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August 2014

Getting paid to buy rentals

I've done this several times now and it is my absolute favorite way to buy.


My nephew was out here visiting for two weeks at the beginning of the month so against all the laws of marketing, I turned off the system. I know, I know, never stop marketing, but I don't want calls coming into my office and having no warm bodies to answer them. As is the result of any consistent marketing effort, some residual leads trickled in during my stay-cation. I closed one of them which resulted in a quick $5,000 wholesale fee. It was nice to show my nephew the business and how effortlessly profits can be created by sniffing out opportunities, locking them up with solid paperwork (the seller on this deal attempted to cancel on me, but I bluffed him with the threat of a lis pendis, months of vacancy, potential for squatters and vandals, etc. and we were able to close), then passing the deal along to another investor.


The second deal I locked up during my tour of the Grand Canyon and Sedona, AZ. It was a house here in Riverside over by the university. The tenant has been in the house 34 years and makes it a habit of attracting the attention of code enforcement. The owners were just worn out dealing with him and accepted my $80,000 offer over the phone. Escrow contacted me a few days later to inform me the sellers were having second thoughts. Not good. Sellers don't get second thoughts. Sellers get higher offers and want to dump your offer in order to get more money out of someone else. I contacted the sellers and made an appointment to visit them and have a conversation.


I went to their house and spent about one hour talking with them. During this meeting I discovered the offer they received from another investor was $82,000. After speaking with them a little longer I also discovered the real reason they were wanting to sell; they were deeply involved in a rehab on a vacation home up in the mountains and the money they were looking for was locked up as equity in their rental property. They had also already talked to their CPA and knew their tax liability based on accepting an offer of $80,000. The net proceeds wasn't going to be enough to cover the rehab on their vacation home. After some quick math, we figured out they would need a cash offer of $90,000 in order to net enough to cover their budgeted expenses. I took out a blank offer form, wrote up the contract, had the seller sign it, handed over a crisp $100 bill as consideration, then hurried home and emailed a copy to escrow.


Now, here's the fun part; my private lender said he'd fund me $125,000 for the deal. After all escrow costs, I received a check from escrow for just over $28,000. I expect to use most, if not all of it for rehab as the property is in extremely rough shape, but it is $28,000 in cash I don't have to take out of my pocket and borrowed money isn't taxable income. Over the years, I've put quite a few of these cash out acquisitions in the can. Of course, you have to be a good buyer and the equity spread in the deal has to justify the amount funded by your private lender. You ALWAYS want your private lender to be safe in the deal. Now, to get that 34 year tenant out. Sounds like he's been stuck in a rut.


Here's a few pics from my stay-cation. Enjoy!