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- Feb 15, 2019
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Tune into my next post titled "How I went from millionaire by 23 to flat a$$ broke" for updates on how the interest rates are affecting me. Ha, kidding.Upgrade to GOLD, thanks for sharing part of your process.
Any update? How is the high-interest rate market working for you? What adjustments have you made?
It's definitely had an impact. Changes I've made to combat that:
- flips I'm doing are all entry level/affordable housing. Staying at the low priced entry level houses where the demand is still very strong. Average priced home in my market is around 350-400k, I'm flipping houses that will be listed around 200k or less. Not many things on the market competing at that price point and things are still moving.
- For cashflow, I'm buying a lot of houses subject to the existing mortgage now. This means the current mortgage on the property stays in place, I give the seller a check for their equity at closing, I take over the payments on their house. Reason for this is two-fold; I get to take over 3% mortgages that we all know you can't get anymore, and on top of this the debt is not in my name. It stays in the sellers name. I move properties into a trust and keep the seller as a beneficiary within the trust to avoid any due-on-sale issues with the bank.
After buying the property subject-to, I then wrap their mortgage. Meaning, I take the house and I sell it owner financed on 30 year terms. This allows me to become the "bank" for a new buyer and I don't have to worry about tenants, toilets, and termites that come with owning rentals. Here is an example of a real deal I did outlining how this works:
Bought a property for 240k
The seller owed 220k on the house, monthly payment was $1,600/mo. This included taxes, insurance, principle/interest
At closing, I gave the seller 20k (their equity) and took over these payments.
I turned around and sold the property for 280k
Received a 30k down payment
New buyer is paying me $2,200/mo for 30 years.
So I gave the seller 20k, I received 30k down payment from new end buyer. I'm up 10k. Now I've got this new money printer that makes $600/mo. I even got paid 10k profit to take this money printer! I also don't even have any debt in my name. On top of this, I still get to keep the depreciation and tax benefits of owning this house.
This strategy is working extremely well as many sellers are not able to sell their houses as easily as they used to be able to. Many of them are now having to explore creative options like this, where as 2 years ago they would've laughed in my face when I offered to buy their house with anything other than cash. Not to mention, there's so many 3% loans out there that are held by sellers that have little to no equity.
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