Alex Pardo goes over how he thinks outside of the box on deals that don’t have the best margins.
By getting creative with getting the deal done and still making money, Alex Pardo gets the tougher deals done with the help of a joint venture.
Mike: Welcome back to the FlipNerd.com REI Classroom, where experts from across the real estate investment industry teach you quick lessons to take your business to the next level. And now let’s meet today’s expert host.
Alex: Hey, guys. It’s Alex Pardo. I’m very excited and pumped to share with you another strategy that’s going to help you in your real estate business. And I’m going to be hosting today’s REI Classroom, where I’m going to cover a creative joint venture strategy that you may not have thought of. It’s a little bit outside the box so I hope that you find this tip useful and deploy it in your business.
Mike: This REI Classroom real estate lesson is sponsored by UglyOpportunities.com.
Alex: So what happens when we lock up properties and we market them? Sometimes, deals are tight. Sometimes, we’re not able to buy properties at 60, 70 cents on the dollar. And so if you know that there’s a property that’s in a good part of town that has a lot of cash buyer activity and if you think that the property’s tight, and what I mean by tight is let’s say you’re buying a property and you put it under contract at 75, maybe even 80 cents on the dollar. And you feel that it’s not a great buy and hold property for a landlord, and for a fix and flip investor, the margins just aren’t there.
And I’m going to give you an example in a quick minute here. But I just want your kind of get a 30,000-foot view of what I’m talking about here. If you feel that the margins are too tight, one of the things you can do, and this is something that we’ve done in our business and you have to think outside the box, you have a couple different options. You can let the property go. You can try to get a price reduction or this strategy that I’m going to share with you is partnering with one of your buyers and basically assigning them your contract at the same purchase price that you have with the seller and having a written agreement with them that once they sell the property to a retail buyer on the back end, they’re going to cut you in on a share of the profit.
So there’s a property that we contracted. This is probably going back four, five, six months now. In a good part of town, we contracted the property at $260,000. The after-repair value of this property was about $320,000. And it needed about $40,000 to $50,000 in repairs. So obviously, it’s not great for a buy and hold investor just because a very low return on investment at a $ 260,000 purchase price.
And for a fix and flip investor that has to put $40,000 into it, they’re into it at $300,000 with an after repair value of $320,000, it just did not make a lot of sense. So we could really market up at the top $270,000, $280,00 that we would like to get on a wholesale property.
So on this particular deal what we did was, I told the investor I said, “Hey, listen. I’m going to be totally transparent with you. We have this property locked up at $260,000. I think at $260,000 it might make more sense for you than what we’re asking.”
Which was I think was $274,900. And this particular rehabber had you could cut corners in terms of a $40,000 rehab really for him would probably only cost him $20,000 or $25,000 so for him, it made sense. He had those kinds of connections.
So what we did was we partnered with them and we had an agreement where once he fixes and retails a property, 20% of his net profit would come back to us. And so what we did was all we did was we assigned our contract at $260,000 over to this rehabber.
So he got a decent deal. Because it was a good area, he decided to move forward the deal. And he ultimately ended up selling that property at $325,000 and we made a couple thousand dollars on the deal. It really wasn’t much. But the seller was not willing to do a price reduction. They were stuck on their price of $260,000 and it was a situation where we were able to kind of make lemonade out of lemons, I guess, so to speak, I think, where most people would just have passed on the deal if they couldn’t get a price reduction.
This was a way that we were able to make a few extra thousand dollars and deliver a property to one of our top buyers. So, hopefully, you enjoy that. I think one of the things I want to encourage you and challenge you to do is kind of think outside the box whenever you get these properties. If it’s not a traditional wholesale deal or you’re not able to work out a terms type deal with the seller, they’re not willing to do a price reduction, think about how else you can monetize these leads that come down and your marketing funnel.
Mike: HomeVestors, the “We Buy Ugly House” folks, is a franchised system of hundreds of real estate investors that have purchased over 65,000 houses. If you’d like to learn more about the most powerful real estate investing system in existence, whether you’re a pro or looking to take your business to the next level or whether you have no experience at all, but a burning passion to be successful in real estate investing, please visit FlipNerd.com/ugly to learn more.
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