Meet Mark III.
Mark, Baby DM, Deena
He’s learning to eat with a spoon.
He finally sits up on his own.
He’s got a couple of teeth and he drools all over himself.
He’s walking all over the place now.
He’s just 11 months old…
… and he’s nearly doubled his IRA.
What kind of return did you get in your IRA?
In this report I’ll share his secret strategy with you, step-by-step. I’ll also share the exact numbers on the deal but you should be aware this can work for other deals, too. I’m just illustrating as an example the deal that my son did… so don’t get caught up on the exact numbers but focus instead on the steps and the lessons.
And I confess: I have more than 2 decades of investing experience so I *may* have helped him a bit. (Mostly because I wanted “cash flow” to be his first words… much to his mother’s chagrin).
I’ll be giving you the step-by-step breakdown of the whole thought process so, when you do something like this in your or your kids’/ grandkids’ portfolio, you’ll be able to decide what’s right for you.
So this deal was done with my wife’s Roth IRA and my son’s Roth IRA on a percentage basis, as my son doesn’t have that much money in his yet. (Hey, he was only 11 months old when this deal went down so he only had done a contribution.)
The house was purchased on July 4, 2016 for $34,000 all in (including costs to buy and fix, plus all expenses.)
85% owned by Deena’s Roth IRA: $28,900
15% owned by Mark III’s Roth IRA: $5,100
Total all-in: $34,000
Here’s how the deal came about:
I was contacted by another wholesaler who found this deal using direct mail. I knew the wholesaler well and he told me about the deal and I agreed to it.
Below is how the conversation went between us. (Here’s why I’m sharing it with you: a lot of brand new investors don’t always understand how deals are done at the higher levels that I play at, so they tend to focus on the wrong things or ask questions that don’t matter. I’m sharing this with you because I think a lot of investors might be surprised at how FAST and SIMPLE the conversation actually is.)
The conversation went something like this:
Nick (the wholesaler): “Hey Mark! How’s it going?”
Me: “Great, Nick. What’s up over there?”
Nick: “A ton… Mark, I know you’re busy. I have a deal on the west side of Cleveland. It’s a 4 bedroom, 1 bath; it needs about 8k in work. It can be had for $34k and you could sell it for $55-$75 depending what you do with it.”
Me: “Hmmm. What’s the address?”
Nick told me the address and I simply typed it into Google (yes, Google!) and within seconds I was able to see what it looked like, and other information on the property.
(Bonus tip: Be careful when you do this, though: sometimes you’ll see websites that give a valuation on the property but those valuations are RARELY accurate. I already know the area so I knew the value already… but if you don’t know the area and aren’t sure of the value then the best thing you can do is to always work with a wholesaler who you TRUST and who is an EXPERT in a couple of carefully-selected markets. This relationship will save you a ton of time and worry about whether you’re getting a good deal.)
Anyway, I looked at the picture and reviewed the information for about 30 seconds, while Nick was on the line. Then…
Me (to Mark III): “What do you think, buddy?”
Mark III: “bah bah bah bah bah”
Me: “I hear ya, buddy!”
Me (to Nick): “Yes, Mark III and I are both in. Let’s do it. Send me the contract.”
Why most investors would have skipped this deal: Most investors would have skipped over this deal because the wholesaler made a bit over $10,000 on an assignment to me.
Most investors would look at that and say, “That’s too much,” so they’d turn the deal down. But the truth is, I don’t care what he makes… All I care about is what I can make. (Reason I bring this up is that I see a lot of deals that amateur investors walk from because they see what others make. If it can make you money, do the deal … real simple.)
Once we got the deal, I talked to a contractor about what we can do with it. I literally only spent less than an hour (if that!) with the contractors on the phone to give them direction of what we want to do with this house.
We had the property, we had the contractors working, now it was time to decide our options. (Well, Mark III and I discussed these a bit beforehand, of course… Mark III doesn’t like going into a deal without knowing his options. “Like father, like son,” as the saying goes.)
With this property, he has several options; here are the 4 we looked closely at. (You should always weigh all of your options against your timeline and financial goals.)
Cash Flow Strategy: #1. He can hold and rent for $1,000 a month
Fast Flip Strategies #2 and #3. He can simply flip it to keep the money churning at $60-
$75k (depending on how quickly he wants to move it)
Leverage Strategy #4. He can combine strategies and add leverage.
