*
Highly Recommended *
$23,166
From Two Hours of Work
I
bought a single family house and I just closed on it... I
will make $23,166 and I spent less than 2 hours on this deal.
--Patrick
Stanford
Temple, TX
If
you believe these deals don't happen, then they won't happen
to you.
If
you're ready to learn how they happen everyday, and how you
can bring in nice "chunks" of money like Patrick
Stanford, read
on.
"The
theory that land is property subject to private ownership
and control is the foundation of modern society, and is
eminently worthy of the superstructure."
-
Ambrose Bierce
Why
Buy When You Can Rent?
By
William Bronchick
Did
you know that you can rent a house, take none of the
risks of home ownership, and still benefit from any appreciation
in all types of markets (from bubble markets to bargain markets
and anything in between)?
The
Problem With a Traditional Purchase
Let's
say you are in the market for a $250,000 house. For a conventional
loan of that size, you'll likely be required to put down 20
percent, or $50,000. In addition, you would have to pay closing
costs, origination fees, survey, appraisal, and points for
at least another $5,000. So, at closing you'd be out of pocket
around $55,000, with $50,000 in equity. (Since equity is the
difference between what the home is worth and what you owe,
the $50,000 down payment would create equity, but the $5,000
in closing costs would not.)
A
$200,000 mortgage at an 8 percent, 30-year fixed rate would
be $1,467 in principal and interest. Add insurance and taxes,
and your future payment would be about $1,800 per month.
After
three years, assuming (for the moment) no increase in the market
value of your property, you will have paid your $200,000 mortgage
down to about $194,500. Thus, your initial $55,000 cash investment
is now worth $55,500 in equity. You don't need a calculator
to figure out that your return on investment (ROI) is just
plain lousy.
Let's
look at an alternative scenario.
You
find someone with a house worth $250,000. Her company has transferred
her to another city and she needs a quick solution. Instead
of buying her house, you offer her a full price "lease/purchase," with
$1,600 per month rent (about market for that price range) and
25 percent rent credit (an agreed-upon percentage of your monthly
rent that is credited toward your final purchase price). You
give her an additional $3,200 as option consideration (a non-refundable
fee you pay for the option to buy at a later date), which is
also applied toward your purchase.
You
move in tomorrow - no points, closing costs, etc., so you're
out of pocket only the $3,200 option consideration fee. After
three years, your equity is your option consideration ($3,200)
plus your rent credit ($400 x 36 = $14,400), for a total of
$17,600. That gives you a whopping ROI of about 500 percent.
"Yes,
but I haven't bought the property, yet," you say. Even
so, equity is still equity. Your equity in the first scenario
is not realized until you sell. Likewise, your equity in the
lease/purchase scenario is not cash until you exercise your
option to buy and then sell the property.
Here's
the trick: Sell your option before the end of your lease term.
If
you live in the property, wait until about six months before
the end of your term and start advertising the house for sale.
If the market is somewhat good, you should have no problem
selling it. Once you have a buyer lined up, you simply exercise
your option to buy and simultaneously sell it for a profit.
(By the way, you don't have to live in the house the whole
time. You can sublease it if you find another house you'd rather
live in.)
Why
not just buy the house, as in the first scenario, and sell
it three years later? The answer is simple: You would be back
in the same position as you were in when you started. (Probably
worse, since your $55,500 equity would be liquidated into less
than $50,000 after closing costs.)
What
about inflation? In either scenario, you would benefit from
inflation, since the option price in the lease/purchase scenario
locks in your purchase price. However, you
would fare much better with a lease/purchase, since
your ROI would be much greater.
940
Percent Greater Return on Investment?
Let's
look at some numbers. Suppose that over the next three years
your home appreciates a total of 10 percent. The house would
now be worth $275,000. In the buy/hold/sell scenario, your
total profit would be $30,500 ($25,000 appreciation + $5,500
loan paydown), about 60 percent ROI.
In
the lease/purchase scenario, your profit would be $39,400,
but your ROI would be over 1,000 percent!
Now,
let's look at the downside. Suppose the real estate market
drops 10 percent. In the first scenario, you would have trouble
selling the house for a profit. You'd be just like the guy
you bought it from. In the lease/purchase scenario, you wouldn't
win either. BUT YOU WOULD ONLY LOSE YOUR $3,200 OPTION MONEY.
(Which could be deductible as a loss if you argue that the
money you paid for the option was a business investment.) Isn't
it better to rent for a few years and walk away than to be
stuck with a 30-year mortgage?
A
Taxing Question
The
final point you may be wondering about is the home mortgage
interest deduction. In the first scenario, assuming you are
in a 30 percent tax bracket, you would save about $14,200 in
taxes over three years. However, you lost the use of the $50,000
you put up front to buy the house.
