Here is an interesting spin on a couple of Real Estate Investment Strategies that you can use. You can combine a Buy, Fix and Flip with a Lease Option for some great results. Normally, I am not a big fan of Buy, Fix and Flips but this approach eliminates a couple of costs normally associated with this strategy and we aren’t flipping it.
Let’s say you have a property that is normally worth $160K but it’s listed at $100K because it needs some work and the vendor is very motivated (this is actually a real deal we have an offer on). The work to repair the house is estimated at $10K. You buy the property, fix it up and have it re-appraised at $160K.
You then refinance at 90% and take out a mortgage for $144K (90% of $160K). You pay off your initial investment of $100K and your renovation costs of $10K and you profit $34k.
Next, you Lease Option the property to one of your Tenant Buyers that you have on your list. You would offer them an Option Price of, say $180K, 3 years from when they move in. As soon as they move in they pay you a non-refundable Option Fee of $3,000. They then pay you $1,400 a month for 3 years. Your total monthly costs are $1,100 so you end up with a monthly positive cash flow of $300 for 36 months. In 3 years you get the balance of the Option Price when the Tenant Buyer decides to buy ($180K – $144K – $3,000 – (36 x $300 = $10,800) = $22,200).
So your total profit for this deal is:
- $34,000 Refinance
- $ 3,000 Option Fee
- $10,800 Monthly Payments
- $22,200 Balance at closing
- $ 6,000 Approximate principal pay down on mortgage
$76,000 Total profit
And here is the best part. What is your Return on Investment (ROI)? Well if you remember you took out all your money when you refinanced so it is infinity. Not a bad deal.