One of the greatest opportunities we may ever see is staring us in the face. Mortgage rates have now been at historic lows for a while, the stock market has proven an unreliable wealth building vehicle for the average person. This has set the stage for building private lending relationships that can finance your real estate deals. But wait…this is an article about cash flow.
Fortunately I don’t have to start over because many of these private lending candidates are also candidates for equity participation deals. Imagine, if you will, you find a great deal you can purchase for cash at a 50% – 60% loan to value. You give your investor/equity partner 60% of the deal in exchange for them coming up with the cash to buy the property.
They come into the deal with immediate equity and you have no debt! If there is no debt there are no mortgage payments. You simply collect rent and pay the taxes, insurance and maintenance (unless you have your tenant take care of it). The remaining cash flow is split between you and the equity partner. Since you have used your skills and secured the deal you’ve already made a valuable contribution to the deal so you might also be able to get compensated for managing the property. You might take 8-10% off the top for management and then after paying the remaining expenses you split the remaining cash with your equity partner based on whatever percentages you agreed to (in writing).
You and your equity partner will divide the benefits from the property on whatever basis you establish. 50/50, 60/40, 70/30. You’ll split the cash flow, the appreciation, the depreciation and the tax benefits. It’s all up to you and whatever you negotiate. If you get really good at this you can even give up your 10% management fee and outsource property management and focus your time on finding more deals and more equity partners. The beauty of this strategy is that when you have a vacancy you don’t have an outgoing mortgage payment.
This is just one of the many strategies I like to use to lower risk and increase returns. While I realize I’m giving up some of the upside, I’m trading it for a perfect risk reduction strategy. Besides, using this strategy I effectively own half a house free and clear because the equity partner and I might be 50/50 in the deal. Let’s say I was a newbie without much experience, I might be willing to give 80% of the deal the equity partner because I’m trying to get started and don’t have cash of my own. Even if you give up 80% of your first five deals you’d effectively own the equivalent of one complete free and clear house! That’s powerful. As you develop your skills you’ll be able to command higher percentages because you’ll be a credible partner!
Do you want to learn how to do a deal like this? If you’re like most investors today, you’re facing no money, no credit, and no idea where to start. That’s where the right instruction can come in! Join us on April 2-3, 2011 at the REI Rainmaker Retreat in Orlando, Florida for two days filled with quality instruction on how to profit in today’s real estate market. From freeing up your time, to finding properties that your competition is missing, to running your business on free tools that you can use from anywhere…we’ve got all the bases covered. Tickets for both days are on sale right now for just $197 is you use the code “CREIG” at checkout.