Alternative Financing for Investment Properties

Conventional Home Sale

Let’s take a look at a typical house sale and see what makes the most sense. Let’s say you have an investment home that you’ve bought and rehabbed, and you’ve set a sale price of $175K. It’s a fair price, it’s at market value and everything seems right. But what happens if the house doesn’t sell? Do you sit on it and hope for the best? Do you lower the price? If so, what do you lower it to? Let’s say you decide to lower the price and it ends up being sold at $152K. After closing costs and realtor commissions and seller concessions, you’re probably only going to net about $135K.

Alternative Method for Selling the Home

Let’s say you’re able to sell the home to a rent to own buyer or a lease option buyer, and you’re able to get full price of $175K. You also get their option deposit – let’s say they give you $8.75K (5% down) in option deposit money. But then you’ll probably have your own closing costs in the future along with real estate commissions. So you end up netting about $150K in net proceeds from that future sale. But you also got $8.75k down today, so your net proceeds are really $158.75K. Then you’re going to have cash flow every month for the next 12 to 24 months. You’re also going to be paying down the principal and creating equity. That might be another $200 a month. You also get to depreciate the property on your taxes at about 3.5% of the property value. Plus you have a lower tax bracket because it’s capital gains taxes instead of ordinary income tax.

The Bottom Line

So at the end of the day you’ve netted from this sale, with all the different tax benefits, about $175K net over the course of that one or two year agreement. This alternative financing exit strategy simply gives you more money. It seems like a no brainer, don’t you think?

Strategic Real Estate Coach is led by Josh Cantwell. Josh is a full time real estate investor from Cleveland, Ohio who’s personally been involved in hundreds of profitable real estate transactions. He’s also been a mentor to students who’ve closed thousands of wholesaling, rehabs, rentals, foreclosure, pre-foreclosure and short sale transactions over the past 8 years. Josh has been training and teaching apprentice partners and students since 2004. Josh has vast knowledge and experience in helping coaching clients, mentor students and apprentice partners from across the US in finding, structuring, negotiating and closing various types of transactions for a profit.