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A Real
Estate Formula
by:
Steve
Gillman
It was a
simple real estate formula.
The ads ran in our
small-town newspaper for
years before I realized
exactly what was going on.
They were always the same: A
house for sale with 5% down
and payments of 1% of the
purchase price. Maybe a
three bedroom home for
$90,000, for example, with
$4,500 down and $900 per
month payments.
When a
friend started doing the
same thing he explained the
process to me. It was a way
to get a great return on
capital, and it was the
opposite of buying with no
money down. There is no down
payment at all when you buy,
because you buy for cash.
The Simple
Real Estate Formula
You probably
know that when you buy for
cash, you can often get a
much better price. With no
financing contingencies in
the offer, and the promise
of a faster closing, sellers
are willing to sell for
less. You can offer $95,000,
for example, on a house that
might be worth $108,000. If
you can't get it for less
than, say, $99,000, you walk
away - there are always
other opportunities.
Once you buy
the house, you put few
thousand into high-return
repairs and improvements.
These might include paint,
carpet, and maybe asphalt
for a dirt driveway. For our
example, we'll say you spend
$5,000. Let's suppose the
house is worth $116,000 now.
You're ready for the next
important step in this real
estate formula.
You put it
up for sale, targeting
buyers who can't get
financing easily. You
provide the financing.
Because you are making it
easy for the buyer, you can
get more than the $116,000
value for the home - and do
it without paying a
realtor's commission. Let's
say you sell it for 123,000.
The buyer needs a down
payment of just 5%, or
$6,150, and makes monthly
payments of $1230 per month.
You charge higher interest
than the going rates at the
banks, of course.
This is a
win-win situation. Your
buyer is able to buy a home
instead of renting, and you
get a capital gain of
perhaps $16,000 after
expenses, plus good
interest. Your total rate of
return will often be over
20%!
In our town,
the first to do this
consistently were a father
and son team of lawyers.
They saved money by doing
their own foreclosures when
necessary. Once they
foreclosed, they raised the
price and sold the home all
over again.
They made
millions. Did you know that
if you can get an average
return of 18% on your money,
you'll turn $75,000 into
more than one million
dollars in about fifteen
years? That's the power of a
good real estate formula.
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