A Little History Part 2: Mailbox Money

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. There are a lot of people who owe too much, can’t make repairs, or simply do not have the time to wait for a sale. Yes, that boggled my mind as well but there is a great market, especially in our area.

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 again 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, so always do your homework.

On next property we tried, this plan worked so much better! A friend from our real estate investors association had a procured a house that he wanted to wholesale to another invester. This is another way to make good money by the way – find a deal and sell it to someone. 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.

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 did encourage them to take that route, but they were moving from the area and didn’t want to deal with it. We are like any other bank, just holding a mortgage on that house. It was as if they did a voluntary foreclosure. We sold it a second time and received another $7,000 down payment. When we sell it to that buyer, we will have made over $50,000 on that little house – in interest, down payments, and in the sale at the end because we bought it for so much less than we sold it for.

Every single property we deal with we run it through many scenarios and decide on the highest income use for that property. This is why knowing a lot of techniques is so important. I credit Ed mostly for that, though I also come up with some off the wall ideas that have worked well for us.

Also, when we financed it, the appraisal had come in so high that we were able to take $10,000 out in cash to grow our business. 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! You always use other people’s money any time you can. Whether it’s a bank or a private investor, using their money to make money is truly the path of making money from thin air.

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.

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