We Teach Student the Nuts and Bolts, and Give Him a Great Deal Too
Hanu is a personal coaching client of ours, and a few months ago came to us wanting to be shown how to do rent buy deals.
After looking at
our various coaching options he decided he wanted more than
coaching. He wanted implementation support too. Recognising
that most people have a problem implementing what they learn, this was
a smart move on his part. In fact, he told us he didn't want to
get involved with the 'buyer finding' side of things in any way.
So we coached him on how to complete the deals, once the buyer had been
found. And we supplied the buyer. This was a good
arrangement for him, so he jumped at our offer.
The upshot of all
of this was that on Saturday our buyer found a property, with Hanu
helping out by inspecting the property, and doing the
negotiations. A deal was consummated on Saturday afternoon, and
the buyer has already deposited several thousand dollars into his
account as 'good faith' money. The monthly positive cash flow for
Hanu will be in the region of $850 per month.
If you would like
help in learning how to do creative cash flow deals, and also like the
idea of having us actually help you do your first deal or two, drop me
a line at kim@cashflowprograms.com
Cash Flow Deal Yields $51,897
Many
people ask this question: "what happens if the tenant buyer
defaults?" Good question. The answer is of course that they
must leave the house. From there you can either re-market the
house as a rent buy, or sell it, or convert it to a long term buy and
hold.
We had this
situation with a house we found privately in a modest West Brisbane
suburb, little more than 2 years ago. The median price of similar
houses at the time was approximately $240,000. However, by buying
it privately we were able to pick it up for $222,000. From there
, we put together a rent buy style deal.
For the first
year or so, the deal worked fine, but earlier this year he got himself
into a spot of bother and to cut a long story short, defaulted on the
deal. After considering the situation, we decided to sell the
house. Within a couple of months the agent found a buyer and a
contract was signed for $290,000. The sale settled in July this
year.
The Wash Up. Here is how the numbers panned out:
Net Proceeds from
Sale:
$280566
Investor's Purchase Price inc Costs: $231,540
Capital
Profit:
$49,026
Total Profit
Cash Flow
Surplus:
$8,071
Capital
Profit:
$49,026
Sub
Total:
$57,097
Minus Bank
Charges:
$200
Sub
Total:
$56,897
Less Payment to Tenant Buyer: $5,000
PROFIT:
$51,897
Now, have a look
at the figure on the second last line. That refers to the amount
we paid the defaulting tenant buyer. Why? Because if we've
made a dollar and the defaulting client has otherwise conducted their
account well, we give them back some money. Which is what we did
in this situation.
We also let the
family live in the house in the last few months for a very modest sum
(for much less than market rent), so they could save some money and get
re-established in another house as a rental.
Sure, we could
have played hard ball, but I have this philosophy that if you're too
greedy it will come back and bite you one day. No point in
that, eh?
A Day in the Life of a Deal Maker
Never
a dull moment at our property business, Home Buy Express.
Established in 2001 we have learned the finer points of creative deal
making via the School of Hard Knocks. I guess some would say we
did it the hard way. On the upside, the lessons we have learned
are now etched on our psyche the way an engraver etches a message on
hard metal. That's what you learn from the School of Hard Knocks,
and you can't get that sort of education from a book.
Today, when it
comes to evaluating a deal, we marry a proven deal evaluation system to
that time honoured stand by - gut instinct. Our motto is this: if
the deal doesn't stack up logically and emotionally, then we don't do
it. I reckon you need both, because at the end of the day we
invest in people as much as we invest in real estate. The
people have to stack up on paper, but equally they have to 'click' with
us at an emotional level. You can't have one without the other.
The 'people' in
question could be tenant buyers for a rent buy deal, private financiers
who are going to help with the funding, even sellers and agents who are
going to help us acquire the property in the first place.
But getting back
to the purpose of this article, my typical day is varied, simply
because I have so many things going on. But a day rarely passes
where I don't talk property deals with my manager, Steve
Mynott. For instance last Friday he briefed me about a
possible deal. It was a little out of the ordinary, but that
doesn't stop us. We like quirky.
