A Real Estate Formula

A Real Estate Formula

A Real Estate Formula
It was a​ simple real estate formula .​
The ads ran in​ our small-town newspaper for​ years before I​ realized exactly what was going on .​
They were always the​ same: a​ house for​ sale with 5% down and​ payments of​ 1% of​ the​ purchase price .​
Maybe a​ three bedroom home for​ $90,000, for​ example, with $4,500 down and​ $900 per month payments .​
When a​ friend started doing the​ same thing he explained the​ process to​ me .​
It was a​ way to​ get a​ great return on capital, and​ it​ was the​ opposite 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 contingencies in​ the​ offer, and​ the​ promise of​ a​ faster closing, sellers are willing to​ sell for​ less .​
You can offer $95,000, for​ example, on a​ house that might be worth $108,000 .​
If you can't get it​ for​ less than, say, $99,000, you walk away - there are always other opportunities.
Once you buy the​ house, you put few thousand into high-return repairs and​ improvements .​
These might include paint, carpet, 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 ready for​ the​ next important step in​ this real estate formula.
You put it​ up for​ sale, targeting buyers who can't get financing easily .​
You provide 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 needs a​ down payment of​ just 5%, or​ $6,150, and​ makes monthly payments of​ $1230 per month .​
You charge higher interest than the​ going rates at​ the​ banks, of​ course.
This is​ a​ win-win situation .​
Your buyer is​ able to​ buy a​ home instead of​ renting, and​ you get a​ capital gain of​ perhaps $16,000 after expenses, plus good interest .​
Your total rate of​ return will often be over 20%!
In our town, the​ first to​ do this consistently 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​ good real estate formula.

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