Let's
take the difference between the $3,200 option money in the
second scenario and the $50,000 in the first scenario (total
$46,800), and loan that money out as "hard money" secured
by real estate. At 14 percent for three years, you would earn
almost $19,656 in interest (not including the generous points
you can usually collect on hard money loans). The benefit of
the mortgage interest deduction hardly compensates for the
poor ROI in buying, holding, and selling. And there's always
the chance that Congress may decide to take away the mortgage
interest deduction. (History has taught us that we should NEVER
buy real estate for the tax benefits.)
14
percent interest on your hard money loan may sound a little
high - but the going rates are anywhere from 12 to 20 percent.
And keep in mind that the figures I have used here are based
on the best scenario for a buy/hold/sell purchase and the weakest
scenario for a lease/purchase. You could probably negotiate
a lower monthly rent and purchase price if you find a motivated
seller.
Why
Buying a Better, More Expensive House Is Even Easier
The
lease/purchase scenario works fairly well with lower-priced
homes, despite the fact that rents often exceed the typical
mortgage payment. However, it works even better with very expensive
homes. On high-priced homes ($500,000 and up), you'll have
to put down closer to 25 percent, and your ROI goes way down
when you have to plunk down $100,000 or more. In fact, there
really is no comparison, since the rent on that kind of house
would not exceed $2,200, yet the mortgage would skyrocket to
$3,500 or higher.
In
my next article for ETR, I'll be going into the legal considerations
of a lease/purchase agreement. I'll show you three important
ways to protect yourself as the buyer, and a few strategies
to employ should you decide to sell your own home this way.
[Ed.
Note: William Bronchick is a nationally recognized attorney,
best-selling author, entrepreneur, and speaker. He has been
featured in Money Magazine, USA Today, CNBC's "Power Lunch," CNN
Money, The Los Angeles Times, and more.
Mr.
Bronchick will be speaking to a select group of listeners in
an upcoming teleseminar on using lease/purchases to buy and
sell real estate. Sign
up today, and receive an ETR reader discount.]
* Highly
Recommended *
He'd
Have Called Them Crazy - Or Worse!
With
the Internet, it's now possible to spend no more than a few
dollars, write a couple of very basic ads, and have instant
access to millions of potential customers all in a matter of
minutes.
If
anyone had told Jim Sheridan he could bank thousands in just
24 hours. . . without any product of his own. . . without spending
a penny on getting it or promoting it, he'd have justifiably
said they were nuts.
But
Jim made a decision that he would overcome his skeptical nature
and give it a go. Boy, is he glad he did! That one deal alone
banked him $187,296 in one day.
The
great news is - you can copy Jim's plan exactly. The program
is called Instant Internet Income and I guarantee it does exactly
what it says it does.
Take
a look at how Jim brought in over $175,000 in a single
day!
-
Patrick Coffey
Notes
From Paris: Do One Beautiful Thing Before You Die
By
Michael Masterson
K
and I are generally good travel companions, because we have
complementary strengths and interests.
She
likes charming hotels. I like comfortable ones. By holding
out for places that are both comfortable and charming we are
both entertained and pampered.
Our
preferences for restaurants are also complementary. She likes
restaurants that come highly recommended. I like restaurants
that are within 50 meters of me when my stomach says "Eat!" By
keeping information about dozens of recommended restaurants
in K's tote at all times, we are never far from a good meal.
And,
finally, we complement each other when it comes to sightseeing.
She likes to use the guidebooks, stopping at all the recommended
spots. I like to venture off the beaten track a bit to discover
something wonderful that not every other traveler has already
read about. By trading off afternoons, K and I have been able
to get in all the deservedly popular sites and, occasionally,
discover some little-known gems.
This
was my afternoon. We wandered the quiet, tree-lined backstreets
of the Latin Quarter, and one of them opened up into a pretty
little square, sided by older, mostly 16th and 17th century
buildings. A little banner projected from one of them, in front
of a small door that led to the basement. An exhibit of photos
of "Old Paris" was being held.
There
were about 100 photos by three photographers, all shot between
1930 and 1960. Most were black and white. A few employed color,
but minimally. Many were nighttime shots. The overriding sentiment
was nostalgia.
I
am leery of nostalgic art because it can so easily be sentimentalized.
But though these photos were beautiful and even wistful, they
were also austere. There was one - a shot of an old building,
illuminated by streetlights, in front of a rain-wet cobblestone
road - that made me linger.
"I
wish I could have taken that," I thought.
Then
I thought, "But maybe one day I can do something
like it. It isn't likely to happen anytime soon. But if I take
a hundred or a thousand pictures, one of them might be great.
So why not try?"
Point
is, we are here for only a short time. The candle is lit. It
flickers. And it's out. Wouldn't it be good to know that you
have left something behind that is beautiful?
