Hello Robert,
Please pardon the long answer to your short question here but lets elaborate a little bit.
Their are one of two strategies going into a investment deal using little if any of your own money, one is, controlling the property the other taking over the property with seller financing.
Quite honestly, in the illustration above you could get that deal with nothing down (well, a $10 binder deposit) using a 30, 60 or 90 day option agreement and then sell your position for more than you have it locked up for and that's your spread. You're in and out of the deal in short order for a nice one off payday.
However, it sounds like you like rentals and "Positive Cash Flow". So here's one for you...
Another "control type" scenario is... (with none of your own money or credit) if the seller is willing to wait a few years for pay-out, you could do a sandwich lease-option whereby you get the property under contract (for a $100 deposit) with a 3 to 5 year option to buy at a set price of say the 119,000 we talked about and a monthly rent at say 700.
Assuming the house was worth the 149 mentioned above, you then find a choice tenant/buyer with good money, good job but not so finance worthy credit. You then sublet to them on a two year lease with option to buy and charge them 159,000. They have to put down a 20 or 30 thousand dollar none refundable deposit (or as much as their willing to put down and you're willing to take. It could be 50,000) then charge them 1,250 per month rent (or whatever the rent median is plus a little more so long as it's more than you're paying. A $300 a month or more spread is best).
Should they exercise their option in two years, the amount of deposit would come off the purchase price.
In short, you get paid three ways.
1) You've collected a substantial down 20,000 (or more)
2) You've made $550 per month cash flow x 24 months = $13,200
(the other 700 paid down your debt $16,800 so your balance to the seller is now $102,200)
3) Your buyer gets financed at 139 (159 less the 20,000 credit)
139,000 - your 102,200 balance = $36,800 profit on the back end.
So in two years you've been paid:
$20,000 front end + $13,200 in cash flow and $36,800 on the back end for a total of??? Wait for it... $50,020. Not bad for $100 out of pocket huh?
Oh... what if they need another year to get financing? Well, negotiate a penalty fee or some more cash toward the balance... It's another opportunity for you to get paid more upfront if you want to. Or, just let it go another year. Doing so, you'll have earned another $6,600 in rents Plus an another $8,400 pay down on your debt to the seller. Totaling an additional $15,000 profit.
Now lets say your tenant/buyer gets into a jam 12 or 15 months into it and they have a job transfer, death in the family or something happens that they have to move. Well, they forfeit their deposit and you simply rinse and repeat the process.
Now... if it all goes to pot and they still can't pull the trigger, now you're left with a decision. You've made a boatload of money and they've put a good dent in your balance. You could either exercise your option and buy it for the balance owed, negotiate a longer term or... walk away and you lose your $100 deposit. It is after all, only an "Option" to buy. The seller will then have a house that's worth more and they owe less on. Not a bad deal
Now... there's the taking ownership side of things.
Regarding "not using your own money or credit" concept, this is accomplished by using the land contract you mentioned or a purchase and sale agreement in the form of wrap around mortgage or as subject to the existing loan. Either of which you are taking over the property with seller financing and little or no money down.
If the seller just wants or needs out and is willing to take back a second for the 119,000 with $5,000 down (maybe zero down)... the seller may only owe 30,000, and his or hers mortgage is only 550 mo. Use a purchase and sale agreement "subject to excising loan" if you can or do a "wrap' with a 5 or ten year balloon (the longer the better) at the 119 and the 550 or 650 monthly payment.
With this method, you too can sell with owner financing for more than your're paying. And... at above market rate, because "your' buyer will pay "you" a premium for the convenience of the terms that you're providing them. So... You can get paid on these kind of deals a few different ways.
1) You can get paid on the front end, usually 10% to 20% down (cash) or whatever they can afford and you're willing to take. 10, 20 or 30,000 (way more than your 5,000 invested)
2) Monthly cash flow (you charge 2 or 300 more per month than you're paying)
3) And... if you charge a low interest rate on their balance, you'll earn even more
So, to sum up this scenario, full market is 149,000
You sell for 159, get 20,000 down (cash), you finance the 139,000 balance at 1.5% which = 1,250 per month on a ten year note to you.
- you put down 5,000 / you get 20,000 (15,000 profit)
- your monthly payment is 700 mo. / your getting 1,250 (550 monthly cash flow x 120 months = 66,000)
66,000 cash flow + 15,000 down = $81,000 profit less closing costs and any taxes on the intrest you've earned.
Not bad for a $5,000 investment, maybe less.
In closing Robert,
Their are so, so many ways to structure profitable win/win deals its crazy.
And it wouldn't take many of these kind of deals to make a Big difference in someones life. Heck, with just a deal like this or two a month, It'd help change someones zip code.
You know what I'm say'n ;-)
Hope this helps my friend and lets stay in touch.
