Making a Profit in Real Estate with Minimum Effort

Maximizing profits in real estate investing usually refers to rehabbing a property and selling it to a retail buyer. However, rehabbing takes maximum effort assuming you don’t have someone else doing all the work. For this discussion, we will look at three ways to get the maximum profits from a deal without rehabbing the property. Let’s first define the return on investment (“ROI”) as the profit from the deal versus the amount of money invested or time spent involved in the deal.

1.) “Wholesaling to Retail” is where a property is purchased at 80% of the FMV and immediately sold for full market value. The average investor will lament the problems with this strategy because of closing and carrying costs, but the reality is both of these costs can be borne by the original seller by contracting for the property using Options or an Equity Agreement. In areas where the market has declined substantially for a prolonged period, there are always opportunities to find houses in excellent to mint shape that the homeowner couldn’t sell by himself or by using a Realtor®.

We typically target homes that are priced at full market value and that have been on the market for at least six months. Preferably there have been no offers on the property and there are many homes for sale in a ¼ mile radius. Now this is really sounding harder and harder.

An example of this strategy was a home that was a FSBO after coming off a Realtor® listing and had no offers in eight months in 2007. The owners were motivated to move and the property was priced at $335,000. The wrinkle was the property had been in a state of almost complete rehab for years and it needed to be completed. We offered $285,000 and it was accepted as an option with six months and with a $100 consideration.

We finished painting the entire inside of the property in one week and put it back on the market. The actual amount of work needed to complete the rehab was less than $1,000 and probably two weeks. We decided NOT to finish the rehab because we wanted to bring buyers to see what had to be done. It was advertised as a “Trustee’s Sale” with an open auction on a Saturday and Sunday. There were about 45 people who came through the house the two days of the sale. Many said there really wasn’t much work to be done, others said there was months of work to do. We sold it for $342,500 to a painting contractor and had a back-up bid for $350,000. Since we had no carrying costs our net profit was about $49,000 after closing costs and labor and materials.

This property was sold at the middle of a severely declining market. Why did this property sell in one weekend at a price that was higher than it had been offered at for eight months? The entire answer is marketing, not massive amounts but targeted “emotion based” signage. For this sale we used 13 bandit signs and no TV, radio, no MLS, or newspaper advertising. The complete example with video of the actual sale and the “killer” bandit signs is in our course at www.FSBOPowerSellingSystem.com

2.) “Equity Agreements” are contractual agreements between the homeowner and investor that stipulate almost any financial arrangement possible. We generally give the homeowner a minimum price guarantee say $275,000 and split whatever we can sell the property for above that price. We pay for a massive and concentrated advertising effort and hold as many weekend sales as is necessary to sell the property. Any repairs or upgrades are our responsibility while the day-to-day carrying costs remain the responsibility of our partner – the homeowner. If there are substantial repairs, we handle them.  When the final closing proceeds are disbursed, we are refunded our “hard costs” and profit distribution, but not any personal labor expenses.

Using Equity Agreements will often get you a deal when another offer seems too high and you don’t want to carry the property because you can show the seller how he will net more money with your offer than with a straight sell to another investor. We have Realtor® partners who use this contracting to bring buyers that they partner with and split the proceeds as well as make a purchase commission and possible sale commission on the same property. If you are prospecting for continuous buyers for your wholesale program, Realtors® who have the ability to hire handymen or contractors and partner with clients are some of the best. We usually have between one and four working with us.

3.) “Pre-selling with a Buyers’ Lists” has been a way that we sold most of our rehabbed properties on the first day we put them on the market, but for many investors it is something very novel. If you are rehabbing and having open houses, auctions or Trustee’s sales, get the name, email and telephone of every guest that comes in the property. This list becomes valuable because you can start looking for properties to sell to these buyers.

There are two things about this buyers’ list.  First you must have an ongoing prospecting system to keep a substantially sized list because these people are motivated buyers and can’t necessarily wait for you to get them a property. Secondly, you will have to work with many of them to get their credit in order which can take six months. This part of the list building is time intensive because credit restoration isn’t usually very fast.

Because of all the properties on the market, it can be hard to keep these perspective buyers focused on waiting for you to find properties. They have little loyalty especially since they are under time constraints of renting, moving or buying. Because of regulatory concerns and restrictions, the investor must have a vested interest in the property to legally make the profit he makes by bringing the two parties together.

So you have seen three types of transactions that allow the investor the ability to control a property while doing little or no rehab, and still making sizeable profits. The investor can make money without having to pay the usual carrying or closing costs, and without taking a market risk by purchasing of the property.

To your limitless success,

Dave Dinkel

Real Estate Mentor Program Founder