{"id":90751,"date":"2019-08-30T17:00:50","date_gmt":"2019-08-30T23:00:50","guid":{"rendered":"https:\/\/www.biggerpockets.com\/renewsblog\/?p=90751"},"modified":"2021-03-16T12:30:01","modified_gmt":"2021-03-16T18:30:01","slug":"great-deal-out-of-a-good-deal","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/great-deal-out-of-a-good-deal","title":{"rendered":"3 Ways to Make a Stellar Real Estate Deal Out of an Average One"},"content":{"rendered":"

Early on in my real estate investing career, one of my goals was to buy one rental property<\/a> a year. I used to dream about having them all paid off, free and clear, by retirement.<\/p>\n

Keep in mind that this was at age 29, just after I passed my real estate exam and bought my first investment property. My theory was that since real estate agents<\/a> don\u2019t usually have much of a retirement plan, I could either cash flow off 20 houses or even sell one each year in retirement.<\/p>\n

Then my goals quickly morphed. One year, I bought seven rental properties, followed by nine more properties the next year. At 40, I was well on my way to having over 100 units like many of my investor friends.<\/p>\n

But then my dream changed again. I realized that by using creative financing to increase cash flow and by incorporating some tax and note strategies<\/a>, I might not need to have that many units to have the lifestyle I wanted. Instead, I could improve the real estate deals I already owned, bringing them from good to great, while also adding new alternative investments to my portfolio.
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\nRelated:<\/strong> 4 Actionable Ways to Find Real Estate Deals, Even in a Red Hot Market<\/a><\/em><\/p>\n

What\u2019s an \u201cAverage\u201d Deal?<\/h2>\n

When it comes to real estate investing, every deal is unique, but the \u201caverage\u201d real estate deal varies based on your market.<\/p>\n

For my friends and me living outside of Philly, the average deal was a 2- to 3-bedroom twin or row home that could rent for $750-$1,000 a month, and it usually cost well under $100K.<\/p>\n

I know some of you are probably thinking, \u201cThere\u2019s nothing like that around where I live.” But just hang in here with me.<\/p>\n

\"master-lease-option\"<\/p>\n

I\u2019d pick up a 3-bedroom house for $40K-$45K, and after repairs and closing costs, I\u2019d be all in at approximately $65K with an ARV (after repair value) of about $100K. If I sold that house for $100K, less real estate agent fees and transfers taxes, I would be at $93K, netting approximately $28K before taxes. Since it\u2019s usually less than a year from start to finish, I might net approximately $19,600.<\/p>\n

If I couldn\u2019t sell it or didn\u2019t want to, I\u2019d go to the bank, and they\u2019d give me a 20 to 30 percent down, 30-year mortgage, and I\u2019d probably be glad to cash flow $300 a month (or maybe a little less on a 2-bedroom).<\/p>\n

Deals like this one were common amongst real estate investors in my area. We also purposely didn\u2019t keep big properties due to increased maintenance costs, and we preferred those that were easy to rent.<\/p>\n

3 Ways to Improve Your Real Estate Deal<\/h2>\n

You\u2019re probably wondering how you can take an average deal and tweak it to make it better. It\u2019s easy. Try to save money on taxes wherever possible, find the highest and best use of that property at that time, and utilize the best financing available, either through terms or the proper use of equity to increase cash flow. Now, I know; I just said a lot. Let\u2019s break it down.<\/p>\n

1. Save on taxes whenever possible.<\/h3>\n

For real estate investors, the biggest hit usually comes in the form of a capital gains tax when selling a property. One of the simplest strategies to avoid the more expensive, short-term capital gains tax is to wait a year and a day before selling. At that point, it would be considered a long-term capital gain, which is usually subject to a lower tax rate.<\/p>\n

There are three other strategies that come to mind, all of which may help to reduce the amount of taxable gains from the sale.<\/p>\n