New Investor Gets Awesome ROI on First Deal

Recently a new investor here in the Atlanta market got a great return on investment doing his first deal. 

The process and the numbers of the deal are fairly easy to follow, so I thought I'd write this up for the benefit of all new real estate investors. 

I hope the following account also prompts some who are thinking about investing in real estate to get started! As you will see, it is worth it.

The Investment Deal

The investor was contacted by a motivated seller that just wanted to sell the house as soon as possible. The investor contacted our company to help him analyze the numbers and guide him through the process.

The seller agreed to provide financing for the purchase with a one year balloon payment. This would give the investor time to do some minor repairs, place a tenant in the home, and then market it for sale as a cash flowing rental.

The investor was required to have about $25,000 to $30,000 to make the deal work. This money was used for the down payment, closing costs, and repairs, and holding costs.

We advised the investor that the process might take as long as 6 months before the house would be resold and that expected profit should be about $10,000 but could be as high as $20,000.

The Property Acquisition

The seller agreed to allow the investor to begin marketing the property for a tenant before closing. Two days after putting up a sign in the yard, a tenant contacted the investor. 

The tenant was in the construction industry and offered to be responsible for making the repairs. The tenant wanted to move into the house within two weeks of the closing.

The investor was excited  going into the transaction knowing it would be rented quickly and that the repairs would be made by the tenant. The tenant moved in about two weeks after closing and began making repairs.

 The Property Resale

The investor had the property listed on the market at a price that would net him slightly more than $20,000 profit if a buyer offered full price.

Within two weeks of the property being listed on the MLS, an out-of-state investment company gave a low offer but closing in 30 days. They offered to purchase as-is even if the tenant was not finished with the repairs stated in the lease.

The investor ran the numbers and thought about rejecting the offer. He then decided to accept the offer. 

The investment company sent out their inspectors and about a week later they confirmed they would move forward with the purchase.

The closing took place with the investor owning the property for two months.

The Profit

When the investor closed on the resale, his profit was significantly less that the potential high end of $20,000.

But he realized his profit in 60 days. Here are the exact numbers:

The actual out of pocket expenses for the investor was $27,900, which was within the range our company projected.

After paying off the loan and all expenses, the investor profited $6,226.

The ROI

To calculate the Return On Investment for this deal, the total profit ($6,226) is divided by the out of pocket costs to the investor ($27,900):

$6,226 / $27,900 = 0.223 or 22.3% in two months.

The investor turned $27,900 into $34,126 in two months.

This translates to an annualized return of $134%!

Profit Again and Again

This is a great example of the kinds of profits new investors can make even on modest real estate deals. I used this example because of some of the variables in this investors story:

• seller financing, 
• a tenant lined up even before the purchase,
• a tenant who makes repairs,
• reselling to an investment company.

However, the kind of profits like this can be made consistently by new investors without much capital (10K to 15K) who qualify for rehab loans, such as a 203k loan. Or investors can use their self-direct IRA to fund the rehab costs while using a conventional loan product.

A part time investor can easily do two transactions like this annually.