Posted by Ryan (NC) on June 02, 2007 at 18:00:26:
And I thought paying 7300 for a unit that fetched 14900 was bad… There ain’t much of a profit margin in your deal! As Tony says, the value of each deal is in the eye of the beholder but I want to caution you against one thing.
What IF you can’t find a cash buyer and the home stays on market for 4, 5, 6 months all the while you are eating 200-300 in lot rent and say 100 in advertising? You are now are in it for nearly 15k which leaves you MAY BE 1-2k in profit and who knows how much stress during this time. Ok the cash buyer ain’t coming along, do we drop the price and take a loss or do we finance the home to someone with 1k down and payments of 250 month? If we finance the sale our return would be roughly 16.5%. Not bad but you can get that type of return buying partials from folks that are in the business and know what they are doing. Using options eliminates a lot of the risk but if you take title there are other things that can go wrong like being forced to move it! We make our money on the buy and collect when we sell or rent!
If we take that same 13k and buy three units for 4300 each that we can sell for 10k each and collect 500-1000 down where do we stand? We have three units each bringing in around 250 per month ($750 total), 2250ish in down payments, and our return jumps to right at 80%. You’ll notice the payment amount didn’t change, that’s the main problem I see with over paying for a unit, there tends to be little difference in the monthly rate you can collect between a 15 year old unit and a 5 year old unit.
Lonnie writes the perfect model in black and white and many people want to start changing things right from the get go! WHY? You have a proven model that has been tested across the country and been proven many times over to work! Follow the advice Lonnie has written and it’s really hard to loose money, think you are smarter than a master who has done deals for years and years and I promise you’ll get burned!
It really ain’t hard folks, you just have to get out there and do it! =)