Fix and Flip or Buy, Repair, Rent Refinance?

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In this video I am showing you a house that was purchased from a motivated seller for $90,000. The seller called me after receiving my postcard and told me that he had the house listed on the MLS for $108,000.

The seller had an agreement with the realtor that if the seller found a buyer they would not have to pay the real estate commission. I offered the seller $90,000 cash and he accepted.

People ask me all the time how I find deals. Well in this case, the house was listed right on the MLS, and anyone could have called the real estate agent and made an offer.

I found the seller by simply mailing the seller a postcard. The seller was on an absentee owner list (meaning they owned the house but did not live in the house). I mail postcards like this every week to absentee owners, as well as other lists like pre-foreclosures, tax delinquents, owners with equity, out of state owners and other lists that I purchase from list brokers.

I met the owner at the property and we agreed on an asking price of $90,000. My initial offer was $75,000 but he rejected that and would not take less than $90,000.

The After Repair Value (ARV) on the house was around $125,000. The house was rent ready and needed no work, so I figured that if I purchased the house at $90,000 I would be picking up around $35,000 in equity and I could add the house to my rental portfolio.

What made the deal even sweeter was the fact that a new tenant was moving in who had already signed a lease and paid first, last and security deposit. The tenant was paying $1,100 in rent. My cost to purchase the house was $90,000 and I borrowed the entire $90,000 from a private lender at 10% interest. My monthly payment to the lender was $750 and the rent was $1,100 so I was basically just picking up $35,000 in equity for free, and using the tenants rent to pay the lender their interest.

This particular tenant worked for the U.S Coast Guard, and after around a year, they were assigned to a different location. That same week my rehab crew had finished another house and were asking for their next project. I decided that I would sent them to this house to fix it up. My goal was to put it on the MLS for sale.

I paid for the repairs myself (meaning I did not use a lender). The repair costs were $15,000 for the interior and a little less than $5,000 for the Central Air. My all in cost on this house was $110,000 of which $20,000 came out of my pocket ($90,000 was from the lender)

Once the house was complete, I had to make a decision. Should I list the house on the MLS or should I rent it out and refinance the loan. Current 15 year fixed mortgage rates are around 2.5% so my payment would be around $700 per month and I could easily rent the house for $1,300. That way I could keep the house for the long term and I would own it free and clear in just 15 years. This is how you create long term wealth. That strategy is called the buy, repair, rent and refinance strategy. This strategy allows you to buy a house at a discount by paying cash, and then after repairing and renting the house to a tenant, you can refinance your mortgage and pay off the loan from the private lender and refinance to a conventional mortgage. If done right, your payments should be lower.

The other option would be to list it on the MLS and sell it for $169,900. Doing that would net me around $45,000 cash. Which option is better? Which would you choose?

There is no right answer. For long term wealth creation, holding the property as a rental will clearly be the winner. If real estate prices increased at just 4.8% per year then the value of the house should double from $125,000 to $250,000 in 15 years.

If rent increased at the same 4.8% per year then the rent should double from $1,300 to $2,600 in just 15 years. If you were to hold this property long term you could very well own a free and clear rental property that was paying you $2,600 a month in 15 years. Own 10 of those and that is $26,000 per month in income.

If you want to learn how to fix and flip houses then register for my free training at the link below:


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