I’m frequently asked by new investor hopefuls how to get started in real estate when cash is light. Here’s an example of a deal I did when I was starting out. Minimal cash out-of-pocket, ($800), no banks, no hard money. I also changed direction in mid-stream. . .
Homeowners were a young couple with a newborn. Well, dad decided he wasn't ready for the ensuing responsibilities of being a husband and father and skipped out, leaving mother and daughter in the lurch. Unable to afford the expense of homeownership she moved in with her parents. I responded to her FSBO ad and made my offer which she happily accepted: a 36 month lease option; I'll bring her mortgage current, (1 month, $800), and continue making the monthly payments; option to purchase price of $88K, (my estimate of value, $100K); and I had the right to buy, sell, sublet, or assign the property at any time during the 36 months. Sometimes control can be more advantageous than ownership.
With the terms locked in place my plan was to sublet the lease option. I then needed to find a tenant/buyer. Response to my ad was strong, and I settled on a couple who were ready to move in immediately. They were new arrivals in New Mexico, coming across the border, y ellos no hablan ingles. My wife is Colombian and so that hurdle was no longer. There background was sketchy but they had cash on hand. Actually, the cash was in a paper bag. They dropped $3825 on me in dusty, unmarked bills. $3K nonrefundable option money, $825 first month’s rent. The deal was done.
Banks and checks didn’t exist for them and so every month I would personally go to the property and collect the rent in cash. There were always a few unknowns hanging around but everyone was friendly, always offering me a shot or two of tequila, (readily accepted), and I would be on my way. This continued for about 4 or 5 months then, suddenly and without warning, they were gone. No answer on the mysterious phone number I had; no answer at the door; junk mail building up on the patio; property was clearly vacant. Called a locksmith and gained access. Inside was strewn with some trash, food in the fridge. Not bad; I expected worse. They did leave a brand new mattress still inside its wrapping. But they also left behind a scale. Were they dieting, weighing out food portions? No. It was a scale for weighing much smaller amounts, grams. Hmmm. . .jewelers? Uh. . .no. Upon closer inspection there was weed residue. I’ll be damned, I thought. My tenant/buyers were entrepreneurs at heart. For reasons unknown they had to get out of Dodge quickly. Which leads me to Phase Two of this deal. . .
My wife is a beauty from Colombia. She grew up on the north coast, a splendid region of palm trees, much greenery, ocean breezes off the Caribbean Sea. The desert of New Mexico is a more subtle beauty, brown and dusty, with all sorts of critters she wasn’t accustomed to. Black Widows and tarantulas, scorpions and rattlesnakes. We decided to head east to Florida. But before doing so I had to decide my plan for this property. Long distance property management can be a challenge, where even a small problem can become a big problem. I had options at my disposal but I decided this was a good deal to assign. Excellent terms already negotiated and in place, a long term lease option with a below market price and potential for increased value. My ad received a good response and I settled on a deal with another investor who saw the value in this and we agreed on an assignment fee of $7000. The deal was quickly concluded and with check in hand we were headed to greener pastures, literally. LOL
So, with only $800 out of pocket I was able to profit to the tune of $10,000 in 6 months. I also scored a brand new mattress and a heavily used scale.
Want to talk real estate? Trade war stories? Do these deals yourself? Always happy to talk. Feel free to DM me.