Basically, the
prospect approached us about vendor financing him into a house in
Brisbane. Nothing out of the ordinary about that. However,
he told us he could only pay $500 per week rent, and not the $650 that
would be required for a house priced in the upper $300 K price
range. The problem with this proposition is that the deal would
be cash flow negative, and if you know anything about us, you would
know that we we don't like negative cash flow.
He needed a quick decision from us because the landlord was pressing him to leave.
When I said we
don't like negative cash flow, we do have an exception to this
rule. The exception is that we will endure negative cash flow if
it is going to last for a limited time only, and if we have a great
exit strategy. Ideal scenario would be for the client to finance
out in just 12 months. If we know we're going to receive a nice
'bucket of cash' at the end of the term, then 12 months of negative
cash flow can be viable. So the exit strategy is the key.
Did our 'new best
friend' have an exit strategy? Yes, and that's where it gets
interesting. He told us he had a 50% stake in his late father's
house, which formed part of his dad's estate (which was currently going
through the probate process). At the end of the process, he would
get the house (that was owned jointly with his Dad), and would then put
in on the market.
His share from
the proceeds would be in excess of $300K. That would be more than
enough deposit for him to qualify for a small bank loan in a
year. So there's the exit strategy. Neat, eh?
Currently we are going through the verification process to ensure that
everything he has said is on the level.
Ah, creative deal making. I love it. Anyone want to play the game with me?
Cash Flow Deal Yields $1,100 per month NET
A few weeks ago a young couple came to see us. They had a real 'burn' to buy their own home.
Unfortunately the
banks had knocked them back because of some credit defaults. The
bank had told them that they could get a loan but the mortgage
insureres would not approve it, therefore the only way around it was to
put up a 20 per cent deposit.
On a $400,000
house this equated to $80,000. No can do. They had saved
$27,000 and were prepared to put $15,000 of that sum towards a
house. But $80,000? No way Jose. That's why they came
to us.
We listened to
their story and soon came to the conclusioon that here was a quality
couple. They had made some mistakes in the past, but had saved
$27,000, had paid of all their debts, and were now mad keen
budgeters. So we decided to give them a go. With that
they went house hunting. Pretty soon they found a house they
really liked, and we put an offer on it at $399,000.
Unfortunately, we
had 2 others bidding for the property at the same time. But we
won the day, not because our price was higher but because our offer was
more solid. The agent told the vendor that we were professional
investors and really knew what we were doing, so our offer was 'very
strong'.
So here is how the numbers stack up:
Investors Purchase Price inc Costs: $419,000
Buyer's Fixed Price (inc our mark up): $458,000
Buyer's Monthly
Payment:
$3,895 (P & I)
Investor's
Monthly Pmt:
$2,793 (Interest only)
Positive Cash
Flow:
$1,102 per month
Compare that to negative gearing!
Total contract
profits at the 3 year mark (assuming the clients finance out at that
time) will be in excess of $80,000. This includes the sum total
of the monthly cash flow, plus the back end contract profit, which is
based on the initial price mark up.
The buyers are happy because they get a house now, rather than waiting years. And they get a fixed price.
Some people may
ask: how can the clients afford the monthly payment? Well, as I
said they are now mad keen budgeters. But they are also earning
more than $2,000 per week, take home income. So we are confident
they can afford the payment.
A happy outcome for all parties.
Don't Let Your Fears Control You
Fear is a funny thing. It can consume you. It can paralyze.
Some people
investigate our strategies and pass on them. Not because they
don't work, but simply because they are fearful of embracing
change. So they stick to what they know - good ol' buy and hold.
Frankly when I
first heard about creative cash flow strategies such as rent buys and
vendor finance, I too was strongly tempted to let the idea pass and
stick to my knitting. In other words, just keep doing the same
old thing. But deep down I thought I could do a lot more real
estate deals if there was more cash flow being produced. I
just kept telling myself 'think of the possibilities'. And that's
what I did. I did some strategising, by doing some 'what if'
scenarios. What if I could create $50,000 a year of NEW
positive cash flow? Wow! That would be a blast, I thought.
So I got
excited. My mind was alive to the possibilities. Excitement
is the best antidote to fear. It is the best way to overcome
inertia. Not will power, not mental discipline; but lots of
excitement. That's the way to do it.
