So… you want to get into property but neither have the deposit, nor any chunky cash… but what you do have is the power to HUSTLE…
In my opinion, Hustle, is the most important word everyone should OWN in their vocabulary. Its the only pillar of success that’s in your control.
So with that said, lets dive into a recipe where I’ll show you in less than 10 minutes how, you can get into a property transaction with literally ZERO money of your own.
So to explain the concept, I will use a typical renovation gig. For our friends in the United States, a Rehab deal. No offense but in our nick of the woods, rehab is a term used specifically for a certain kind of “situation”… wink wink.
So you’ve found a property that could do with a bit of a fixer-upper. Vendor is asking for $500,000 and you reckon you need to spend $30,000 to lift up the profile of the property. A nice all around paint job, carpets, new kitchen, new bathroom… a bit of landscaping tidy up, some work in back yard and you reckon you’ll be able to offload the property for around $620,000.
Now I’m going to make a bunch of assumptions and keep going through the scenario but I’ll explain all the assumptions and my rationale in making them, at the end of the post. Savvy?
Ok… lets go.
You guys heard of property options? Options, not as in “what are my options”… but Options as in,
”the legal instrument that gives the holder the right to buy or sell an asset without any obligation to do so”…
So for those that aren’t quite familiar with options, let me condense it in one word – Its the SCHIZZLE (oh, that’s 3… anyway… darn it!).
Options allow you to enter into a transaction with near zero risk, literally bugger all upfront cash and absolute freedom to execute the deal on your terms.
Can’t go into more details as to why, how, what, when – all that’s covered in our SMART Renovator and SMART Property Developer courses in fantastic details without any noise.
Options don’t work in every market or in every market condition. There are certain pre-conditions that need to be in place in order for a vendor to agree to an option deal.
You’ve done the research and seen that the market comparables for the property of this style, type and kind is around $620K.
You offer the vendor $530,000 instead of the $500,000 she is asking for but under an option.
You see, the idea here is for you to “buy” some extra time from the vendor, and in exchange of this extra time, you’re happy to offer her a premium of $30,000 on top of what she’s asking for.
Vendor agrees… I mean, why wouldn’t she.. the market is down, her property is not the best, she has had it on the market for 6 months and hasn’t sold it so when you offer her $530,000 – she’s like “where do I sign”.
It is usual practice for you to pay a small deposit as an option fee of say, $1000 when you sign the agreement.
The option is for 9 months by the way. If you are not able to achieve the following before the 8th month, you will walk away from the entire deal and will lose the $1,000 deposit. So before you actually go ahead with an option deal, make sure you know what you’re doing and if you don’t, then make an investment into learning the details of how to execute an option deal.
The number one priority you have now (after having secured the option deal) is to prepare for selling it.
Wait… how? I haven’t done the renovation yet… that’s right… you haven’t… and you won’t be doing anything unless you’ve sold the property first.
You see, if you went through the SMART Renovator course, you would know exactly what I’m talking about. What I’m discussing with you now, is called a pre-sale.
You use the floor plans of the property and upload it into the software you get access to from us which spits out stunning 3D images with live walk-through of the property as though it has already been renovated.
And before you put on the “yeah but” attitude, let me assure you that this concept of pre-sale isn’t an alien one… off the plan, house and land packages, artist impressions… these are all synonyms of “pre-sales”. So it happens all the time.
Here’s an example of what some of the outputs look like once you upload a floor plan. And if you don’t have a floor plan, which you really should by the way, but in case you don’t, you can even upload a pencil sketch and the team will convert that into a fully furnished 3D mock-up which you can then change around according to your needs. Total cost of this is around $60 for each project and you get 14 high resolution photos, full 3D floor plan, 2D floor plan, Live walk-through, 3D walk-through and everything is sharable with one click. Really SMART stuff… a real dream for a true HUSTLER… YAEYA!
So property on the market, you manage to get an offer for $600K. You take it with a deposit of $1,000.
Now, your cash exposure is ZERO.
Now watch this:
With the pre-sale in place, you take the sale and purchase agreement from the new buyer to your lender and tell him the following:
“Yo! Mr. Banker… I’d like you to give me $30,000 against this property which is worth $600,000. I need it for 3 months (even though you only need it for 1)’
Banker will look at this as an LVR (Loan to Value Ratio) of 5%, meaning you’re asking for 5% of the value of the property. Any questions?
Thank you… So you’ve got the money for the reno.
Reno done – good job. Property settled… now lets run the numbers as to where did you end up in all this:
Option secured for $530,000
Renovation cost: $30,000
Option Fee: $1,000
Legals: ~ $1,000
Total Cost: $562,000
Pre-sold for: $600,000
Net profit in hand: $600,000 – $562,000 = $38,000
Your upfront investment: $1,000.
Your profit $38,000.
That’s an internal rate of return of 3,700%.
Yeah yeah… I know… I haven’t mentioned a lot of details… a lot of fringe issues and have made it sound like its a walk in the park…
I know…take the course… 🙂
Yes there’s a lot more to it and all of that is covered in our SMART
Renovator course. The bottom line is, this article talked about showing you how to enter a property transaction with zero risk and zero money upfront. And yes, semantically speaking, you did put the money up front but 1) you don’t have to put $1,000. In Australia as well as New Zealand and many other markets, it is not uncommon for option deals to be done on $1 option fee and 2) you got that $1,000 back from the new buyers didn’t ya? Plus you made 3,700% IRR – still complaining?
Now, as promised: here are the explanations for some of the assumptions made:
The market is in a downward cycle. Days on market is >= 180, RSI is around 80, Property has rental potential of no less than $550/wk. The suburb is >=70% owners vs renters with >=40% being in the age group of 25-35.
Feel free to ask any questions through the comments section below.