If I told you that sometimes it’s alright to pay full price for a property, you’d probably think I’d gone crazy, right? After all, if you’re a wholesaler and you picked up a property that was worth $100,000 and tried to sell it for $100,000, you wouldn’t have any takers (let alone, any profit for yourself.)
Right now, if you’re a wholesaler you better be getting deals at 60% of value or lower. So, when it comes to wholesaling, paying full price is not the way to go, if you’re looking to make money, that is.
The same thing applies to lease option deals. If you get an option from a landlord for $100,000 and you try to sell it on a lease option for $100,000 then again, you have no profit for yourself. And, if you were to try to sell a $100,000 house to a tenant/buyer for $150,000 they wouldn’t be able to get a loan for that amount, especially in today’s market.
But before you think all is lost, here’s when it’s okay to pay full price:
When you’re doing a subject-to deal, in very specific circumstances. For instance, let’s say you come across a landlord who needs to sell ASAP. He’s got a beautiful single family house, in great shape, in a near-perfect neighborhood.
The landlord owes $200,000 on the property and the market value is $200,000. However, the rents are high in the area and you can get $300 a month in cash flow from the property. Even better, the landlord is so desperate he’ll let you have a 15-year term before you have to get the loan out of his name.
In other words, you’re buying a house (taking over his loan subject-to) and putting no-money down on the property. You’re walking into positive cash flow of several hundred dollars a month. And, you have 15 years before you have to refinance or sell the house.
Now, I can’t predict the future…
But I’d like to think that the house will have a good chunk of equity 15 years from now. But even if it doesn’t, you’ve still had all that positive cash flow over the years and it’s increased because you’ve upped your rents every year.
If you ever decide to do this type of deal you need to make sure it’s a “quality” house. You need to get the landlord to agree to a long time frame before you have to pay off the loan. You also need to see what type of loan you’re taking over. Obviously, a 3-year ARM that’s about to come due is not the type of loan you would want to take over in this situation.
The bottom line is, remember to be creative and look at every lead you get from multiple angles. There may be times when a house with no equity is a good deal after all.
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