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mfrentz@akerahomes.com
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A Busy Week
I have been working on a deal this week that will be fantastic for whoever ends up purchasing it. It is a one bedroom apartment in a highly desirable area in Calgary close to an LRT line station. This property is worth a significant amount on the open market as soon as it is renovated, but currently is gutted. I've been working to put a package together for investors this week and will be offering the apartment for 115k. It needs about 30k in renovations and the reason I'm writing about it this week is two-fold: I have been busy putting this deal package together for potential investors and I'm excited about sharing with my readers what kind of deals exist in the world of real estate (yes, in Canada. Yes, everything legal. No, there wasn't anyone taken advantage in this deal). I often hear people say that it is impossible to get these kind of deals or that, if they do exist, they are either illegal or I need to hurt somebody in order to do something like this.
An Introduction Into One Facet of Investing
I wrote about cash flow and its importance in my last blog. Calgary is becoming quite an expensive city and many individuals who want to invest don't understand how consistent cash flow is possible here. I don't know how many of my readers know what a 'wholesaler' is, but I would like to explain so you can increase your understanding of an individual every investor tends to love.
A wholesaler is an individual who finds deals; properties that can cash flow for investors. These properties tend to be distressed and/or vacant with owners who are having a difficult time selling them or simply want to be rid of the headache as soon as possible. What a wholesaler does is put the property under contract and then he/she sells that contract to an investor for a commission. When the contract has been purchased the investor can now fix and flip the property for a great income in a short amount of time or fix the property and keep it for long term cash flow (it will cash flow because it was bought for such a low price).
I am doing some wholesaling this summer and my investing plan includes wholesaling in my general routine. That way I can keep the best deals for myself and the people who are close to me (those who work with me in putting together a portfolio and are excited about cash flow) and can give the other good deals to other investors for a commission.
How does a Wholesaler Find Deals?
There are various ways. I have a network I use to send me leads and also walk around areas to find vacant or distressed properties to place offers on these properties. Another way is to do some marketing: I tend to use less expensive forms of marketing so that the cost is always slight to myself. When I find someone who wants to sell their home I make sure I can get it at a price that allows the seller to get out of a tight spot, the investor to make some profit, and a commission for myself. It is truly a win-win-win scenario. Some people wonder why the seller would offer their house for less than what it is worth on the open market. There are various reasons, but the two most common are:
1. They live out of province or out of city and simply want to offload their property quickly
2. The property is distressed and they have been having difficult selling it on the open market
Owners will sell their house for less because I'm not a real estate agent and won't take as large a commission as agents do and I can often offer them cash and a very quick close (because I have some great investors I have networked with).
Ok, So... What Does This Actually Look Like?
The property I have can be bought for 115k and is worth 175k when it is finished with 30k of renovations. That leaves another 30k of profit, right? There are holding costs while the apartment is being renovated and some other smaller costs as well, but basically... yes. What a great deal! Why am I not keeping this property for myself? Because I need the cash, not the property right now and this particular property doesn't fit my overall investing strategy.
A Beautiful Option
I'm going to share a secret with you that can be applied to properties that you can get from wholesalers (this is why investors love wholesalers so much). This particular property can be purchased with a very small mortgage (~23k) and fixed for ~30k. That means the investor has put in 53k total of his/her own cash. When the property is worth 175k (after it has been renovated) the investor can now refinance the property with the bank for its new value! I won't go through the numbers here because it would bore and/or confuse most people to death, but I'll explain the general concept. If you get a good enough deal you can purchase the property, fix it up, refinance it for the new value of the property and pull all of your original money out!
Maybe I wrote that too quickly and it will be missed... Please re-read that last sentence until it sinks in. People tell me they don't invest in real estate because of the risk. What is the risk if you are cash flowing on a property with none of your original money involved? The answer is almost zero. There is still risk because you are on title and someone could still sue you or, if you were foolish, you could be foreclosed upon and lose both your investment and your good credit score. But really there is almost no risk at all in this situation. This is how investors think about real estate. They take away almost every possible risk and are left with a cash flowing property that is virtually worry free!
Back to the Win-Win
I briefly mentioned this is a win-win scenario... It really is! The family I am helping out with this property have wanted to get out of it for quite some time. I asked them how much money they wanted for the property and then put in an offer for that full amount! I didn't negotiate them down until they almost broke under the burden or take advantage of them. I gave them exactly what they wanted and helped them out of a difficult and costly situation (they still carry a mortgage and are paying on a vacant apartment). If you want more information about this, please contact me.
If you are someone who has always wanted to know how good real estate can be, but haven't had access to information on how real estate can work for you, keep reading. The posts that will follow this are meant to help understand the almost limitless possibilities of real estate investment.
If you would like to learn more about investing in real estate please contact me at the email address listed at the beginning of this article or go to my website at: www.akerahomes.com/investing-in-real-estate.html
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