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How do you make it work? - http://www.dealmakerscafe.com Forums

Original message

Doug Pretorius

24.112.158.242

"How do you make it work?" , Mon 31 Jul 07:56

I certainly have no trouble understanding how you can make money selling on a land contract or with a lease/option when your payments are the same or less than the market rent.

But how do you get the cashflow you're looking for when your payments are already a couple hundred dollars more than the FMR, and then you want to try to get another $100+ per month out of your T/B?

This is the way it is in my area, and has been for a very long time. Although now that rent control has been removed and vacancy is extremely low (maybe 0.5%) rents are coming up, but still, if you take over a property with little or no equity, your payments are going to be at least $100-$200 above FMR.

Doug

Replies:

lynnhahn

216.78.52.31

"Re(1):How do you make it work?" , Mon 31 Jul 10:28

When you are selling on flexible terms, such as lease-purchase, you can get higher than FMR.

Our goal is to average $150 per month positive monthly cash flow on our properties. However, we have some that we get $400+ per month, and one that I have a $200 per month negative cash flow.

Everyone understands the positive, but why would I take on a property with negative cash flow? The lady that we l/o the property from has a 15 year mortgage so the payments are high. It's a $230K home and I received a $10,000 option consideration payment on a one year lease purchase. Do the math...I set $2,400 of my $10,000 aside to take care of the negative cash flow and I put the rest in Hip National Bank.

There are three streams of income from your lease-purchases.

1) Option consideration
2) Monthly cash flow
3) Back end profit

You can't always capitalize on all three. You have to look at the entire picture and decide whether a deal is worth your time.

You can also increase your monthly rent by offering to match option consideration. For instance, "Mr. Buyer, for every $100 over and above the rent amount you can pay, I will match it with $100 rent credit, so you pay an extra $200 and I give you $400 rent credit".

As far as selling on land contract. If you are selling at a profit and charging a higher interest rate than the underlying loan than you shouldn't have negative cash flow.

Happy Investing!
Lynn

Doug Pretorius

24.112.158.242

"Re(2):How do you make it work?" , Mon 31 Jul 10:47

Thanks Lynn, good points.

So you can juggle things this way or that, perhaps offering your T/B a few choices, like higher rent in exchange for less upfront or a lower price. Or more upfront and/or higher price, for less rent.

Doug

lynnhahn

216.78.50.134

"You are right!" , Tue 1 Aug 20:47

That's why it is called "Creative Financing" and to be successful you have to become a Transaction Engineer. I stole that line from someone, but I can't remember who, so I can't give them credit

Lynn