Buying and selling non-traditional real estate.
This is a challenging area for many of my mentorship students. Most non-traditional real estate contracts are written with long-term returns in mind. Most of the value in them is tied to appreciation of the properties in question. My goal in doing one of these deals is to make it break-even or slightly positive in cash flow and grow the equity for future profits with very low risk.
So let’s look at both sides of this equation. Why would you buy such an agreement and why would you sell such an agreement?
Why would you buy such an agreement? The single greatest challenge most non-traditional real estate investors have is prospecting. They don’t know how to do it. Or they aren’t very good at it. Or they don’t have the time for it. Or…?
When I query my students as to the value of a typical equity split / lease option agreement like I teach and standardly write, they suggest to me that the present value is normally $50,000 to $150,000. Again, it is a huge long-term profit picture and short-term it will be break-even or just a little positive in cash flow.
Would you pay $10,000 for that contract? $20,000? I am not sure what you would pay. I am sure it would make a lot of sense for you to buy them if you were not having success in writing them yourself.
Why would you ever sell one of these agreements? It is all about cash flow. Again, most of these deals are focused on long-term profitability. 3-5 years or more is the normal time horizon.
You have to eat in the interim. Cash Flow is incredibly important in any business. My suggestion to my students is they keep 33% of the deals they right, sell the contracts 33% of the time, and sell the properties at retail 33% of the time. The percentages will vary with the student’s situation and needs.
This approach assures you long term profitability, short term cash flow, and short term profitability.