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Real Money (Real FAST) in Real Estate

November 28th, 2007 by rosie · 10 Comments

Today I will be going to a closing for a house. I am not the seller. I am not the buyer. I am the middleman and I will only drop by the title company’s office to pick up my check. No signing stacks of forms. No spending hours pouring over contracts and initialing each page!

For years I have been extremely interested in real estate. Since we bought our first home over 5 years ago, I became somewhat obsessed with houses. Back then, we were on a budget and so many homes we looked at we fixer-uppers. But that didn’t bother me at all- I looked and saw the potential, both in the house and in the EQUITY! Ever since then, wherever I go, I always end up looking at properties. I can’t help myself.

Before Hurricane Katrina, we were looking to buy a rental. Then we had to relocate and things came up and I had other things to deal with (like a new baby, etc.). When we wanted to move back, I called a guy who advertised in the Minneapolis Craig’s List site in the real estate services section. I wanted to sell our house fast and wanted to see what he could do. His ad said he bought houses. To put it shortly, he assisted us in selling our house very quickly through a lease option agreement. (More about that in another post.) But I remember when I first met him I was very surprised to see that he was so young (mid 20s). It was then that I was compelled to get into real estate investing as soon as we moved.

And that’s what I did. As soon as we moved back, I started going to my local REIA meetings (mostly for the networking). I read some real estate investing books. I started advertising that I buy houses for cash. I lined up a hard money lender. Within one week of my first ad, I had a call. Then another. Of course, they did not all turn into deals. And I am still new and have so much to learn. But within two months of starting out, I signed my first real deal for $4000. And here’s how I did it.

1. I saw an ad for a house for sale that had major fire damage. I got the details.

2. I drove by and looked at it. I estimated what I thought it would cost to fix it, considering that I wasn’t going to do any of the work myself.

3. The house was originally advertised for $40,000 OBO. I offered $19,000. They accepted.

4. We got together and I signed the contract.

5. As soon as I got to my computer, I advertised the house for $25,000. Within one week, I had a list of 6 potential buyers.

6. The following week I assigned the contract to another buyer for $23,000.

It sounds easy. And I guess it is. BUT, I do not want to oversimplify. What would have happened if I couldn’t find a buyer? I was on a short time frame since the original contract I signed specified closing within one month. It was a bit daunting to have signed a contract to buy that house though I did not really want to be involved in a major rehab project at that time.

But that’s what I did. I got a house under contract and then turned around and immediately assigned it. And two weeks later, I did it again.

Along the way, I talked to many other investors and most have been fairly helpful. I built up a buyers list so that I have contacts for the next time I have a property to sell. I’ve met a few others who prefer to be money partners. And I am still looking at properties- still looking for the next deal. And still learning along the way.

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    Comment by Chris
    2007-11-28 23:06:11

    Awesome, I’ve been interested in real estate for years but never did anything about it. With the market the way it is right now, I’m a little afraid to jump in as a newbie.

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    Comment by Rosie
    2007-12-10 03:24:38

    It’s true. The market can be scary. In every market there are deals to be had, though. and now is definitely the time to BUY- if the deal is good enough.

    Comment by mortgage
    2007-12-05 15:19:58

    Hmm… That is true. world is changing too fast.

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    Comment by Blogerita
    2007-12-08 10:30:50

    Like it or not. You have made your job sounds so simple and money is so easy to earn. :)

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    2007-12-09 17:21:49

    Congrats to you on stepping out of your shell into a world of real estate investing. That said, you certainly have make an absolute killing in investing in the right real estate. As they says… It’s all about timing.

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    Comment by Trex
    2007-12-28 01:35:49

    Wow! Great to hear that. I’ve always wanted to get into real estate but fear is always guarding the door. I hope you can blog some more about your experience on this deal. Congratulation!

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    Comment by MAC
    2008-03-06 08:01:26

    this is the great investment ever, many people d0 not realize that, but yet it need lots of cash to start with :)

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    Comment by Thai
    2008-03-13 15:37:38

    That was a pretty quick and successful flip!

    Congrats on your nascient steps into becoming a real estate mogul!

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    2008-06-28 21:38:03

    You do need to be careful here though, you are playing the same game the hedge funds have been playing – you make good money right up until the point when the deal goes south and you lose everything.

    If anyone knows what naked puts are in the options world, then this is the real estate equivalent, so if you keep doing this over an over again, you will come unstuck.

    If you use it short term to build seed capital you can only lose the (relatively) small amount you put in, but as a long term business model it is flawed.
    If you were to use this same deal to buy, renovate and sell/rent out, then you will probably be onto a winner.

    For example lets say you buy a fire damaged place for $19 000, do $10 000 work. Now once the work is done, let’s say it is now worth $40 000. You can then re-mortgage it at 75% and rent it out for a rent higher than the mortage payments.

    You now have an asset producing you a positive cash-flow and the bank gives you your $30 000 investment back, plus you still have $10 000 equity in the property. This means you are protected from falling prices as the rent payments mean you can hold it indefinitely as it will never cost you any money. You can then find another one and do the same thing again and again with very little risk.

    In the current climate of distressed sellers, you should be able to find yourself a good few deals like this and you can always make your offers subject to finance to protect yourself even further. It takes a little while to build up a portfolio that will replace your income, but the growth is exponential (if done correctly) so it won’t be too long before the excess rents (ie the rents beyond what it takes to pay the mortgages and upkeep) from this a ‘normal’ job as this is exactly what I did!

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    Comment by gables estates
    2011-09-24 14:49:25

    I should say that was wise planning, a very smart move at the right time. As real estate agents one has to research a lot whether its the market or the locality because whether the buyers comes to us well informed about the market or not we ought to have the information at hand.

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