Mortgages & Creative Financing

You Don’t Need to Sell a Mansion for a 6-Figure Return—Here’s Proof

Expertise: Mortgages & Creative Financing, Real Estate Deal Analysis & Advice, Personal Development
44 Articles Written
Estate agent shaking hands with his customer after contract signature

Far from a pipe dream, the odds of a big payday on a property get better the longer you’re in the business.

How cool would it be for you to know that every time you made a deal on a property that’s somewhere over the $200,000 price range—one with owner financing and in the 48-month term range—you’re guaranteed six figures? Not every deal is like this, but just one annually should help you structure an amazing year.

Think about it. How many of those do you need to change your financial picture?

piggy bank with coins on a table

A Real-Life Example of a 6-Figure Payday on a Home Under $500K

Bill is one of our more experienced associates; he is based in the D.C. area. Bill first contacted this specific eventual seller via phone, utilizing the expired dialing process. But more than six months passed since they’d initially spoken, and during that time, the owner’s long-term tenant had moved out.

She lived outside the city, where she was busy with other interests. She was also becoming frustrated with her role as a landlord in general and wanted to sell the house.

(Side note: This is why you keep in touch with owners—things don’t always turn out the way they thought.)

Related: My Best Deal Ever: How I Scored an $800K Payday on One Commercial Project

Existing Condition of the Property

The property was in need of some repairs. Bill offered roughly $425K for the home as is.

But the owner opted to do the repairs herself, put in about $50K—new bathroom fixtures, an updated kitchen, a fresh coat of paint inside—and then put the house on the market for $475K. This property was owned free and clear so no underlying mortgage or liens on it.

Seven months later, she called and asked Bill, “Are you still doing your thing?”

Bill wasn’t brand new as a property manager; however, it’s worth noting to newer investors that they need to persevere long enough to still be “doing their thing” when a seller finally reaches out.

In this instance, not only was the seller motivated, she had also tested the market herself and seen that her asking price was too high. So she was already knowingly going to come down in price.

Happy young man on phone, indoors - inside. Close up of businessman talking on mobile phone - smartphone. Comunicative friendly hispanic man

Unwilling Seller Turned Willing Seller

This happens to us and our associates on a regular basis—a seller calls back six months, a year, or even a few years after the first contact.

Bill looked over the property and new repairs and agreed to purchase the house for $460K on an owner financing deal. He gave her first trust for the house to be paid within five years (60 months) with $1,500 a month in principal only. Bill would pay roughly $200 a month in insurance and pass the taxes on to the buyer.

When you get the right term on free and clear owner financing deals, the price becomes more and more of a moot point because of the massive principal paydown. Here are the specifics of this deal.

Source: Expired listing
Purchased: $460,000
Payday #1: $26,500 (approximately)
Payday #2: $38,400 (spread if the buyer only goes 48 months)
Payday #3: $115,000 (based on $529,900 for four-year sale)
Profit: $175,000

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(If you’re not familiar with my company’s three payday (sometimes four) system, you can revisit some past articles.

With $2,650 approximate rent to the buyer, there should be roughly $800 cash flow in addition to the principal paydown. This is the second time in a small timeframe that Bill, seemingly out of thin air, has created a large payday No. 2. Just his last two deals created a revenue stream of $1,500 every month for at least four years on payday No. 2 only.

Related: When Buying on Terms Pays Off Big Time (Almost $200K!)

That’s a reliable monthly cash flow that can change lives. For Bill, portions of that can be used to keep building his business while siphoning off a portion to pay toward his own house, or retirement, or whatever he chooses.

Resisting the Urge to ‘Spend It All in One Place’

We suggest investors leave 50 percent in an account in case a home goes empty for a period of time or for other emergencies until they’ve set aside two to three months’ worth of mortgage coverage per property.

Bill has been drawn to owner-financed and subject-to deals because of the upside in owning a property versus simply controlling it via lease purchase. He won’t turn down a good sandwich lease, but for him and his market, he’s found great success in owning property and is focusing his marketing and calling on more of those deals.

Meanwhile, our average all three paydays per deal is close to $75,000. Bill’s is closer to $110,000 per deal. Not bad!

Do you have any follow-up questions about Bill’s deal? 

Ask me in a comment below!

 

Chris Prefontaine is the best-selling author of Real Estate On Your Terms. A real estate investor with over 27 years experience in the field, Chris is the founder of Smart Real Estate Coach and host of the Smart Real Estate Coach Podcast. He lives in Newport, Rhode Island with his wife Kim and their family. Chris is a big advocate of constant education. He and his family mentor, coach, consult, and actually partner with students around the country, teaching them to do exactly what their company does. Between their existing associates nationwide and their own deals, Chris and his family are still acquiring 5-10 properties every month and control between $20 to $30 million dollars worth of real estate deals, all done on terms without using their own cash, credit, or signing for loans.

    Wilson Churchill from Madison Heights, Michigan
    Replied 3 months ago
    Principal only? Why would the seller accept that?
    Eric Carr Real Estate Broker from Los Angeles, CA
    Replied 3 months ago
    Is it just me who hears Chris' voice and accent while reading this?
    Eric Carr Real Estate Broker from Los Angeles, CA
    Replied 3 months ago
    Wilson, I'm thinking to get the place sold.
    Don Taylor from Raleigh, NC
    Replied 3 months ago
    Interesting concept