Around the summer of 2004, we bought an investment property on Supernova, in Paradise Skies, via a HUD auction (of which we’re one of the few approved registered HUD Realtors).  There was nothing wrong with this property except that a lot of the fixures (toilets, sinks, stove and dishwasher etc.) had been removed by an angry former owner. So we hired a contractor friend, Dave Yellott, and he put in about $5,000 worth of items (and about $400 of this was for a broken Evap cooler in the second year we had it). We also hired a painter to repaint the place (about another $2,000).

We had three different sets of great tenants up until we sold it (September of ’09). Each time in between (two more times) we had the place painted ($2,000 each time).  We also had a heating and cooling service that would winterize & summarize the Evap cooler for about $125 each year (or $625 over five years). In August ’09, about a month before we sold it, we had all new carpet put in for about $5,400, the older carpet was starting to wear in the hallway and great room, but it was very livable and clean.  We did this to help sell the place. We also had a paint touch up for about $1,400.  During those five years we had a gardener come in about three times to weed the backyard for a total of about $600 – and this didn’t count the couple of times that our family also helped weed it.   So aside from the initial fixtures when we bought the place — we laid out about $7,400 for painting, $600 for weeding, and $5,400 for new carpet to help the place sell (which it did in 32 days in a very tough seller’s market.)

So take a look at the charts below:

$92,000   initial purchase price

$3,000   Closing Costs at Closing, plus

$18,400   for 20% Down Payment

$5,000   replace missing plumbing (& fix Evap Cooler)

$7,400   repainting the place numerous times

$1,250   weeding and Evap cooler yearly maintenance

$5,400   new, but not necessary, carpeting – to attract buyers

$975   mortgage payments loss due to having to rent in about 2 weeks each time.

$41,400   in money put towards this property (& this is a very important figure for later.)

We sold property for $152,500

less remaining mortgage $66,000

less Commission & Closing Costs $7,625*

(* we only had to pay the Buyers Broker side)

less  acquisition  & maintenance costs  $41,400

net taken away from closing table         $37,475

add cash flow ($250 month X 5 years)  $15,000

add tax savings on interests paid            $4,500

net  $56,975

yield was 137.62% over five years, or 27.52% yearly return on our initial money (of $40,425).

Now, let’s theorize that we didn’t do any of the painting, weeding, or carpeting — that the tenant/buyer would be responsible for these – that would have saved us another $14,025. Plus some sore hands and backs.  And maybe we would have given the tenant/buyer a $3,000 carpet allowance in equity at the end of the five years, subtract it from the purchase price total.     That would bring our net total to about $66,000.  That would mean 159.42% over five years or a yield of 31.88% per year.  By not paying for cosmetics (or evap maintenance) we would have increased our yield by an additional 4.36% per year.

We could have saved $14,025 in maintenance costs.  Carolyn and I are not going to “rent” again. We are going to do a special Rent-To-Buy program called “Strait Path” (developed by REIC) where out tenant/buyers take over all the cosmetic and maintenance items.

We’ve already done this with our “rental” property in Ventana Ranch, a 4BR, 2150 SF two story.  In two years the tenant/buyer could/will own the home.

Also the tenant/buyer has the opportunity to:

1)   get into this home that otherwise normally couldn’t qualify for;

2)   paint or customize “their” home the way they want to;

3)   put some option fee down (like $3,000 to $10,000) up front to reserve the right to purchase the home in two years, and if they do this, the Option Fee will be credited to the total purchase price.  For example, if the purchase price were $210,000 and they put down a $5,000 Option Fee, then their new purchase price would be $205,000.

4)  have a possible $100 to $200 Monthly Rent Credit that will also build up for the tenant/buyer.  If their rent credit was $100 per month then they would have $2,400 of equity saved. Thus the home would be discounted again by $2,400.

And we, the sellers, will also be saving a hefty chunk of the closing costs two years from now by not having to pay the real estate commissions — because in “Strait Path” you’ve already found the buyer/tenant at the beginning. And that’s a very special process.  There is a tenant-screening fee instead if you don’t screen the tenant/buyer yourself.