But that's not
the way a lot of people work. They allow their fears to rule the
roost. They allow their inherent conservatism to reign
supreme. So they go out and do another buy and hold deal, and
think they're hero's. And they justify the negative cash flow by
saying 'it's all for a good cause - one day this house will be worth a
lot more than now'. And they are right. One day.
Frankly, if we're
talking about fear, that way of doing business is scary. Buying
an asset in the hope that one way you'll make money on it (but
subsidising it in the meantime because it's a loss maker) - that's
what's REALLY scary! Or at least it should be.
But if they were
to put their fear of the new to one side and embrace a new way of
thinking and doing, they might be amazed at the outcome.
So What's Your Dream?
One thing I have
noticed is that people who are self satisfied or have a small goal or
dream, tend not to embrace our strategies. The
reason? They rationalise that they don't really need to make the
mind shift necessary to embrace our strategies, simply because they
only have a small goal. Small goals can be satisfied by keeping
to the script and doing the same old thing.
On the other
hand, people with a big dream - such as 'to have enough leveraged
income to quit my job in 2 years' - tend to be more flexible in
their thinking. They HAVE to be more flexible, because clearly
doing it the same old way isn't working. So they have to be more
flexible, and open to change.
Bottom line - the
dream is the change agent. Having a big dream will help you move
away from snail's pace incremental thinking to quantum leap
thinking. If I did not take that approach all those years ago, I
would not have broken through the fear barrier and done my first
deal. And I certainly would not have been a major catalyst
in the creation of millions of dollars of positive cash flow for me and
my buddies, over that period. So there!
So what is your
dream? Get real clear on it and then educate yourself about our
strategies. From there you can take your new knowledge and use it
to do what I did, and do some 'what if' strategising. If that
doesn't excite you, I'd be amazed. Go for it.
FOOTNOTE.
I have noticed that people who get involved with us tend to have a
strong core desire, married to a big dream. So I will be
refocusing and prioritising my time so I spend most of it with those
who have the dream and the goals in place.
Another Done Deal: $1,100 per month of
Positive
Cash Flow From One House
Ric
and his wife were wanting to buy their own home. They tried many
avenues but were turned down each time they tried. Why? A
few years ago they became bankrupt due to a business failure.
Since then Ric has rehabilitated himself and now has a thriving
excavation business.
So when Ric spoke
to us at www.homebuyexpress.com.au, we gave him a sense of
optimism. We told him that we would be able to help him providing
our due diligence checks proved positive, and providing he paid a
deposit of at least $10,000 once the house was found. After we
had checked him out (credit and rental reference, review of bank
statements etc) we approved him for a vendor finance style plan.
This offered him a fixed price with an interest rate well BELOW what a
sub prime lender would charge.
Once approved Ric
and his wife went house hunting. Before long they found an
excellent property in a middle class suburb on the southside of
Brisbane. It was a timely find because the vendors had just
reduced their price by more than $20,000 to $379,000.
They had a serious need to sell due to a marriage bust up.
As is often the
case in Brisbane at the moment any property on the market that is
priced well, attracts quite a few buyers. This one was no
different with others buyers putting in offers to compete with
ours. In situations like this I have found the best thing to do
is to make a king hit offer, which in this case took the form of a cash
contract. Presto! It did the trick and we secured the
property.
Here are the numbers:
Investors Purchase Price inc Costs: $397,000
Buyer's Fixed Price (inc our mark up): $434,900
Buyer's
Deposit:
$12,000
Buyer's Monthly
Payment:
$3,709 (10% pa P & I)
Investor's
Monthly Pmt:
$2,566 (8% pa
Interest only, based on $397,000
less $12,000)
Positive
Cash Flow:
$1,142 per
month
A few points need to be made on the above deal
-
The tenant buyers will be making many improvement to the property
(eg polished floors, landscaping, convert the study into more living
area downstairs), thereby increasing the value of the asset
-
The tenant buyer's weekly payment represents less than 35% of their personal income
-
We expect the tenant buyers to finance out within 2 - 3 years, at the most
-
Rates and insurance have not been factored into the above
figures. In any event, the tenant buyer must re-reimburse us and
our investor partner for these outgoings.
A Low Cost Way to Learn
People
ask: "How can I learn how to do these deals without it costing an arm
and a leg?" They also ask "Can I get some help if I need
it?" Well, I think I've got it figured with my Creative Cash Flow
Home Study Program. It combines all of the cost effectiveness and
convenience of a home study program (learn at your own pace), with real
live support (phone and email) from real life deal professionals.
