trading and exchanging” (not for tax free exchange).

These were the most convoluted, confusing, and unfocused real estate books I ever read! But, once I was able to eliminate the non sense and the outdated, and work my way thru the pointless, I was left with excellent strategies and techniques most investors don’t know about and even less utilize. So, in no particular order here are thee of the strategies/techniques I have personally utilized at one time or another to “supercharge” increase in my net worth.

1. Most investors believe there’s one market value for a property, and it’s usually closely related to appraised value. But, in actuality there’s (at least) THREE different market values. Rather than provide an example using commercial property, I’ll use the example of a property I purchased two months ago as a personal (2nd) residence, from the viewpoint of the seller. Avon, CT is a hot market, with multiple offers being received the weekend of the open house, which is scheduled one week after listing.

My offer of $725,000 was $20,000 lower than the highest bid, but was accepted without counter because it was not contingent on financing, while the highest offer at $745,000, while the buyer had pre approval financing, was subject to financing. So right there are two market values - all cash, and all cash subject to financing. But, what if the sellers had stated that they were willing to consider seller financing with a ‘significant” down payment? Is it conceivable that they could have generated interest from someone with a large amount of cash, but not in a position RIGHT NOW to obtain a mortgage loan? My guess is that it’s possible they might have been able to negotiate something like $250,000 down and a owner financed note for $550,000 at 9% interest ballooning in 24 months. If so they would have sold their house for (ultimately) $75,000 more than they did; received 9% interest (probably as much or more than if they invested the proceeds) on the amount they were waiting for, and if by some small chance the borrower/buyer defaulted, had an opportunity (along with the frustration, cost, etc) of reselling the property and obtaining a “windfall” profit.

2. Now suppose going along with the above, the borrower had a $375,000 mortgage (which they DID) on the property at an interest rate of 3.25%. IF, they were willing to take the risk inherent in all “subject to” transaction done without lender approval, they would have also been able to “capture”, and added to their wealth, the difference between 9% and 3.25% on the underlying $375,000 loan balance, or about $21,500 per year.

3. Assume I was the buyer interested in the owner finance scenario, rather than being the all cash no financing buyer. Among my real estate properties is a SFR in The Woodlands Texas appraised at $400,000 and being rented for $2,500 per month. I would have to pay about $25,000 real estate commission to sell, and probably about $5,000 in other costs. If I really wanted the Avon, Ct house, I would probably be willing to "exchange" this house as part of my down payment, at say a 5% discount after discounting for broker commission. So, the seller would be gaining ownership of the house at an exchange price of $352,000. BUT, it would be subject to the existing $160,000 mortgage balance carrying a 2.75% interest rate. So, it would be "worth" $192,000 as part of the down payment. The seller of the Avon house in this scenario acquires for $192,000 $240,000 equity in this property.

Each step adds to the net worth of the seller with just the same sale of the same property, but using the different “market” prices for a property (all cash not financed , all cash financed, owner finance/subject to) to enhance their wealth and accelerate wealth accumulation.

Let me know what you think? Is this something you do, or  would consider? 

[Jay Hinrichs]

Quote from @Gino Barbaro:

@Don Konipol

thanks for sharing. I've read several older real estate books, and it seems as if a lot hasn't changed. Even though pricing was a lot less expensive back then, you hear the same objection as you do today:

Where do I get the money for the downpayment? I think it was a lot harder for newer investors to get into the business back then. Nowadays, the internet has made it easier to network, reach a larger audience, underwrite deals, research a market, and have access to education. 

I just pulled out an old amortization book that Fidelity published and gave out to us new agents. Lowest interest rate was 6% :)  remember the days of thumbing through that thing trying to figure out the payment on a 75k deal.. find the 70k  then the 5k and add them up.. I will never get rid of it.. it served me well.