Another slant - Posted by Russ Sims
Posted by Russ Sims on May 11, 2000 at 11:44:30:
Everything Eduardo told you is great! Here’s another slant: Paying off your credit cards/debt is crucial. But if you’re like I was one short year ago, you live paycheck to paycheck and just barely manage to pay the minimum on your card balances.A little rental won’t put enough in your pocket to make a very big dent in that debt…Rob’s right: a positive cash flow might prove difficult.So if you just pay the minimums on the debt you might be debt free on the 12th of Never.
How about generating extra income without being a landlord, and taking that extra income and funneling every penny into that debt? Start with the most expensive debt first, lets say with the credit card with a 6K balance at 14% interest. Every penny goes into paying that off, and then you start with the next most expensive debt…and so on. It will begin to snowball: and where will this extra monthly income come from? Lease/options worked for me. It’s really pretty simple in concept. You find a home for sale by owner, where the owner has very little if any equity. They are forced to sell because of job transfer or financial hardship. They are motivated. And they are in a huge bind, because they must get top dollar for their home, and they can’t afford to hire a Realtor. The house has been on the market for 3 months and they’ve had a sale or two fall through. They are Motivated! You come along and offer to take care of the home and make their monthly payments until you can buy the place. You get the home under a lease/option contract. You pay nothing for it. In fact sometimes the owner will fully expect to pay YOU. Now you control the home. You advertise it as a “RENT TO OWN; NO BANKS!” property. The phone rings off the hook. You collect an option fee of, say, 3 to 5K from your tenant/buyer(this will apply toward the purchase of the home IF they exercise the option) and you collect more rent than you are paying out on the owner’s mortgage. It’s not uncommon to realize a $100-$200 monthly cash flow. You have no landlording worries, because your tenant/buyer guarantees to take care of repairs/maintenance. You will be responsible for damages if the T/B damages the home and refuses to pay for it, so choose wisely. Screen the prospects with a screening service. Make the t/b understand that if they screw up, they’ll lose their option money. I’ve got a bunch of these homes, and I’ve never had a problem with tenants ( aside from an occasional late pay). So now you have an income stream without the hassles of ownership and with virtually no landlording worries.
You make money 3 ways with this deal. From the initial up front option fee, from the monthly spread between what you pay out and what you take in, and then from the “back end” profit when the home sells to your t/b. This will occur at a simultaneous closing, where you buy from the seller and sell to your buyer in one transaction. You’ll mark the property up as much as you can get by with, and that will be your “back end” profit. If you’re buying at close to market value, can you really mark the property up for re-sell? Sure. If you have, say, a 3 year lease term, you can estimate a conservative appreciation figure and mark it up accordingly. On a highly encumbered property you might make 10 to 20K. Ad that to your monthly income and you gotta like the return on investment .I recommend the Bill Bronchick lease/option course to get you started. That’s just my opinion.Some may trash me for suggesting that a fianncially strapped person funnel money into a course, but it worked for me a year ago. Everthing’s fine now. Good luck! Russ