It was a simple real estate formula. The adverts ran in our small-town newspaper for years before I understood precisely what was happening. They were always the same: A property for sale with 5% down and payments of 1% of the purchase price. Perhaps a three bedroom home for $90,000, for example, with $4,500 down and $900 per month payments!
When a friend begins doing the same thing he described the process to me. It was a way to get a great profit, and it was the reverse of buying with no money down. There is no down payment at all when you buy because you buy for cash.
The Simple Real Estate Formula
You probably know that when you buy for cash, you can often get a much better price. With no financing likelihoods in the offer and the promise of a quicker closing, sellers are ready to sell for less. You can give $95,000, for example, in a house that might be priced $108,000. If you can't get it for less than, like, $99,000, you move away - there are always other openings.
When you buy the house, you place few thousand into high-return repairs and improvements. These might include carpet, paint and maybe asphalt for a dirt driveway. For our example, we'll say you spend $5,000. Let's suppose the house is worth $116,000 now. You're set for the next main step in this real estate formula.
You put it up for sale, aiming for buyers who can't get funding without trouble. You offer the financing. Because you are making it easy for the buyer, you can get more than the $116,000 value for the home - and do it without paying a realtor's commission. Let's say you sell it for 123,000. The buyer requires a down payment of only 5%, or $6,150, and makes monthly payments of $1230 per month. You charge higher interest than the going rates at the banks.
This is a win-win situation. Your buyer is able to buy a home rather than renting, and you receive a capital gain of maybe $16,000 after expenses, including good interest. Your total rate of return will always be over 20%!
In my town, the first to do this regularly were a father and son team of lawyers. They saved money by doing their own foreclosures when necessary. Once they foreclosed, they raised the price and sold the home all over again.
They made millions. Did you know that if you can get an average return of 18% on your money, you'll turn $75,000 into more than one million dollars in about fifteen years? That's the power of a great real estate formula.