The following was written by guest author Eddie Speed.*
There is no question that today’s market conditions have many investors preferring real estate to traditional investments such as stocks and bonds. Over the past year, numerous articles and surveys have indicated this growing trend.
For example, Bankrate.com conducted a recent survey. Their Financial Security Index survey in July posed this question to investors:
This is not a short-term trend but rather a long-term play as investors seek to avoid stock market fluctuations, interest rate changes and world market influences. The survey indicates that in times of financial uncertainty, the safety and relative ease of rental property appeals to investors.
Throughout my 34 years of experience in the real estate market, I have seen cycles come and go. My years of experience have taught me to have a clear focus on business fundamentals and avoid short-term cycles, but also to recognize and take advantage of long-term cycles. With that thought process in mind, I’ve created numerous techniques that have impacted the real-estate-backed note investment industry.
This latest technique was developed because of the growing and long-term demand for turn-key rental properties. Furthermore, I sensed passive investors were looking to stretch their cash investment with financing, if the financing could be structured so that the tenant paid for it.
My “50-50” technique delivers this!
Imagine if you were able to provide an investor with seller financed, tenant occupied turn-key rental property. The financing would be structured in a way that, after expenses, the tenant’s rent pays for the loan. The loan would be paid in full in five or so years, at which point the investor owns the property free and clear.
Is that something that would be attractive to passive cash investors? Is that attractive to investors who are looking to invest money that they “wouldn’t need for more than 10 years”? Is that something that self-directed retirement investors would seek?
The answers to those questions are, of course, YES!
The issue, however, is that these investors have a tendency to be passive. They do not have the time to find properties, fix them up, load them with tenants, manage the property and deal with the daily duties.
So how do we capitalize on strong market demand? We provide the supply solution.
What if the investor didn’t have to find the property or fix it? Didn’t have to find or qualify the tenant. What if the property is already managed and the rent is already being paid? What if he or she only needs half in cash and the rest is seller-financed with a short loan that costs less than the net rent?
All of those solutions can be provided by a combination of financing and investment skills.
Recently, for example, a student purchased a non-performing note on a three-bedroom, one-bath, single-family home for $10,500. After acquiring the property through a Deed in Lieu, he rented the property for $675 per month.
After collecting six months of rent, he sold the property to a cash investor for $49,493. This price was higher than what the BPO indicated as he offered attractive terms to this turn-key investment. He allowed the investor to hit the “easy button.”
He accepted $25,000 down and agreed to finance the $24,493 balance at 7 percent for 60 months. The rental paid for the investor’s $485 monthly payment.
The student’s rehab was minimal, and he was able to acquire the property at pennies on the dollar, making this investment a success!
Eddie Speed is the founder of NoteSchool and a leading educator the note industry. To learn about attending a NoteSchool presentation near you, visit www.noteschool.com.
*Eddie Speed and NoteSchool are not affiliated with Equity Trust Company or its affiliates. The information provided in this article is for educational purposes only and should not be construed as tax, legal, or investment advice. Whenever making an investment decision, please consult with legal, tax, and financial professionals.