How to make $1 Million (Ca$h) in Real Rstate in Five Years – Part 2
In Part 1 of this article, we learned how to creat $500,000 using little (and ideally 0) of your own money. In Part 2, we will delve into how to make the next $500,000 to create this $1M in cash.
Simultaneously, you can be utilizing another strategy known as rent to own. This program involves a tenant who enters into a contract to ultimately purchase the house they rent from you.
The basics are as follows: the tenant/buyer pays an option to purchase “premium” upfront to get into the deal, pays fair market value rent monthly including a “premium” above the rental amount. These premiums are collected and ‘banked’ by the owner and credited to the downpayment when the buyer executes the purchase at the end of the term. They are also responsible for all regular homeownership expenses.
Ideal characteristics of the tenant/buyer are: consistent and verifiable income, a reasonable amount to put down upfront and “bruised” credit. This person/couple typically can’t qualify for a mortgage today, but in time will have consciously worked to repair their credit and save enough for their down payment in order to buy the property and mortgage qualify. The rent to own program allows them to accomplish this and “bank” equity at the same time once they execute the option.
There are many models of the rent to own program. One is the “tenant first” program where the potential rent to own tenant passes your screening process based on the above criteria and finds a property with a realtor, which your joint venture partner(s) will purchase using cash and/or credit.
Another model is a “property first” program where you get a property under contract for as long as possible and find an interested party from your prescreened tenant/buyer list. Once a successful match is complete, your program can begin.
In either model the joint venture partner and you split the initial cash amount upfront, the monthly net cash flow including the premium amount as well as the appreciation which is realized at the end of the tenant/buyer’s term when they purchase the property. A term typically can be anywhere between one and five years, perhaps more.
There are many schools of thought as to how to determine the future price when the term is 5 years from today. One way is to determine the 5 year appreciation history of the area and project out 5 years in the future which should be outlined in your pro forma. So, if fair market value today (notice I didn’t say purchase price) is say $400,000 and the market has shown 5% appreciation in the area, in 5 years that property may sell for over $510,000.
On a 50/50 split with your JV partner, that’s over $50,000 plus what you are making in monthly cash flow. Your job has been to find the property, the tenant/buyer and manage the process (which is minimal as the tenant/buyer will be purchasing the property).
You may require only 10 of these or so to make the other $500,000 you are looking for to reach your million. If you treat this as a business you can achieve your million dollar goal and make it look easy to those around you.
If you’d like more info, to find out about training/coaching or to learn about how you can participate in cash flow real estate which provide above average returns, schedule a free 15 minute call by filling out the form below. And we assure you, no pressure or sales will accompany the call. Look forward to speaking with you!