Had we used the “Strait Path” method we would have saved another $4,895 for the Buyer Broker’s commission in the Supernova home shown above. For the Ventana Ranch home, we will have saved about $13,482 in commissions (if we weren’t Realtors) and NMGRT based on a $210,000 purchase price.

So you see there’s additional revenue streams for the seller/investor.  And through “Compassionate Financing” the tenant/buyer has a chance of building up equity while “renting-to-own” plus getting into a nice property that otherwise they couldn’t.

Another huge feature of “Strait Path”: you learn how to purchase a property, through us, for 85 cents or less on the retail dollar.  You’re already ahead of the game from the start.

If you’d like more information on how to learn about the “Strait Path” model of leasing-with-optionto-buy for your next investment property, then sign up for our next  Live SEMINAR at www.10YearMillionaire.net –  reserve your seat today.  You can also find out more by going to our website, www.ChocolateProperties.com and clicking on the Investor’s button.

Lastly, if you know of someone who has a ding or two on their credit and can’t qualify now for a home but might in a couple of years, please have them call us. We’ll have a couple of properties for them to choose from this “Strait Path” method by the time you read this. Help us help them.

* * * * * * * * *

FOR THE SKEPTICS, and using the Supernova property above :

We know what might be running through your head about appreciation.  That 2005 thru 2006 were really good years with high appreciation (up to 28% in ‘06 in some areas in town).  O.K., let’s wrap our brains around a real figure. Recently, Carolyn and I determined that a general Metro Area figure was 4.1% appreciation.  So let’s take the retail price of the Supernova home at $112,000 (not what we bought it at) and apply  ZERO appreciation over just two years.  This figure is for the real skeptics out there. The sales price would be $112,000.  So… let’s use the “Strait Path” method and revise our story, and let’s assume we found a property that could be readily moved into (i.e. did not need new fixtures) yet we gave the tenant/buyer a “signing bonus, or carpet allowance credit” of $3,000 (& this isn’t always done, just when the carpet is bad but still livable):

So take a look at the charts below:

$92,000   initial purchase price

$3,000   Closing Costs at Closing, plus

$18,400   for 20% Down Payment

$2,250   for three months of mortgage payments for finding a suitable tenant/buyer (& this is a heavy figure, and in many cases it can be done under a month).

$23,650   in money put towards this property (& this is a very important figure for later.)

let’s say we sold property for $112,000

minus Buyer’s rent credit, 2 yrs     $2,400

minus a Buyer’s equity “carpet allowance” $3,000

final purchase price 2 yrs from now  $106,600

less remaining mortgage based on $92,000 price   $71,654*

(*$73,600 mortgage based on 6%, 30 yr, at the end of yr 2)

less no Commissions & Closing Costs $3,000

less  acquisition    $23,650

less Option Fee Buyer’s Equity of $5000…nope: it’s a wash because you pocketed that $5,000 two years ago – which made you feel really good.

net taken away from closing table          $8,296

add cash flow ($250 month X 2 years)    $6,000

add tax savings on interests paid           $1,595

net  $15,891

yield was 67.19% over two years, or 33.60% yearly return on our initial money (of $23,650).  And this is with ZERO appreciation.

Had you been quicker in finding and signing a tenant/buyer in one month and not three, you’d save $1,500. So your net would have been $9,796 and your yearly return would have been 41.42%.

And this is using a $92k property.  The higher the price home the greater the yields.  You can leverage your mortgage for example.  The spread on the 85% or less rule is greater, etc. And in “Strait Path” Cardinal Rule #1 is: to buy below the average priced home.  In Metro Albuquerque, its $209,283 as of March 2010.  You want to buy under this figure. Let’s call it $209k.  There are a good number of homes to buy between $160k and $209k for 85 cents or less on the retail dollar.

Call us today at 505.856.6035 if you’re interested.

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