All Forum Posts by: Vance McClenton

I've had Jeshua Lauka at David & Wierenga handle my closings and prepare paperwork for me when doing some pretty creative deals including a double closing wholesale deal, and a subject-to purchase, lease-option sale deal. He's good and he doesn't charge outrageous fees.  And he's a Christian - I like that.  :-)

You can get in touch with him here: http://www.dwlawpc.com/Bio/JeshuaLauka.html 

Tell him I referred you. He'll treat you very well!

I actually used a real estate attorney for the closing on the subject-to purchase side.

So my first really creative financing type of deal is now complete, and it was a great success! Here's how it worked:

I bought a house from a lady for $94k. It was purchased with no money down, with a term of 7 years, and subject to the existing mortgage ($80k) staying in place, plus a 2nd mortgage to the seller for $14k.

The exisiting mortgage had a monthly payment (including taxes and insurance) of about $600/month. And the 2nd mortgage's terms were $180/month at 0% interest until it was paid off.

As soon as I had the property under contract, I took pictures and started marketing it on Craigslist as a lease with the option to buy for $114k. The property was in great shape and needed no work (other than a good carpet cleaning, which I had the seller get done before moving out), so that's why I was able to market it for sale at full market value.

Within two weeks I had about 5 people interested in the house, had two of them who were serious after having seen it fill out rental applications and the first one to return it was the one who I ended up selling it to.

So I sold it on a lease-option, with a $6k option fee, a 3 year option term, a $114k option price, and a $900 monthly rent on a 3 year lease (to match up with the same option term). I sold it to a couple who had some credit issues, bad enough that they couldn't get approved for a mortgage right away, but good enough that they could probably fix it fairly quickly. I also asked them (strongly suggested really) to contact a credit repair company to get their credit improved as quickly as possible so they could get approved for a mortgage as soon as possible - which they did. I also knew that they could pretty easily afford the monthly rent based on the info on their rental application income and debt information.

Over the course of 10 months, I got one call from them about a tree that fell in the back yard. They just wanted to know if it was on their property or not, I told them it was, and they got it taken care of themselves. They paid their rent on time each month, and I used that to pay the mortgage payments and pocketed the other $120/month.

About 8.5 months into the lease, they had gotten their credit score improved enough to likely get approved for a mortgage so they went to a bank to get pre-approved. We used the $6k option fee as most of their down payment on the house, I worked with the title company and bank to get the info they needed for underwriting and we closed on the sale last week (after 10 months total).

The title company took care of paying the taxes, paying off the 1st and 2nd mortgages, etc. and cut me a check for about $15k.

So all in all, I put no money down and ended up making about $22,200 profit on the deal overall! 

$114k (Sale Price) - $94k (Purchase Price) = $20k from arbitrage ($6k up front as an option fee and $14k on the back end at closing)

$120 (rent) x 10 months  = $1,200 from rent

$1,000 (1st mortgage principal pay-down over 10 months)

It was a pretty awesome deal in every way! I got to help someone get out from under a house that they needed to sell quickly (she was moving out of state), help someone get into a house sooner than they would have been able to normally, and make money for me and my family in the meantime. Win-win-win!!!  :-)

It wasn't quite as easy as I probably made it sound, but it was definitely worth it!

I gotta do some more of these...

Yeah, sure thing Mary!

So basically he has invested 20% ($15,600) of the purchase price of the house (which is $78k) into the property, along with the $4k in closing costs and $4k in repairs.

So all together he has invested $23,600 into the property.

He cash flows $213/month = $2,556/year (which is all profit, or his "return").

So his current ROI over the course of a year would be:

$2,556 / $23,600 = 10.8%

Now since he mentioned that the comps in the area are around $100k, that means he has about $22k in equity built into the property already because he bought it right!

So after a year, assuming none of the numbers or property values change for simplicity, if he refinances the property with a mortgage for 80% LTV ($80k), then he will be able to pay off his mortgage of ($62,400... the $78k price minus his 20% down payment of $15,600), and have $17,600 left over to put back in his pocket.

So looking at the numbers now, his investment would be the original $15,600 + $4k + $4k - $17,600 = $6,000

His return will be based on whatever his new monthly cashflow would be now with the new, higher mortgage balance. But let's assume he still cashflows $100/month (or $1,200/year).

Now then, his ROI would be $1,200/$6,000 = 20%

So just by refinancing the loan after a year, he could almost double his ROI, and have a bunch of money back in his pocket to go buy another similar property while his tenant is busy steadily paying down the mortgage on his first property!

I'm not saying that this is the right option, or even the best option. But if you're a person who wants to maximize your ROI, this would be a good way to do it.

I'd say it was a pretty good first deal. You have a cash flow over $200/month which is a pretty good target for properties in Grand Rapids, and you have instant equity of around 25% (if this house is worth a little over $100k).

I might advise that after a year or so, once you've "stabilized" the asset, you could refinance and pull out your 20% down payment, which would make your overall ROI sky rocket!

Good job!

Sorry I missed the first one. I'll definitely be at the next one!

Hey Joseph! I've been learning about different real estate investing strategies for a couple years now but I'm just not getting into the game for real and haven't done any deals yet, so take my advice with a grain of salt...

But I'm in a similar situation as you as far as not having money to start with (my credit's okay, but not super great either). And it seems that the best way for people like us to start is either wholesaling or various lease option strategies. Either one will require quite a bit of time and effort, but little money.

I'm going with lease option strategies and if I happen to find one that would be better to wholesale, I'll try that. For lease option info, check out Wendy Patton's website at http://www.wendypatton.com/. She has a ton of great info on how to do lease option deals.

Good luck!

Congrats Josh! I love hearing about fellow investor's 1st deals! It keeps me motivated to get mine! =)

Hey everyone!

My name is Vance McClenton and I'm a pretty new investor from West Michigan.

I got into real estate investing a couple years ago and have suffered from analysis paralysis for most of that time. I figured that I needed to learn everything first and then get started. But now it's obvious that I'm never going to know everything and that I definitely know enough by now.

And learning costs money and time instead of generating money and freeing up time which is my purpose for getting into real estate investing, so now it's time to get in the game instead of just learning about it.

I'm primarily focused on strategies that don't require much or any money to start,... big surprise huh? So I'm working on wholesaling, lease-options, and land contracts primarily. I'm pretty good at structuring creative financing deals.

I'll admit that I'm not great at marketing though, so that's something I'm working on more and more. It's tough seeing money go out the door in the form of yellow letters, postage and signs, but not getting a deal from them. Craigslist is great, but there's just so many tire-kickers out there who respond to those ads that it's hard to find the real deals. But hard doesn't mean impossible, and if it weren't hard everyone would do it right?

I'm committed to being successful in life and real estate is going to be a part of that. My strategy is to do wholesale and lease option deals to make some money in the beginning, then buying and holding properties while renting them out or selling them on land contracts to generate a good monthly cash flow. Eventually I'll move on to multi-family properties with professional management in place so I can earn "passive" income, quit my job, and do whatever I really want to do instead of just what I need to do.

I'd love to find a mentor who could help me out, and I'd do whatever I could to provide value for them as well. I'd also like to connect with other investors in my area to work with. I subscribe to abundance mentality way of thinking and I figure the more we can help each other, the more successful we'll all be!

In fact, if I could partner up with someone who's good at marketing but not so good at structuring deals - we would be able to use each other's strengths to overcome each other's weaknesses and both be more successful! If that's you and you'd be interested, definitely get in touch with me!

I look forward to participating in discussions here, asking and answering questions celebrating successes and making new friends!

=)