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$1,650 Profit on My First Lease Option

by Larry Hoffman, Cincinnati, Ohio   

I wanted to let you know about my first deal. It started when I spotted an ad in the Sunday paper with the words "Land Contract." I called the owner and asked if he would do a lease option rather than the land contract, and he said: "Yes." So I made an appointment to look at the property.

I got there a little early to look at the house from the outside. It was a really nice house. The owner showed up, and we went in. When I got in the house, I was really impressed with the layout and the size of the rooms. As we were talking about the terms of the lease option, it turned out that he was a real estate investor as well.

As we were talking, another prospective tenant/buyer walked in. I told the seller I would call him later that night, and when I got home there was a message for me. It was the seller saying he sold the house to the tenant/buyer who was walking in when I was walking out. I thought that was the end of the deal.

The next day, however, I got a call from the seller. He said the tenant/buyers had backed out of the deal. He now became a "motivated seller." He said he just wanted to get this property sold. He said he would assign the contract to me for $6,000. I told him that my money was tied up in other deals, which wasn't the case--I had no money.

Instead of assigning the contract to me, I suggested doing a Cooperative Assignment. He asked me how a Cooperative Assignment works. I showed him instead of him just making $6,000, his profit would be $13,200.

Since we were heading into the weekend, I decided to run a test ad to see how marketable the house would be. I put the ad in the Sunday paper under the section "Houses Lease-Option to Buy." The ad read:

Rent to Own
$1,100/month 100% rent credit, 3br, 2 1/2 baths
Call XXX-XXXX.

That Sunday I received around ten phone calls. I arranged four showings all to take place the same day later that week. The first person I showed it to wanted it. I mean really wanted it. She put down $100 earnest money for me to take it off the market, which I did. After she had a whole house inspection she said she was ready to sign the contract.

Later that week we (the seller, tenant/buyer, and myself) met a local restaurant to hammer out the details. This deal took a matter of seven days from the time I had the original agreement with the seller to the final contract with the tenant/buyer. The numbers are as follows:

Original sale price: $129,900
New sale price (+5%): $136,400
Rent credit: $1,100/month (100%) $13,200 (after a year)
Option consideration: $3,300
Sellers purchase price: $110,000
Sellers profit: $9,900
Sellers positive cash flow: $200/month ($2,400 after a year)
Sellers total profit: $13,950
My profit: $1,650

I guess I could have received a percentage of the positive cash flow ($200/month ). I wanted some initial experience first, and I felt a little awkward asking for a part of it. Next time, I will not feel awkward.

I added up all my total time--the trips over to the house and speaking with buyers on the phone. It added up to be a grand total of eleven hours; that is a day and two hours worth of work. That's $150/hour for my time, which doesn't even come close to what I make at my regular 8 to 5 job!

It is possible to control another person's property with almost no money down. I did it with only $30 for the ad I place in the Sunday paper.

 
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