I told him what his options were and asked him which he wanted to choose. He drooled a little and was momentarily distracted by a squirrel, and then he may have eaten something off the floor.
(… Oh, keep that last part between us. Mom doesn’t know that part. ☺ )
So let’s look at the 4 options on this deal and how to profit from them. Then I want you to guess which one we chose (and if you read all the way to the end then you’ll be able to unlock the answer to find out what Mark III decided to do.)
OPTION #1: Free And Clear Rental
Keep as a rental and rent it out for $1,000 a month.
At $1,000 a month, that would bring our Net ROI (after all expenses including management fee, vacancy fee, taxes, insurance, and repair allocations) into his account to play around with.
So, keep it and rent it and net around 19.44% interest per year. (Not too shabby)
Just so you don’t scan that number above and think “That’s okay, I guess.” This is like a 1900% better return on the same money if it was sitting in the bank.”
Or, in dollars, this will generate you an extra $550.89 a month in cash flow.
Let’s break this out for you visually:
If you want to see a little more insight on how we figure the expenses see below:
Also many will see this and think, “OMG, 10% of gross rents collected… that’s expensive!” …
… if you think like this then beware: the rental business isn’t for you ☺
I can tell you first hand property management is the hardest job in the game and if you don’t think so try it on for size and see if a tenant ever calls you and tells you how amazing you’re doing.
A property manager is a team member to your future, and you’re getting a STEAL for 10% of gross rents.
It’s amazing to me that readers will have others managing their money and they pay points and fees on that but on a rental property when they see a 10% fee they think, “Well so-and-so said they can do it for 8%” or worse yet, “I’ll just do it myself and put that money in my pocket.” ☺ I just think: if you’re in this long-term, pay the person that deals with your asset. If you pay them a fair price of 10%, they’ll stick around.
OPTION #2: Fix And Flip Retail
Fix it up and just list it on the market with an agent or For Sale By Owner (FSBO)
Truth is, I hate dealing with retail buyers: they are the pickiest; they require so much more hand-holding than an investor… but this is an option.
But, just out of curiosity and so I could give you ALL the information you need, I emailed an agent in that area, who we have worked with in the past, and told them the following…
“I want you to tell me how much you can sell this house for in 3 layers…
Give me a price to sell it today and close in 30 days or less.
Give me a price to close out on the deal in 60 days.
And give me a price to close out in 90 days.”
(Bonus tip: This is smart because you’re going to get 3 different prices if the agent knows what they are doing.)
The agent said he could sell it for…
$65k in 30 days or less.
$70k in 60 days or less.
$75k in 90 days or less.
Of course this is just what they think they can do but remember we’re talking about dealing with an agent on this as well as a homebuyer, which is a pain in the ass frankly. (My opinion of course.)
If I go this way, let me show you what the profit potential would look like…
Many may see this info below and say, “What? The agent is asking for $6k on this???” Again, I’m totally cool to pay that amount if the deal sells at my price… The reason I share this is you have to look at the full picture. If you look at it on a percentage basis you may think it’s crazy.
(Bonus tip: I want people around me to make money. When they make money, they’re happy and we end up doing more deals together. Investors who squeeze people and try to work the numbers so others make less money… well, those people will just go somewhere else to do more deals in the future.)
The other expenses you see here are things like help paying closing costs etc… again this is a retail thing and why I don’t like it because investors typically don’t ask this type of thing.
So this option would still give me a decent profit of around $17,000 after all the fees and such.
Based off that number that would still be an overall return of investment in 90 days or so of 50%... not too shabby ☺
Moving on to the third option…
OPTION #3: Sell To A Turn-Key Investor Buyer
This is one of my favorites (and actually we’ve done many deals like this).
What is a turn-key buyer? It’s someone who has the money and doesn’t want to build a business to find the deals, fix them up, and find management. We actually have teams that do all of this daily, so a turn-key buyer can come to us and find a simple solution to own real estate without all the hassles. They create a nice passive income stream without the hassle of finding a property, cleaning it up, finding a tenant, and making sure the property is managed.
I like working with turn-key investor buyers the best because they close quickly and they are easy to work with, plus the experienced ones buy multiple properties.
