Turning a Flood Zone Home Into a Six-Figure Deal

High monthly costs made this deal seem like a failure from the beginning. Here’s how we turned it around.

The deal we’re looking at today was not a normal deal by any means.

Besides the flood zone part, there were several areas where we could have actually lost money on this deal it weren’t for a couple of clever adjustments. But in the end, it worked out well for everyone involved. We got a great payday and the buyer got a great home they would’ve been otherwise unable to obtain.

Here’s how we took a house that was in a high tax area—and in a flood zone—and turned it into a six-figure profit.

Marketing a high monthly rent

In this deal, we were looking at an expired property. We actually found this property through our expired-dialing process.

This is a completely automated system where we use a program to automatically call expireds with an option to call us back. This allows us to capitalize on those low-hanging fruit expireds with barely any time invested on our part. If you’re not doing something like this already, I would highly recommend looking into it—it’s just not worth your time to be calling every expired manually like I had to when I first started.

Trust me, I did it for years, and I’m never going to do it again after my son-in-law created this automated process. I can get all the value of calling a million expireds with no time investment on my part until and unless they “raise their hand” that they’re interested by calling back.

So we bought this expired property for the balance of the mortgage plus $40,000 cash via lease purchase. We agreed to pay the $40k at the end of the term, so our all-in price for the house ended up being about $618,000 in total.

There was a first and second mortgage on this property. There are some details here you don’t need to know about—just know that the mortgage payment came out to be $1,260 per month. But this was also in a high tax area, so the monthly tax was around $800. And to make things even worse, this house is in a flood zone—adding an extra $500 per month for flood insurance.

If you’re not keeping up in your head, that comes out to $2,593 per month just for our payment to the owner. That’s just what we owe per month on the property during the term.

There was a pretty clear problem here. How the hell are we going to rent this house for more than $2,593 per month in order to make a profit? In the rent to own world, that’s a tough number to crack. We want to make sure the tenant/buyer is able to get in the door, feel comfortable, and be able to save money to get cashed out—but we still need to make money.

Here’s what we did.

We went on the market at $2,000 per month for this home. Now, I know what you’re thinking—we’d be taking a $593 loss each month at this price.

But that’s not what happens. When our buyers come in, they’ve already been educated on our process—they’ve seen the videos and they understand that they’re responsible for the taxes and insurance on their property. They’re acting as the homeowner after all, right? So it is their responsibility.

So that $2,000 does not include tax and insurance. Once you add that in ($2,000 + $833 + $500), the total comes to $3,333 per month. That means we’re making $740 per month.

Breaking down the numbers to achieve six figures

Now that we understand the initial logistics of this deal and how to navigate a high rent price, let’s take a look at the three paydays.

Payday #1 is the down payment. In this case, the down payment was $80,000. One important note here is that we did our research (as we always do) to qualify these buyers. You need to have a system to qualify buyers, cover yourself, and have a plan that will successfully get the buyers to their end result. That’s a post for another time, but rest assured, we did our homework to make sure this $80,000 would be paid throughout the term.

Now, I wish this $80,000 came all at once, but it did not. The buyers paid this over a 14 month period in increments of $20,000 starting with $20,000 down.

But there’s still one piece missing! The total on Payday #1 actually ended up being $83,333. Some of you may already know how we structure our deals, but for those that don’t, we always write into our agreements that we will take over payments to the owner (or owners’ mortgage company if there’s a mortgage) 30 days after occupancy. That means we get to keep the first month’s rent from the tenant/buyer, and we can start paying them on the second month. This is just one of many small techniques that we use to increase our take-home pay.

Payday #2 is the monthly spread over the course of the term. Thanks to the way we structured the monthly rent, our spread was $740 per month. Multiply that by the 36-month term and you get $26,640 for the second payday.

Not bad for a house in a flood zone with high taxes!

Payday #3 is the profit from selling the house at the end of the term plus the principal paydown benefit throughout the term. This one was a bit more complicated than most. Here’s how it ended up working out.

We were able to sell the house for $699,000. If you remember, we bought the house for $618,000—meaning we made $81,000 in profit. But let’s not forget the principal pay down!

In this case, the principal pay down was $500 per month, and with the 36-month term, that ends up being $18,000 in total.

That comes out to $99,000 in profit. But we need to remove the $80,000 down payment—which, coincidentally, happens to be the same number as our profit on the sale. Once you remove that, the profit for Payday #3 comes out to $19,000.

The conclusion to an amazing deal

In total, the three paydays come out to $128,000 over the course of 36 months. That’s around $42,000 per year off of one deal.

As I mentioned in the beginning, this is not a normal deal. This was an exceptional deal, and these come around when you’re in the trenches working consistently. Our average paydays are usually around $75,000 and this was almost double.

But if you know what you’re doing and you have a good strategy for acquiring expireds, it’s not unheard of to do a couple of deals like this per year. If you did three of these per year, well, you can do the math.

This is just one way that we’re able to take deals that look like they’re doomed to fail and turn them into major success stories. It doesn’t always happen like this, but when it works, it pays off big time.

So, how can you incorporate some of these techniques into your next sandwich deal? And for those that are still calling expireds manually—can you afford to keep it up?