Admit
it. Wouldn't it good? You don't have to be an artist to have
that ambition. We are talking about leaving behind one beautiful
thing. Not a dozen masterpieces. Not a body of solid, serious
work. Just one beautiful thing.
Think
small. Think about creating a single, simple thing: a lullaby,
a poem, a children's book, a song, a pencil sketch, a stone
carving, a dance, a short story, a black and white photo.
PACE®
Yourself
By
Al Sears, MD
Yesterday,
I told you about some of the benefits of high-intensity exercise.
Working out in short, intense bursts followed by short periods
of rest will also give you the best heart protection.
The
Harvard Health Professionals Study found that those who exerted
more energy during exercise had a lower risk of heart disease.
And their risk of death dropped by more than 100 percent.
It
would be dangerous to exercise strenuously if you are out of
shape. But even if you are, it's safe to gradually challenge
your capacity for intensity a little bit at a time. That's
why I designed my PACE® program The
Doctor's Heart Cure. Thousands have used
it to successfully pump up their lung volumes and bulletproof
their hearts.
PACE®
stands for Progressively Accelerating Cardiopulmonary Exertion.
By using it, you can gradually and safely increase intensity.
In fact, it's surprisingly easy ... even fun. And it only takes
12 minutes a day.
Here
is a sample 10-minute program to try:
For
the first 60 seconds, exercise at a rate that is comfortable
for you but gives your heart and lungs a challenge.
After
your first repetition interval (the exertion period), begin
your first rest interval (the recovery period). During your
rest interval, slow down to an easy pace - as if you're walking
- until your breathing slows down to near normal. Depending
on your physical condition, this should take 1 to 2 minutes. You
don't need to stop moving during your rest interval. Simply
slow down and go at a slow, easy speed.
Repeat
the process. Start your next repetition interval and follow
it with a rest interval.
If
you're new to exercise, or feel out-of-shape, take it easy
for the first two weeks. The speed and intensity of your repetition
interval should be fast enough for you to break a sweat but
not so intense that you can't finish the 10-minute program.
Strengthening
your heart and lungs is only one of the benefits of interval
exercising. Tomorrow, I'll tell you about another result you'll
love.
[Ed.
Note: Dr. Sears, a practicing physician and the author of The
Doctor's Heart Cure and 12
Secrets to Virility , is a leading authority
on longevity, physical fitness, and heart health.]
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Get
the Cash to Grow Your Business...
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Possible As A Real Estate Investor)
My
name is Alan Cowgill and in an eight week period, I've purchased
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Just
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ETR
Insider Report: A Professional Recommendation for Automatic
Wealth for Grads
By
Suzanne Richardson
I
got my little brother - who just graduated from high school
- a copy of Automatic
Wealth for Grads... and Anyone Else Just Starting Out,
and he wasn't able to put it down until he'd read the entire
book. Then he kept strutting around and quoting Michael Masterson
to the rest of the family. (I'm not kidding. I can't remember
a time when a book made such a big impression on him!)
So
I wasn't surprised to find that professionals in the business
of counseling recent grads have taken note. Just a few weeks
ago, the Milwaukee Journal-Sentinel ran a Q&A
article in the Sunday paper. The questioner wondered how he
could increase his salary in a company where he felt he was
making too little. Career counselor Margo Frey told the young
man to consider Michael Masterson's advice:
"In
his book, Automatic
Wealth for Grads... and Anyone Else Just Starting Out," she
says, "Masterson describes three kinds of employees:
"An
ordinary worker works the way most workers work.
"An
extraordinary worker does substantially more than the average
worker.
"An
invaluable worker makes such a significant contribution to
the company that losing him or her would be considered a major
financial misfortune.
"If
you were to make a significant contribution to your current
employer, it's possible that you would be financially rewarded.
The types of contributions that are most often rewarded are
those that result in increasing revenue or saving money.
"You
like working at your current company. Try to become an extraordinary
employee there by looking for ways to make significant contributions.
If you are not rewarded financially, you can use the results
you achieved to become more valuable to other companies than
you are now."
The
difference between an ordinary worker and an invaluable worker
is one topic my brother took to heart. But he was also bowled
over by Michael Masterson's ideas about investing in real estate
and starting to save for retirement now, while he's still a
teenager. If you want to learn more - much, much more - pick
up a copy of Automatic
Wealth for Grads... and Anyone Else Just Starting Out.
Word
to the Wise: Hortatory
Something
that's "hortatory" (HOR-tuh-tor-ee)
serves to encourage or incite.
Example
(as used by Marjorie Garber in Symptoms
of Culture): "Instead of 'Home Run,
Jack,' the hortatory message that greets the batter at the
plate is the subliminal one that surfaces: 'Run Home, Jack.'"
