The first time I made $4800 in three weeks.
by James Miller
We secured an accepted offer to purchase on a two bedroom one bath fixer upper located in Dodgeville Wisconsin for $50,100. Our initial intention was to fix it up and rent it out. We could have probably pulled around$600/mo. in rent from it.
My brother and I had talked about letting this deal go as the place needed some work and the cash flow would be close to a break even after the time and money we had to put into it getting it up to snuff for a tenant.
We instead found that we had locked into one of the most inexpensively priced houses in town. Word had gotten around that we had a contract on the property and we learned from some Real Estate Agents that there were a few different people interested in properties in this price range.
We negotiated with one agent to work with his buyer to buy the place from us after we had closed on it. Two weeks after we bought the house, we resold it for $57,000.00. We ended up netting $4843.87 in profit.
We let our bank in on what was going on and we were able to minimize a lot of the closing costs.
Here is how the deal went down:
We bought the property through a real estate agent on July 27th, we went to the bank, put $9160 down as a down payment for a short term loan on it, got the title work done, got an appraisal, and purchased the property.
We immediately signed a contract with another agent to resell to his buyer for $57,000, and closed with them on August 19th.
I thought we had found the Holy Grail of Real Estate Investing.
In just under three weeks we were able to get almost $5000 on a low priced deal by flipping a property…all without pounding a nail.
I know now that we could have done so much better.
Here is an example of a recent deal my partner put together for us which illustrates what I am getting at:
My partner assigned a contract to an investor for a home on the river that has an approximate value of $110,000, she had negotiated the seller down to $47,500, with terms of 1/2 up front and the balance in two years with no interest and no payments.
The assignment fee to the investor who bought this contract from us was $8,500.
Can you already see how this deal was so much better?
Just to get a few things out of the way before I discuss the finer points.
The assignment was done in late 2008, basically right now, when things are tight and “nobody” is buying. The first deal was done in the summer of 2005 when everybody was buying.
The prices of the properties are relatively the same, $50,100 and $47,500.
We didn’t do any work to either property.
Here are the reasons that the assignment was a much better deal:
We made more money on the assignment than on the flip.
1) There was more room in the deal…. About $55,000 more.
2) My partner was able to negotiate for great seller terms. Making it easy for an investor to finance.
3) There were no Real Estate Agents involved. I really don’t have anything against Real Estate Agents, it is just that the more people yo uhave involved, the more times you have to slice the profit pie.
I also find that negotiating creative financing terms through most Real Estate Agents can be difficult, as people tend to say “no” to something they don’t understand.
We didn’t have to take any money out of our own pocket.
Well, except for a $10.00 earnest money deposit… But that is light years better than having to put don $9160.00 for a down payment like we did in the first deal.
It didn’t require our credit.
No bank loan on our part, so no credit needed.
In the first deal, we had actually purchased the property and held it while waiting for the second closing. We were exposed to the fact that the second buyer could have walked away.
We did have a plan to rent the property out, if our buyer walked. In that market we could have even spent a bit to throw on a coat of paint and resell the place to someone else, but we were tied to a mortgage and our credit was on the line.
In the second example all we had on the line was $10.00