2009 Real Estate Investing Goals

Back To the Basics

Confessions of a Michigan Real Estate Investor

Learn, teach, and network. Those words have been spoken by me on stage, over the phone, and over many Skinny Lattes. 2009 spells the beginning of a 24-36 month acquisition period for savvy Michigan real estate investors. We've effectively tracked prices plummet 75% in the cities that we purchase and sell single family homes. As long as you have your exit strategy palnned out and you don't over-finance your purchase, you simply can't lose.

=>=>=>Southeast Michigan real estate is on Clearance Sale!

Let's use a recent deal that we did just this month...

The property: A Roseville ranch with 3 beds, a basement, 1 1/2 bath, with garage located near I696 and Gratiot Ave

Purchase price: $29,999

Rehab cost: $7,500

This gives you a payment near $250 for principle and interest.

Lets add $300 for taxes and insurance.

Our total is $550.

Here's where the fun begins...

What's your exit strategy? We'll go through the guaranteed rent scenario, the lease option scenario, and the land contract scenario.

Okay, section 8 vouchers are close to $900 for a 3 bed home with basement. That gives you $350 in cashflow with a check coming from Jenny (The State of Michigan).

On a lease option you will get at least $2000 if not $3000 down as an option deposit and $900-$1000 lease payment. Your sale price on the house will probably be $79,999. That leaves you with a couple grand upfront and another $350 a month worst case scenario. Plus when you actually sell the property to the prospective buyer you've got a $35,000-40,000 back end.

There are pluses and minuses to the land contract sale. Lets get the minuses out of the way first. If your buyer defaults, you may have to foreclose, which will cost you a couple thousand in lawyer fees and a 6-12 month loss of payments.

Alright, here's the advantages to selling on land contract. You don't have to get rental certifications, a lengthy and sometimes costly process full of headaches. Your buyer qualifies for homesteaded taxes, (which leaves more of the payment to go towards you) and they are typically responsible to pay them. However, I suggest that you have them either pay you or an escrow/title company to make sure that they are on time. They are also responsible for all utilities, water, appliances, yard maintenance and so on. Your buyers are also able to write off the land contract interest on their taxes.

***Remember*** in Michigan 10.99 is the maximum rate that you can charge on a land contract.

Lets do the numbers...

We'll use the same $79,999 sale price. this time you're going to get 10% down and carry a note for $69,999 at 10.99% Amortized over 30 years their payment to you is $656, remember your payment is $250.

So you're cashflowing $400/month, and you received $7,500 upfront. Me likey! Also on a land contract you can play with the terms. If that payment is too high for your buyer you can lower the rate, or make it interest only. If your buyer can handle a higher payment you can amortize it over 15 years, which will give you around $525 in cashflow. If you can get them to refinance you out in 3 years your going o profit near $30,000, give or take a few.

It really all depends on what you feel works best for your business.

So what the heck are my goals???