Breaking Down a Creative Real Estate Deal: Numbers, Options, Profits

Like I've done it right for 34 years. Yeah, yeah, yeah. But I prefer to have a couple select of those and do mostly those.

Yeah, right.

Okay, so this is a house Steve owns. So I wanted to do this because almost every boot camp someone owns a single-family that we can convert from a rental to a 3 Paydays, and it's usually an eye-opener. Uh, did Nick give him the numbers?

No.

Hey, Sue, could you grab that for Jack?

And he just—

he's got it like on a piece of paper.

Yep.

Uh, can you just like signal him like charades? All right, Steve, what's your— would you buy this for and how long ago?

Uh, so got this last year. Um, got it for You know, 1 sec. Is it 144,900?

I think he might be doing a podcast. Yeah. All right, we'll honk and chomp them. I guess between you and I, we'll come close to his number.

Okay.

Okay.

Put that light on. Okay. Oh, then yeah, let's not— oh, we should all go and say hi to whoever's in here.

140, 144,900.

900. You bought it. Uh, did you put any money in after that?

Yes. So I put down—

No, I meant like rehab, rehab money or fix-up money.

So actually, so technically, what I actually financed was $128,000. The extra $128,000 was what I financed.

Yeah. The rest was cash though?

Yes.

Okay. So we just use— that's what you get in it.

Yeah.

And you probably have some closing costs, but any additional rehab money?

No.

Okay, good. Nick came up with conservatively $164,900 to sell.

What'd he come up with? He hasn't told me what he came up with.

I think that's what he spit out yesterday, didn't he? Yeah, $169,000 and something. Okay. I thought it was $160,000. So this is your buy. Let's say— actually, I think he said $172,000.

I think he said the $160,000s. And then he said he has some money into it. Yeah, because I know a little bit. It was appraised last year when I got it for $160,000.

$161,000. Oh, conventionally? Yeah.

Yeah.

So let's go $169,900. And just from my brain, let's go $170,000 for round numbers. Sell. This was more— remember, the buy is done. This was more to show you guys instead of him renting it. And right now you got a headache tenant, right?

Yes.

Yeah. So you just don't need that crap. So sell for $170,000. Let's do your worksheet now. Payday 1. On a lower-end house, it's certainly not going to be over 10%. I might say conservatively 7%. What's 7% of that? Again, I'm trying to make it conservative. And you guys on Zoom, again, yell.

11.

11? 9? So let's go $12,000 from easy math up here. Okay. Payday 2. What did Nick think for— well, what's your Cost monthly on your 120 whatever mortgage?

Uh, one basically $1,000.

$1,000 bucks? Yeah. Is that PITI? Yes. PITI. Uh, okay. And that's a fairly new loan, right?

Yes.

So how much the principal? Like $100 or not much? Very still. So about $100 a month is principal, you guys, just so we can figure it later. Okay. What's market rent, Nick?

Thought, or so the current, yeah, was coming $1,395.

$1,095? $1,395.

Yeah.

Okay. Can we say $1,400 so my brain doesn't have to work? It's okay with that. So $1,400 rent minus the $1,000 is we got the $400 spread. Payday 2, right?

Yeah.

V1, A2. Now, you guys, and this is good language for you sellers. When a seller says they're going to rent, why is AO such an easy conversation besides what we already talked about? When they start talking about security deposit and all that, you go, well, listen, Mr. Seller, a security deposit implies what? That they're going to go back, right? If they don't damage it. Yeah, we're taking a nonrefundable down payment. Or if you're talking about an AO, you're taking a nonrefundable down payment. It's not going back no matter what.

Right.

Okay, so payday 3 is what? Let's go in order. The markup or the price premium on your sheet was how much? $170 from $142. $25 rounded. Price premium. We got to give credit for the down payment. So we're fast forwarding 3 years. We got to give credit for the down payment. And then we have principal paydown, right?

Yeah.

Principal paydown is a whopping— if we're doing 3 years, just because you can— do you have any time ticking on your loan up here? Is it a DSCR loan or is it just DSCR? Is there an end time ticking?

After 3 years, there's no penalty after 3 years.

Okay. So you want it to go at least 3.

That's right.

So I'll use 3. But because this property, he's probably going to choose to stay in it with this tenant buyer.

Yeah.

So what does it look like? You get the tenant buyer again. I'm going to repeat from before. You give them 2 years and you say if you have no lates and if you get your deposit from $12,000 up to something safe for you, $20,000, But 25, no hurry, Mr., Mrs. Buyer. But if you do that, I want to finance you. You want to go with all the headaches of the banks? And now you got to— you could have a 20-year whatever deal with them as long as you keep it competitive. What's your rate up here, though? I see it now.

7.5.

Okay, so not obnoxious. Okay, so you maybe give them a 7-point-something and they don't go to the bank. So principal paydown is a whopping $3,600. What is this total, you guys? For payday three, sixteen cents. What is that? Sixteen cents. Okay, that's payday three. What's payday one, two, and three? Twenty-eight. Oh, we didn't calculate this out. What's this times thirty-six? Sorry.

Fourteen flip.

James, you didn't think you'd have to work, did you?

100%.

Work in your head. Okay, so what do these total? $40-something grand? $42,000?

$43,000.

