Recent deal will be a cash cowReading Time: 3 minutes
Hello again fellow investor,
It’s not often that I speak of my own investments. The main reason is that I focus on areas of investing that most investors don’t find to be as sexy or fun to talk about.
You see, I typically don’t seek the quick cash from rehabs or wholesale deals anymore. (At one point, that’s all I did.) Instead, I focus on long-term stuff like buying notes, lending my private funds, buying rental property, and selling on owner financing. I also spend a lot of time managing my existing portfolio.
My most recent deal was pretty cool, so I’ve decided to write about it here. If you guys like me sharing info on my deals, I’ll be more than happy to share more in the future. Ok, so here we go!…
Last month, a wholesaler came to me with a deal that had these numbers…
ARV: Unknown. It was $65K+ at the peak, but buyers in that area can’t get financing anymore.
Repairs needed: $1,000
Purchase price: $25,500
Rented for: $1,070/mo on Section 8
Property details: Townhome, Built in 1979, 3 BR, 2 BA
I can see how some people would shy away from a deal like this because there really is no definitive ARV, it’s a townhome, and there isn’t big $$ to be made on a quick flip. But by acting on this deal, I stand to make a good deal of cash. Here’s how…
I’ll keep it rented as long as I can at $1,070/month (government guaranteed through Section 8). That comes out to $12,840 per year, which is $25,680 over 2 years. So in 2 years, I will have pretty much recouped all of my initial investment.
But going forward I’ll have other costs like maintenance, insurance, and taxes, so let’s be conservative and say that it’ll take me 3 years to get all of my $$ back. After that period of time, the money coming in will be pure profit… over $12,000 per year of profit.
Rental income: $120,000 over 10 years…
To sweeten the deal, I paid for the property with cash out of my Roth IRA. The income in a Roth IRA is tax free, so I pay no taxes on that income, which equates to big savings. Plus, there’s no lender, so I have no financing costs, which equals more huge savings.
So if I keep it rented, my Roth IRA will grow by about $12,000 per year or $120,000 over ten years just from this one little deal that most investors would pass on.
I’ll keep the tenants as long as I can, but if they choose to move out at anytime, I doubt I’ll re-lease it. After so many years of dealing with tenants, I’m just not a huge fan of it. So instead, I’ll sell it on owner financing for $59,900 … $5,000 down and $54,900 financed at 11.9% interest over 15 years. So instead of owning the property, I’ll own a note … typically a lot fewer hassles.
Owner financing income: $123,000 over 15 years…
So how do the numbers work out when I sell on owner financing? Over 15 years, I’ll get … 1) up-front down payment of $5,000, 2) total principal payments of $54,900, and 3) total interest income of $63,066. That all adds up to $122,966 of tax-free money added to my IRA. Not bad.
This one little deals proves that you can’t look at every deal as a fix/flip opportunity. If you’re willing to take your profits over time, you can make a LOT more money. It also shows that you don’t need to wait for the market to rebound to reignite your investing. I’m seeing deals like this everywhere… much more frequently than in the boom years.
Wholesalers are regularly posting deals just like this on MyHouseDeals.com. Create a free account today, then upgrade to Premium for early access, and grab a cash cow for yourself!
Until next time, happy (and profitable) investing!
Real Estate Investor
Founder of MyHouseDeals.com