Augie 
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ACTUAL CASE STUDY: One of my real estate investor mentoring students will make over $400,000 on a single probate real estate deal this year.
She mailed out a few probate letters and found the owner of a free and clear house he inherited. He complained about having to maintain the property and he really wanted to sell it now but the market was slow. The house was worth about $250,000 and needed only minor clean up. It has a good floor plan and sits on a small lake in a desirable residential community. Since the house was free and clear, she offered to buy the house for $200,000 with terms to pay him $1000 a month until paid. Because the house needed a little work and she needed time to find a buyer, payments would begin 90 days after closing. You read that right, she asked for the payments to begin 3 months after closing and he agreed. Do you see what happens when you ask? You can negotiate anything!
Her plan is to rent this property at $1300 a month for the next 10 years and then sell it with 40 year owner financing for about $350,000. In that time, rents and values will rise and by that time she will only owe the original seller $80,000 and have a house worth $350,000. She’ll have created $270,000 in equity. And when she sells it for $350,000 with the owner financing it, she’ll collect over $2,500 a month but only pay out $1,000 a month. That’s right; she will clear about $18,000 a year for about 7 years. Once the underlying mortgage is paid off, she will still collect $2,500 a month in revenue with no outgoing payment. That’s $30,000 income a year for the remaining 29 years.
But let’s say her buyer sells the property in 80 months, which is the same time the underlying mortgage is paid off. It would look something like this:
Rent spread first 10 years $ 15,250*
Interest spread next 80 months $120,000
Remaining equity due $322,563* *
Total $457,813
* After taxes & insurance, assumes a 3% annual rent increase
* * Based on a 7.75% interest rate paid by the buyer
A couple of other softer benefits include the fact that her profit will be taxed at the long term capital gains rate. Her other income will be offset by the expenses and depreciation during the period she holds the property as a rental, and she now has an excellent income stream to supplement her retirement. That’s what I call maximizing her intellectual capital!
If you’re interested in reading some additional articles related to Probate Real Estate, check out:
What the heck is Probate Real Estate? by Ron Mead
Probate Real Estate, Hidden Gems? by Herb Daly, Jr.
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Nicely done and that for a student. But of course you have to have 200 000 dollars first to buy the property.
Actually the student negotiated with the seller who actually provided the financing. The student has no money in the deal other than some minor repair costs. Thanks for your comment!
Actually the student had no money, she only put $1,000 and a little clean up money into the deal. She even negotiated deferring her first payment for three months so she could clean up the property and find a tenant. The seller financed the $200,000…that’s what makes it such an awesome deal. Thanks for the comment.
Nowadays, when you have extra savings you would plan to invest it into something worthwhile. And one of the common suggestions is to acquire a second home. Purchasing real estate can surely give you a high return of your investment. It is the best move you can ever do in your life because you can do business and work for another company all at the same time. However, this is not as easy as purchasing one and rent it. You need to be knowledgeable of what kind of market you are entering into.
This cash flow gives venture in this matter, consider some of these tips for real estate investing.
Good stuff.
Excellent technical know how and a very good article about real estate and business.
I’m glad you enjoyed it. Thanks for checking us out.
Appreciate the informative commentary.
It’s amazing how she saw this opportunity of this house and worked out a plan so she would make money with starting with nothing. It is great because it’s not an illegal practise and every party involved agrees and are coming out with money at the end. It was a giant leap onto the property market from nothing and hopefully it works out in the end.
It’s really important to have commercial property investment especially while you’re still young. I enjoyed reading this because it motivates me to do the same. Now I’m seeing the importance of investing and saving your money into something worthwhile for me and my family’s future benefit.
I think, the best way of investment is real estate investment. That will bring great benefit. Thanks for this post.
You’re absolutely right, real estate is been a major component of wealth building for many successful people. It is especially important for the working person who can build a fortune over time by investing in properties and having tenants amortize the mortgages which are held by sellers (one of my favorite strategies). I know you can sometimes finance with a bank, they just aren’t my cup of tea.
Thus proving the old adage, it never hurts to ask.
This is a great scenario. It will, of course, vary depending upon the community. There are very few houses in San Diego that sell for as little as $250,000, but rents are a little higher than described. Also, you need to factor for house maintenance over the ten year period. But it is a good way to make money in real estate.
Thanks for writing about this. There’s a mass of solid tech info on the web. You’ve got a lot of that info here on your internet site. I’m impressed – I try to retain a couple blogs reasonably live, but it’s a struggle at times. You’ve done a large job with this one. How do you do it?
Thanks Zaya, while there is obviously a business purpose for blogs, they are mostly a labor of love. That’s what builds community. I try to deliver quality content for our tribe. If you are trying to manage multiple blogs, that is a heavy commitment. I wish you luck. Find the ones you love the most and give them your best.
To your success…
Augie
It is a very clever plan. This kind of stuff should be taught in business schools, in courses designed specifically catering to real estate.
Interesting point. I was recently a guest speaker at the Dr. Phillips School of Real Estate at the University of Central Florida. It was very interesting because a few of the students approached me after class and asked if this were really possible because it sounded too goo to be true. Ironic, they had so much education within the walls of academia yet so little knowledge of the financial world outside. Financial literacy should be art of the global curriculum. Thanks for your comment,
To your success…