$43,000? So all 3 paydays, $43,000 with, with no landlord headaches for him like he has right this second. Uh, what's that? What'd you put into this? You put roughly $20,000 when you bought it?

Ballpark? About $28,000.

So let's say $30,000.

Yeah.

So on $30,000, what's the return of $43,000 over 36 months annualized? Someone? It's like $15,000 a year on $30,000.

That you can save 40%. Yeah.

40-something percent. Is that, is that a good investment versus dealing with the landlord headache right now? So if anyone has existing property, I'd strongly suggest them do this and then become the bank. We're not considering him becoming the bank. Does this make more sense than renting it or selling it?

Yeah.

What if we have existing property that the tenants aren't a headache and it's cash flowing good as it sits?

Do they want to have a buy would be my question to them. I don't—

they haven't indicated interest to want to buy.

Do they handle maintenance and repairs and taxes now or no? So you come out of pocket for that?

Mm-hmm.

When is the lease up?

One is up in 3 and the other one is in 10.

I mean, personally, I'd convert them. over time. I wouldn't try to do them both at once, but I'd convert them over time with our help or, you know, while I call them and get help. But I would convert them. Yeah. Because even if they're perfect now, we all know what can happen. I've done it long enough. I won't do it again. Right. And with very few exceptions.

One of them has a lot of equity in it. One of them has very little equity in it, which would be the one we convert first.

If you were considering selling, I I would consider them, you know, instead of selling, I consider doing a long-term program like this, right? So you don't get whacked on taxes. Right. But no set thing.

Doesn't really matter.

You love them both. The areas are both great. Like, you're both good. Yeah, both good properties. I would convert them. What size? What price ranges you're talking?

One of them, purchase price was $174,000 like 15 years ago, and it's probably worth $325,000 now.

Nice. That'd be a good 3 paydays on that.

Okay. The other one, purchase price like $450,000, probably worth like $465,000 last year.

Both great price ranges for this then. Sweet, sweet zone. I'd ask your tenant buyers if they, if they have interest in buying, because all tenants eventually— not all, but a lot of them want to move to buy. Why not buy the house they're in? Especially if they're keeping it up. Turn them into a buyer, like in training, and then a true buyer. Yeah, that's what we do. And we're training people to be buyers. Yeah, I definitely would. Yep. As far as market rent, do you charge market rent plus add the taxes on top, or do you go under market rate and then add the taxes? Typically slightly under. Everything is different, but basically, yeah. Yeah.

Well, in this case, then should I— the rent should be lower.

I mean, it's a tight house.

Is this—

is PITI, so you're okay. Let me— so let's just— he kind of already had the taxes if he's okay with 400 spread.

Okay.

When we were doing the owner financing deals, we had to literally figure it out on the board here, but he's already got it in there. So could you— okay, here's an example. Could you go to market at 13 and let's say for whatever reason you weren't getting bites, can you go all the way down to 1,000 on your marketing and then add taxes? Yes. I mean, that's a marketing technique we do a lot. Okay, we're not getting bites. The owner financing videos—I'm sorry—the rent-to-own videos tell the buyer what's going to happen here. We're going to add taxes. Like there's no surprise if they watch the done few videos before the buyer meeting. They come in prepared. I see. If they didn't, they go in me. I got paid that. Did you watch videos? That's what you—that was your homework. Okay. Others come in and go, "Yeah, I researched the tax rate. I saw your videos. I know I got to pay the taxes." They already have it figured out. Okay. Just think of Karen sitting down with a. Approving a loan. Here's your P&I. Now you're going to add taxes. That's in the disclosures. The same thing we're trying to train them. Now, do we write it up that it's taxes in the lease? No, because if they default, you can't collect taxes.

Okay.

You're just showing them how you come up with that. That's all. But it's a lease payment. That's important, all these little nuances, because you'll get stung. And how do we know that? Because we get stung.

I have a property that is—

Well, now everybody has property.

So it's my one unprofitable, it was my one bad purchase. So it was supposed to be a profitable short-term rental in the Poconos and I bought too high and, you know, bought traditionally and tried it for 6 months. to sell it slightly below what I paid. Didn't have any bites.

This is happening now?

Yeah.

Okay. So I just was deciding that, all right, if I put it as a long-term rental, it'll at least sort of break even.

Get some cash going.

Yeah. I mean, at least that I won't be paying, it won't be negative because of all the other stuff you have to do with the short-term.

Is there a tenant right now? No, no, no. It's empty.

Well, it's still a short-term rental until through almost the end of July.

Okay. That's short. That's coming up, though. So would you want to do some structuring on turning that around like this?

Well, I'm just curious because the plan right now is that we empty it out. We have a realtor that's right there who specializes in this HOA, and they would find the first— they would find the tenant. We would still get the first month, and then we would manage it after that. But, you know, 6 hours away and I have a team down there. Yeah.

Well, that's my way. Not sure where to get started? Go to smartrealestatecoach.com/getgoing for free books, strategy calls, and a whole bunch more. We're going to help you get going the wicked smart way. We've been after this for over a decade doing exactly that. I would turn it into— I mean, I have properties in multiple states with rent, but still, even still, like, even if, like, I've done it right for 34 years. Yeah. But I prefer to have a couple select of those and do mostly those.

Yeah, right, right. So I mean, so I'm just curious, you know, if there's a way of that, you know, with this, if there's a way that might work.

Easy. Same thing as we just did there.