In investment real estate, the fastest way to wealth is through owner financing or a lease option. So, let’s take a look at a sample transaction, which involves buying and selling two properties under lease option contracts so you can apply it to your own investment real estate system.
Suppose you buy an investment property for $50,000 to $60,000 and sell it in a lease option agreement for $80,000. You receive $4,000 as a down payment from the buyer and you will receive the rest of the balance in 12 months. You have created a promissory note for the remaining $76,000 that pays you $570 per month (interest-only payments of 9%). This gives you almost $7,000 more in interest payments, if you keep this property for one year. Then he finds a rehab property in a cheap neighborhood that he can get for $35,000. You offer a 10% down payment of $3,500, promising to pay off the loan in 13 months or less.
Now, you can use the $4,000 from the first property, so you don’t have to put up your own money for a down payment on your second property. Offer to pay 8% of the remaining $31,500. This is a monthly payment of $231. Make sure your agreement allows you to defer your first payment between 30 and 60 days. Now, if you can’t sell the house in 13 months (this certainly won’t be a problem though), you’ll have the cash from the first house you bought, when the balloon payment of $76,000 is due in 12 months, so you don’t lose anything or you have to get your own financing, when you have to liquidate your second home in 13 months.
You see, you always take cover when you use this approach. If you shop smartly at this second home, you should be able to invest a few thousand dollars and sell it again in a few months. Be sure to make a profit well on top of your $35,000 purchase price and whatever you’ve invested. Again, if you shop smart, after a few thousand dollars of rehab, you should be able to sell the property for $45,000 to $50,000. You end up making between $30,000 and $35,000 in a year or less from the sale of your first two properties. This does not include the additional thousands of dollars in interest you have made on the payments you are collecting. Learn more about this strategy at http://www.winningthemortgagegame.com.