Re: Flipping 101 - Posted by Bill Gatten
Posted by Bill Gatten on November 13, 1998 at 22:20:15:
I agree with you about the rigors and headaches of landlording. However, I found my Utopia several years ago while looking for a better way to do Equity Sharing which is pretty much a passe concept now, given the advent of the 3rd party land trust conveyance ('couldn’t resist saying it).
With the particular program I use, I pick up the properties and put someone else in them to handle–not only all payments and costs–but also to cover 100% of all maintenance, repair, upkeep, property tax, insurance, HOA dues, etc. on a 3-5 year contract (or more).
The deal is, if they honor the obligation throughout its term, they get 100% of the property, 100% of the possessory interest, 100% of the equity build-up in the underlying financing, 100% of the tax write off, and 50% of the appreciation in 3-4 years (sometimes more, depending upon the Payment to Property Value [P:PV] Ratio, and/or how much cash they come in with up front).
In this arrangement, I have incredible flexibility… I don’t have to calculate Yields and Internal Rates of Return, ROI’s, anticipated profit, etc. (I’m like Bronchik: I know how to do it, but it drains my Ginko Biloba). I merely find someone who has a property they don’t want, and I agree to take it off their hands. I then advertise for someone else to cover the cost and share the profits with me 3-4 (5,6,7, etc) years down the road. I call it “buying real estate for ‘Nothing Down and Nothing a Month’.”
The ad basically says, "No bank qualifying. No down payment. Low payments. Vine covered beauty. You’re really stupid if you pass this one up. Shut up and call me (or something like that).
In all candor, the process and the concept have never failed me once; and because of it, I actually enjoy picking up over-encumbered properties, believe it or not. These sellers are REALLY motivated, and the over-encumbrance (if not more than 15% at start) is amortized out in a few years anyway (while someone else makes the payments). If the property doesn’t cost me anything down, or anything per-month; and if I don’t have to qualify for a loan… and if I’m honest, fair and candid with all parties, what do I have to lose?
If I only have 8 or 10 of them comming due in a year, and only make $15 or $20K on each one (not counting any equity that I may have started with, and/or any postive cash flows I may have received along the way… that ain’t too bad.
In the event I were to come out at the end with no appreciation (though possible, its highly unlikely, given a 4-5 years run at it), I merely offer to extend the agreement; or I terminate it, raise the price, and find someone else to start the process all over again. Or… (though I never have and wouldn’t… probably), I could just give the house back to the original seller with all of its improvements and a lot less owing on the loan).