Wednesday, December 19, 2007

Real Estate Idea

I was reading in Killing Sacred Cows this morning and there was a cool real estate idea that was suggested, which I had never though of before- It's an absolute Producer idea and I'm very interested in trying it out:

Here's the scenario:

I look around for a house that I would like to live in and the asking price is $250,000. I get approved for a 7%, 30 year fixed rate mortgage, so with taxes and everything my payment would be about $1500 per month. Now I look at what I have budgeted for my monthly house payment and it's only $1300 per month. The consumer mind looks at this and says, "Well I guess I'll just look for a cheaper house that will meet my $1300 per month budget."

Here's how a producer thinks (How can I afford it?)

I develop a relationship with the owner of the house and then through the conversation, I find out that her monthly payment, because she bought the house 10 years ago for 140,000, is only $900 per month. I set up a 24 month lease (with a purchase option at end of lease) with her on the house for $1250 per month and she cash flows an extra $350 per month. Now I am in control of a $250,000 asset and I'm paying $50 less that what I had budgeted, plus I created a value for the lady who was selling her house.

Now I shift it into high gear:

I sell my existing house for $300,000 and which is borrowed from the bank at a very low interest rate, 6.25% for 30 years and I have that amount to invest in multiple other real estate opportunities. With that amount, I could buy 10 rental units each cash flowing me around $175 per month totaling about $1750 per month, I've also put somewhere in the neighborhood of 1.5 million dollars in my real estate portfolio.