Creative Real Estate Investing often requires the nimbleness of being quick on ones feet in taking off the blinders and being open to that which may not appear obvious. Often I see fellow real estate investors quick to jump to the latest hot topic of lease options, short sales, owner financing, or even buying discount notes. The truth is that these are nothing but mere tools of the trade and that which is out of the box and creative is right before our very eyes…
You see it’s not about finding some quick cure of easy riches…
The ability to create wealth and a sustainable positive cash flow for financial independence is achievable by everyone simply by using that which we all ready have. Let me let you in on a secret. It is not always about what you earn -it is all about what you save versus spend.
Do Not Eat Your Equity.
My first job out of school paid me $18.5K. Yup – I’ve had some say no-way while others breath a sigh of relief knowing they are not alone. If this is where your at, you need to read my article about my first home (that I bought on this income) and that I subsequently turned into my first rental: Landlording -A Way to Wealth with Rentals that anyone can Replicate
My point? You see, back then I had a goal of owning my own home. Do you think I had a cell phone, big screen tv, or a hefty bar bill from every weekends escape from reality? NOPE. My goal was/is complete financial independence.
Based on what I had, if I lived in reality I had to make choices.
Everyday I meet new people looking to real estate as a cure to financial independence usually with unrealistic expectations. That’s ok -I did too! 🙂 We all dream. The difference between achieving one’s dream and not is a realistic plan and taking action.
I started this article to take a re-look at a rental property I had bought two years ago. A nice duplex with a 0% interest rate owner financed loan that was actually wholesaled to me. Did you see the two creative real estate techniques used in this transaction so far?
- A wholesale deal with an executed assignment of contract
- 0% Interest Owner Financing
Yeah right -did that catch your attention? To bring you up to speed, read my “Win/Win Owner Financing Wholesale Real Estate Investment“.
Sometimes the path we take has diversions and our ability to adjust requires quick decisive actions in making sustainable business decisions and that which is the right thing to do….
You see a little untold truth about all these simple owner financed real estate investments that are so freely discussed is that they do not always just run there course as simple as the paperwork suggests. Think about that. How many plans have we made (whether in real estate investments or just life in general) were they worked out just as we originally thought?
The truth is that as real estate investors using caution and good fundamental discipline in purchasing real estate investments we typically buy at what is called a wholesale price. Just like an auto dealer buys your used car to resell or an antique dealer.
So if we buy at wholesale pricing it can come in the format of price, trade, and/or terms…. It just so has it that this real estate purchase provided a decent wholesale price; however, the terms of 0% Interest Rate Financing with a fully cash-flowing property (given competent property management) that would be Free & Clear in 7.5 years was the Big Carrot. Talk about creating wealth!
So my point – typically with distressed sellers, comes dysfunction. This seller’s goal was to achieve some upfront cash and still maintain some future cash flow stream. However, his life directions apparently didn’t change as I received the call that he would like to get his money and be paid off early. Now if you read that article (Win/win wholesale investment) you’ll note how the monthly mortgage payment was covered by 63% of the low rents (a bit tight but worthy of a 7.5 year payoff) while market rents would put that at 42% -so I wasn’t concerned with potential zero turnover.
So with dysfunction came a change in plans. You need to plan on contingencies because change is constant and what goes down on paper is certainly not usually what happens. My long-term elderly resident needed to move to a retirement center were she could get proper care and with that -the somewhat suspect second resident needed to go. The good news!?! So with the captial improvements that were planned (but unsure as to when) with the purchase, we not only beat the conservative estimated market rents (as I mentioned in that article) of $595/side but with the help of a professional property manager, blew it away by some 14%+ with $695/side. The Downside!?! I paid off the seller’s note as he needed cash. Of course I took a discount which is hard to do especially when offsetting a 0% interest rate. I didn’t take advantage; however, I made the discount the equivalent of a 7% note (below most owner financing rates of today in the 8-10% range). My goal was to achieve a win/win, do the right thing -yet still maintain a good wholesale acquisition. So now that I lost the terms, I made it up in the price. We are all in at @$81K with a rehabbed Duplex providing gross rents of $1390/month. I still have no regrets.
So what did I do with this creative real estate investment? I used a third technique to create a win/win between myself (who would be losing a great financing tool (the loan) and have to replace it with more expensive money (either cash that I could certainly earn a greater rate than 0% or by borrowing elsewhere that would certainly cost me more than 0%) and the seller who needed cash now. I bought (paid off) the face value of the loan at a discount.
You see all the techniques (and I’ve only pointed out three for this one) of creating wealth and financial independence with real estate investing are mere tools. The realities of life create changes in all our lives. Not only our own lives but the lives of our family, friends, and with those whom we do business. One simply has to be aware of one’s surroundings and work realistically with what one has to not only plan but take action.
Creative Real Estate Investing can create financial independence; however, being realistic with ones realities is a prerequisite.