“Sell it?” answered Steve hesitantly. “Let somebody dicker with me just enough so I could get five thousand out.”
“But it’s rented. Who would want to buy it?” I asked, trying to test him.
“An investor,” someone guessed. “Good. An investor who needs a tax shelter. And you can afford to find such an investor because the tenant is making your monthly payments. I can see the lights coming on for Mary.”
“Slowly but surely,” she said. I then took them through an analysis of what we would do if Mary’s seller had wanted to be cashed out at a low price. This concerned the Challenge team because they couldn’t imagine where they could get their hands on a lot of cash. The first step is to get a discount of at least 20 to 30 percent off the market price (not to be confused with asking price). Thus, a $44,000 house should sell for $35,000 or less 80 percent of $44,000). We’d assume the existing $21,000 loan and agree to pay $14,000 cash for the seller’s equity by bringing in a partner. Once the property is fixed up, it is sold at its increased value of $48,000. The newbuyer refinances the house, and the new loan pays off the existing$21,000 loan, returns your partner’s $14,000 down payment and leaves a gross profit of $13,000. Assuming $3,000 expenses for fix up and financing, you are left with a net profit of $10,000 to split with your partner. Five thousand dollars to him. Five thousand dollars to you. The partner gets a $5,000 return on a short-term $14,000 investment. That’s over 30 percent.
Taken From:The ROAD TO WEALTH