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Creating a Real Estate Time Machine

by Howard Hudson   

I have created a time machine. Just think back to the remember when you could buy a house for $6,500, hold on to it for a few years, and sell it for $30,000. If I could do that now, I'd buy ten. Well I'm here to tell you. You can. I just did. The city was Baltimore, but the location can be anywhere with inner-city decay: Board ups, drugs, high crime, etc.--exactly the place everyone expects to find a fortune.

The method has four steps [courtesy of Robert Allen]:

Find it, fund it, fix it, farm it.

  1. Foreclosures, Delinquent Taxes, REOs etc.

  2. Seller-held financing from tired landlords, REO departments, or credit cards.

  3. Fix it to FHA minimum standards. Get a copy from an appraiser.

  4. Farming it or selling it to some of the inner cities' poorest eligible inhabitants is the essence of my money-making idea. FINANCING IS KEY.

It is one thing to fix the property to FHA standards, but quite another to sell it that way. The process is slow and tedious, and many good people don't qualify. Often it is for lack of funds that cannot be overcome by seller assistance above the 6% level.

So, What to do? BE THE BANK. But you say, "What about the Due on Sale clause or that credit card debt?" The answer is to create a note to sell the house and at the same time, sell the note to create the cash to close.

A couple of months ago I posted a question on this site titled "A Notable Question." I asked if it was possible to create a note on a property I was selling and then to simultaneously sell it to an investor at the closing table. The answer was YES.

I chose Mike Jones from Mid South Funding to work with, and he showed me how to write the contract, structure the deal, the terms on the note, etc. This is what we came up with: Sale price $30,000, First trust of $24,000 @12% x 20yrs, 2nd Trust of $4,500 @12% x 20yrs., balance paid as down payment.

The first would be sold at a discount to produce a yield of 13.8% ($21,500) This would pay off our $8,000 release on the blanket mortgage we have on the ten properties, provide the funds to close including the seller assistance that FHA wouldn't have allowed, and still leave us with a balance of $11,396.03 and the 2nd trust of $4,500. Not bad for a $6,500 investment and about $2,000 worth of fix up.

The buyers are happy, too. They have a decent home with monthly payments of $314 plus taxes and insurance, on a property they would have had to pay $400 to rent.

In conclusion, I believe my time machine is unique. Investors have overlooked the possibilities of our inner cities and their residents as an opportunity to create wealth and bring back those communities. This system is very workable. I have done it and continue to use it. The profit potential is only limited by the original cost of the house and how many you can complete in a year. Good Luck.

 
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