By buying real estate the right way, you can overcome trading problems.
There is no doubt that you will encounter the complexity of your real estate transaction that makes you want to raise your hand in despair. But don’t!
Trading difficulties can be a source of additional profit. Challenging purchases may not be your most profitable story, but there are times when it’s said to save a bad deal.
My company is trying to find a benefit in this situation, for example by creating a fourth payday from it.
What to do if your transaction goes wrong — twice
One example I remember was when the house we bought had two different buyers after one defaulted.
In 2015, we signed up for an expired list for $ 263,000. Use sandwich wreath.. Her purchase price was what she had to pay and agreed to the terms of the remaining nine years to give time for the market to potentially rise and the principal to fall.
A “target” transaction is desirable if the seller rents the property, but in this case they did not want to abandon the title ( Tax incentives Or from general discomfort).
I sold this property to a buyer for $ 329K, but eventually it became the default. The total payday is as follows:
- Payday 1: $ 12,000
- Payday 2: $ 10,800
- Approximately $ 300 / month. x36 months
- Payday 3: $ 16,200
- $ 450 per month. repayment of x36 principal
- Remember that there was no markup because we haven’t cashed out yet. Resold.
- total: Profit from the first two tenant buyers is $ 33,000
However, on the second payday, the net approached $ 4,800 as the property could be vacant and had to pay to maintain it. It wasn’t really an out-of-pocket expense as I paid for this with spreads created by other transactions.
You can create a safety net for events such as defaults by making a few transactions on predictable payday. Despite all the best practices and best efforts to properly scrutinize buyers, things still happen. From time to time, buyers will have what I call a “life event.”
We had enough time as this situation involved a nine-year term with the seller and had several years left when this happened. When we buy the property of interest, or when there is a lease purchase where the debt begins with its value, we want two things to happen: a decrease in principal and an increase in the market. That is.
Both things happened and we were able to sell to a third tenant buyer for $ 359,000. After repayment of the principal, the mortgage balance was approximately $ 246,800.
This new buyer created the same $ 300 / month spread on payday 2. As the market has risen, so has the principal paydown, but for ease of comparison, we’ll keep $ 450 in this example.
Apparently, the third time is attractive.
Here is a summary of transaction number 3.
$ 6,000 today + $ 14,000 in the next 36 months (non-refundable deposit)
$ 300 x 36 = $ 10,800 spread
$ 450 x 36 = $ 16,200 (main paydowns)
Sales price: $ 359,000
purchase: $ 246,800
down payment: $ 20,000
Additional premium: $ 92,200
The transaction yields a total profit of $ 119,200 with premiums of $ 92,200, principal repayments of $ 16,200 and spreads of $ 10,800. In addition, the property eventually earned $ 152,200 in total payment days, as it had already received $ 33,000 from the first two tenant buyers.
But what if tenant No. 2 becomes the default? We still had enough time to sell at the end of that period in the traditional way, but even better, we could have another tenant buyer.
However, our program is designed to help buyers reach the finish line, so we will do everything we can within our system to facilitate this.
In this example, we handled the default, but we were still able to create a transaction for our benefit (although there were some issues along the way). It is important to remember that changes in circumstances can be countered by changes in conditions if a transaction fails or is interrupted by a major life event.
It may also be time to break the usual rules of trading and find a seller, an ultimate buyer, and something that benefits you.
Have you ever experienced a sour deal? How did you handle it? How did it work?
Share your story in the comments below.