Mailbox money is a bit of a misnomer. If you are a landlord, your goal is to get everyone to pay online. Incentivize it if you have to. Provide $25 off their next rent if they sign up. Whatever you need to do, if you are going to be free, the general principle is you have to stop trading your time for money. This means you trade other people’s time for money, and you automate to your fullest extent in order to trade less money for other people’s time.
But, for fun, we still call it mailbox money because no matter how it shows up, it just does.
So, I already told you starting in real estate we literally had no money to invest. We tried another option we were hearing about. We would find someone who could not sell their house and write a contract on it in which we would long-term lease with the option to purchase it. We would in turn find a buyer who wanted to rent to own it. Yes, that boggled my mind as well.
We found one almost immediately. It was a single mom who decided she was overwhelmed with the responsibility of home ownership. Several houses on her block were for sale and on the market a long time. She called us from our website – which was a typical “We buy houses” set up. We went and looked at the property and it was in great condition.
We spent some time educating her on what we planned to do. We leased it initially for five years, took on the majority of the maintenence, and negotiated a purchase price should we want to purchase it in the 5 years. We even gave her some money up front for her move. She agreed, and we had control of the property within 30 days.
We then started advertising it online for a Rent to Own situation. There are lots of people out there who want to purchase but can’t get bank lending. You can collect a down payment of $5,000-$10,000 or more depending on the property. Then, send them to credit counseling. If you negotiated the pricing correctly on the property, you should also be able to get money out when the people refinance with a bank.
This is risky, yes. You have to have a lot of flexibility in your strategy. In fact, this didn’t work at all on this property. We instead got a good renter, that made us a few hundred dollars above what we had to pay the owner. Several years into the contract we have since fully purchased the property from the original owner and still rent it today. The numbers have to work up front for various scenarios to play out.
It did however, work very well on the next property we tried. There was a guy from our real estate investors association who had a procured a house that he didn’t have the resources available to flip so he wanted to wholesell it to another investor. By this time, we had a credit line set up with the bank so we could instantly access cash. Some people can do this on a home equity loan, this happened to be an unsecured loan which are harder and harder to come by.
He sold us this house for about $37,000:
It needed a little work, but nothing extreme. We bought it and immediately advertised it on our facebook page for Rent to Own at $65,000. The couple who bought it within a week gave us a $10,000 down payment. A year later they gave us the house back, even though they could have sold it to someone else. We were like any other bank, just holding a mortgage on that house. We sold it a second time and received another $7,000 down payment. When we sell it to that buyer, without even counting interest collected on our note, we will have made over $50,000 on that little house. Lesson here is to always look for the highest income use on a property you obtain.
Also, when we financed it, the appraisal had come in so high that we were able to take $10,000 out in cash. We use anything we get to grow our business, we never take the money out to spend. But look for opportunities to free up cash because more cash = more opportunity!
Now, that is a lot of boring number stuff, but with any dream, there is always work. There is no magic bullet.
The next thing became clear, we needed to go for the most obvious mail box money of all – we needed to find rentals.