From Junker To Cash Flow
Alexa Michna has been a CFRI member for 18 months. In July 2016 she called the number on a bandit sign on the side of the road advertising a $55K, 3 bedroom, 1.5 bath, 1,100 sq ft house for sale in Eustis, FL.
Another CFRI member was wholesaling the property. The house was close to where Alexa lives and she knows the area well.
The wholesaler renegotiated with the seller since $55K was more than Alexa was willing to pay. She figured the house may be worth around $70K and needed about $6K in repairs. Alexa’s final purchase price to buy the house was $38K.
She bought it subject-to the current financing (a $27K balance on the seller’s mortgage), which means Alexa could just take over the current mortgage payments, which were $298 PITI with a loan rate 4.5%. The wholesaler received a check for $5K at closing and the seller received $4K.
Alexa arranged to borrow $13K from a private lender’s self-directed IRA. Some of the overage from the private loan went to pay closing costs along with two past due payments on the mortgage. Alexa received a check at closing for the $2,500 balance.
She used the money from closing plus her Home Depot Credit card to pay for the 56K in repairs to be completed, and marketed the property as a lease option. She had several interested buyers, and in October 2016 chose a tenant/buyer who had $18K cash to put toward a 3 year lease option to purchase the property for $80K.
Alexa paid off the $13K IRA loan with the nonrefundable lease option deposit, and had $5K left over to pay off the credit card repairs.
If the tenant/buyer completes the lease purchase in three years, Alexa gets a check for approximately $40K ($80K sale price minus the $18K down payment minus the 1st mortgage balance). Until then, she is collecting $360 a month cash flow with no money out of her own pocket. Her tenant pays $ 678/month rent and Alexa pays $298/month to the 1st mortgage lender. The tenant has already made improvements to the property by installing indoor laundry facilities and trimming trees in the yard.
Lessons Alexa learned from this deal were:
1. Don’t give up if the price is too high, ask the wholesaler to renegotiate with the seller.
Alexa used Common Wealth Trust Services to handle the land trust for the purchase. Her Coach is Augie Byllott with Creating Wealth USA. The wholesaler was fellow CFRI member Terri Labrie.
CFRI VICE PRESIDENT
Reprinted Courtesy of Central Florida Realty Investors. Visit www.CFRI.net From the February 2017 issue of the CFRI Newsletter