About 3 weeks ago I had a student tell me that he did an interesting and what I thought a little bit of an "unusual" real estate deal that piqued my curiosity because I had never done anything like this myself before.
His name is Dave R. and he lives in Michigan. He found a severely under-performing apartment building in the outskirts of Detroit. It was 22 units with only 8 of the units occupied with rent-paying tenants.
Unlike my typical recommended strategy of doing a buy-and-hold deal on an apartment building, Dave had zero interest in holding title on a property that is in an area that we'd call the "ghetto."
He had no cash and no credit for this deal. None whatsoever. So, he realized he had to develop some type of strategy for this property which I thought was incredibly creative (and apparently lucrative as well).
The listing price on this POS property was only $189,000. It's actually worth half of that. Dave made an all cash offer for $140,000 and it was accepted. Mind you, he had something that I call a "decoy buyer" in place because he was using what I call "deferred" wet funds to pull off this deal.
His strategy? Fill up the units...like yesterday. Then resell it to a real investor.
So...how does one fill up 14 units virtually overnight?
This is where I'm blown away at his level of creativity and I give him full props for how amazing this strategy is.
Each unit was in "okay" condition but he admitted that the carpet probably should have been completely replaced in most of them. He didn't have the money. All he had the money for was carpet cleaning and some paint, all which he would have to do himself.
So, he put an ad out there offering the first month for only $1. He even got a banner for across the building. But this is where it gets interesting...
In the ad he clearly states: $1 First Month's Rent, No Security Deposit Up Front; Move In for Only a Buck! Yes, We're Serious!!
His strategy was to move people in for only $1 but he'd make sure he qualified them with minimal credit (no evictions) and require that they showed paycheck stubs for the past 2 months of employment that had to be at least double and a half of what the rent was to be ($400/month...so they had to make at least $1,000 a month). And that was it. (We're in the ghetto, remember. You're not going to find people with 700+ FICO scores with long-term jobs and Microsoft.)
Once the ad was out, he went from unit to unit painting, cleaning and carpet cleaning himself with his teenage son helping.
The ad generated 86 calls in 2 days and he had to scramble to get each unit rent-ready for each prospective tenant. He had his wife do the "screening" of the tenants by making the criteria pretty clear up front:
1) No evictions
2) 2 months of steady employment
3) Must make $1,000 or more a month
They disqualified about half of the phone calls right off the bat but they still had over 40 serious contenders for their units. As fast as they had each one ready, they started quickly moving people in.
Now, what about the security deposit? Why not collect on one?
Each prospective tenant had a choice: Pay $400 up front for the security deposit and agree to a 12-month lease or add $25 each month for the next 16 months to cover the deposit and agree to a 16-month lease. He said that 4 tenants chose to pay the security deposit up front and the rest chose to have the $25 added to the rent for 16 months.
In approximately 2 weeks they had all 14 units filled.
Now here's the kicker. He had to flip this property to someone else because he couldn't keep it. It was on deferred wet funds that had to be cashed out ASAP.
He went on 2 different investor sites, including the LoopNet Big Board and put out some astonishing cash flow numbers that looked like this:
Who wants $2,000 a month in passive cash flow income from a building that's only $260,000? Fully leased up 22-unit apartment building in Michigan that's generating some serious cash flow. Perfect for any investor looking for a turnkey investment property opportunity! Inquire now! This deal will NOT last long!
And the deal didn't last long. Within 4 days he had about 12 investors beating a path to his door and he ended up selling the building for slightly higher than what he wanted.
Remember, he picked this building up for only $140,000 then told me he spent under $2,000 on paint and the carpet cleaner (including carpet solution and other cleaning supplies). He spent another $280 on running credit and eviction reports. Total: $142,280.
After all of his fees, he ended up walking away with $104,683 on this deal. Total time put in: 4 1/2 weeks.
Now he's working on the next one that will make at least double that over about 6 to 8 weeks because it's a larger 34-unit building. And he said this time he'll be hiring a painter and carpet cleaning service because he didn't particularly care for doing the work himself.
So...the question you would probably have about now is...how does one get the cash for a deal like this if you don't have money or credit to do it?
Transactional funders don't require money or even credit (or income verification) to get money from them.
But they all require that you have an end-buyer in place.
Of course, I have a legal way around this which is part of what my Real Estate Cash Flow System is all about. Click here for more information on it: http://www.monicamain.com/real_estate_cash_flow_system1
See you at the top!
P.S. I still have room in my upcoming 2-day Boot Camp Seminar on September 13th and 14th in Los Angeles. Click here for more details.