As most of you already know, I believe that using private money is the best way to fund my real estate deals. I’ve been preaching the benefits of private lenders for years and have been able to find a great deal of success following a simple system. But the top reason I prefer to use private money is that it allows me to receive multiple checks for every deal. Stop and think about that for a moment. If you’ve ever had to deal with banks, you probably already understand how much of a hassle that whole process can be.
Traditionally if you’re borrowing from a bank, you’re only going to receive 80 percent of the total purchase price. It doesn’t matter if you’ve found the best deal on the planet, you’re going to need to come up with about a fifth of the funds on your own. When you borrow from a private lender, not only can you receive a loan for the full price of the property — you can borrow more than the house is worth. This is something I like to do to cover any additional repair costs which are needed to rehab a home.
Once the house has been prepared, it can then go on the market. This is another point when having some extra funds can help in marketing or promoting a property. Once you’ve found a buyer for the home, the next big check comes at the closing of the purchase. A strategy that I use to ensure I’m getting the full asking price from a property is using a rent-to-own system with a buyer. This is typically with individuals who need to build their credit prior to being able to purchase a home. By offering them a rent-to-own contract, we can help them repair their credit and get into a home, all while getting the full value of that property.
Here is my “Two Big Checks” formula broken down into 13 steps.
- Get private money lined up.
- Find the house.
- Determine ARV based on sold comps.
- Determine repairs cost.
- Calculate MAO (ARV x 70-percent of repairs).
- Get house under contract to buy.
- Borrow from PL (up to 75-percent of ARV).
- Purchase the house.
- Borrow more than needed to buy.
- Get your first big check after the docs are recorded.
- Rehab the house (if needed).
- Market and sell the house.
- Get your second big check at closing.
Through this “Two Big Check Formula,” I’ve been able to help hundreds of real estate investors and entrepreneurs increase their ability to purchase, remodel, and sell homes all while raising their income. So if you’re interested in receiving two big checks for every deal you make, follow this formula.