People pay me up
to $22,000 for my deal coaching programs, yet you'll pay only a small
fraction of that for my Home Study Program. And you get to talk
to deal professionals, almost whenever you want! Fabulous.
Oh, and it also includes my contract and document pack. This
alone will save you thousands of dollars. So check it out now by
going to www.cashflowprograms.com/creative
No Room For Old Style Thinkers
in the Positive Cash Flow Game
One
reason why most property investors only play the negative gearing buy
and hold game is they don’t know any better. But I have
found after many, many years of talking to property investors about the
virtues of positive cash flow, that even when they learn about it, most
of ‘em reject the idea out of hand. Why? I think the
reasons are simple;
1. They have zero entrepreneurial flair
2. They are hide bound conservatives - rigid thinkers who would rather do anything than embrace change.
I can teach
entrepreneurship in a property context. But I can’t open a
closed mind. So if that’s you, forget about this stuff, and
go do something else. Because there is nothing I can do or say
that will make the slightest difference.
On the
other hand, if you are open to new ideas and are prepared to think
outside the square, return to my blog regularly. Also, check out
my other websites:
www.cashflowproperties.com.au (joint venture platform - if you don't want to do it yourself)
www.homebuyexpress.com.au (tenant buyer platform)
www.zaphomeloans.com.au (home loan platform)
Why Australian Families Need Your Help
More
than 30 per cent of the population rent. Guess what? A hefty
percentage of those people would LOVE the opportunity to own their own
home. But for a variety of reasons they cannot yet qualify for a
bank loan. Reasons such as credit and deposit problems.
Many self
employed people can’t qualify for a loan simple because they
can’t save the 20 per cent deposit to qualify for a loan.
Think about it. A 20 percent deposit on a $300,000 house equates
to $60,000. Add other purchase costs and there’s probably
not much change out of $70,000.
So, how can we
help these people into their own home? I use a rent buy strategy
to ease them into home ownership. Done correctly (and we’ve
done more than 200 of them), these arrangements can work very well for
both parties. The tenant pays you a weekly sum equivalent to 50
– 100 per cent above market rent.
And they get
access to an asset, and thereby can create their deposit by
participating in capital growth as a result of the work they do to
improve the property or by way of normal market growth. Positive
cash flow for you, equity participation for the tenant.
Can you help? Give Sandra or me a call on
0422 470 610
or drop me a line at kim@cashflowprograms.com. We'll not only
show you how to help someone else, but how to help yourself, with a
stream of positive cash flow.
Prodigal Son Says
"Thanks for Giving Me Another Go!"
Sam
and his missus are dead keen to own their own home. Problem was
that they allowed themselves to be overly influenced by ('do gooders'
and others with agendas), to NOT choose a rent buy strategy.
That's why they walked away from the great deal we had put together for
them at www.homebuyexpress.com.au a few months ago.
All was not lost
however, because since then Sam came to the clear conclusion that those
who were supposedly looking out for his welfare, were doing nothing to
help him realise his home ownership dream. Sam came to the clear
conclusion that rather than try and save a 10-15 per cent deposit over
the next couple of years, he indeed would be better off going with a
rent buy plan NOW.
So out of the
blue he phoned us and said he had reconsidered and would we take him on
again? After explaining to him that he inconvenienced us greatly
last time, and that if we did give him another go, we would want him to
hold firm and stay the course, second time around. He agreed, and
promptly began looking for a home.
New Home Found in
Quick Time. It didn't take long for Sam to find a house on the northside of Brisbane. Unfortunately the vendor decided to
increase the price so we backed out of it. Not to be undone Sam
went to work again and soon found another one that we liked. Our
offer for $322,000 was accepted and the deal was done. All up the
entire process took about a month.
How the Figures
Stack Up. The positive cash flow this deal will produce will be
$957 per month (after loan payment, rates and insurance). Add to
that a contract price mark capital profit of $30,000 and you have a
nice little earner. If you would like a spreadsheet of this deal,
drop me a line at kim@cashflowprograms.com
For more options on positive cash flow investing go to http://www.cashflowprograms.com