Okay, so what does this deal look like to a turn-key buyer?
Simple, we would call up management and say, “Let’s get this place leased up at $1,000 a month” (just like if we’re going to keep it for our own portfolio) and that’s what they’d do.
Once it’s leased up and performing, we then set a price that we want to sell it at.
Remember, this isn’t a house that we’re selling to a retail investor; this is really more like a business… one that is established and cash-flowing with a “customer” (the tenant) and a management team (the property manager) in place already.
For that reason, turn-key investors look at cash on cash ROI.
Remember, when selling you can always get more money but I don’t want to squeeze people. I just want to do a good deal and we all make money, that's how we all win. If you squeeze every penny out of the deal it leaves no room for error and such, so just price the deal fair and do what you say you’re going to do.
I’d price this one at $60,000 based on all the numbers I shared with you already. As a rental with reserves and such, the investor would expect to make around 11.02%. See below for this breakout:
Not too shabby, right? For the turn-key buyer, think about this: They buy this practically brand new house for $60,000 and they get a check for $550 a month by saying YES.
I know what the west coast folks are thinking, “You can buy a real house for $60,000???” … Yes you can. Keep reading…
It’s all done for them and I’d even say they have $10-$15k in equity, too (but I really don’t like to look at just equity… as I say to Mark III, “You can’t eat equity” ☺ … cash flow is your best friend.)
The buyer may have cash sitting in the bank making no money or in a CD making 1% a year (if they are lucky) and or may have money sitting in an IRA or an old 401k that isn’t doing much if anything.
If you can meet a buyer that has money in the bank, like a CD making (let’s say) 1%, and you showed them how to generate 11% or more… That's a 1,000% better ROI than the bank is giving them.
I know many may read this and think, “Well Mark, that’s not correct, it’s only a 10% difference. 1% to 11%” … I’d have you call up your bean counter and have them help you through this. ☺
Let’s do some math…
1% on a CD with $60,000 is $600 a year….
11% with this house not counting any depreciation with the same $60,000 is $6,610.68 a year.
A whopping difference of $6,010.68.
Simple question is would you rather have $600 a year or $6,610.68 a year?
Seems like a NO-Brainer decision to me. (Re-read above)
Mark III can’t tie his shoes but even he knows which one is better!
Again this is a GREAT way to grow your monthly cash flow without all the headaches.
If I go this route, I’d net around $24,000 as there will be around $2,000 in closing costs.
All in for $34,000
Sale for $60,000
Minus $2,000 closing cost
Net around: $24,000 this would put me over 70% ROI in 90 days or so.
Option #4. Keep The House And Get A Loan Against It:
Can you have the best of both worlds? Keep it and get your money back?
You betcha. You could take a non-recourse loan on a deal like this (In an IRA you can’t have a recourse loan) but I could simply get a private loan at $40k-50k, or even seek a company that does IRA loans and get a decent amount of money back. I keep the house and keep the rental income minus the mortgage now if I go this route.
I may net around $200 a month if I went this route but I would retain the asset long term, and get my cash back to do it again. And maybe even get some profit off the table if all-in was $34k and I got $45k on a non recourse loan I’d make $11k up front to do something with so I could find another deal or 2. ☺ And repeat this process inside of my wife’s and son’s Roth’s.
What would YOU do? Which option would you take and why? I’d like to know.
There’s no right or wrong answer on this; it has a lot of variables and your own goals and timeline will influence your decision.
Maybe your money is needed on another project and you need it fast.
Maybe you sell it quickly, make a couple bucks and move on.
Maybe you have that money just sitting in the IRA or savings and having another $500+ a month coming in would relieve some stress.
Maybe you can have the best of both worlds? Keep it and get your money back?
We had a ton of options, and Mark III isn’t really focused on the long term but I think he’s still pretty excited about his ROI on this deal.
Want to see what Mark III decided to do? (Hint: he wouldn’t finish his peas but he did make a decision on this property!)
And, maybe you also want to see what the house looks like, too?
Click the picture below to see which option Mark III decided to do, view before-and-after pictures, cast your vote to share what you think of the renovation, and get your own blueprint to show how this deal can break down in your portfolio…
Follow the Journey at : www.MarkEvansDM.com