Use What You Have… to Get What You WantPosted on March 15, 2011 by
Pete Fortunato (PeterFortunato.com) has been one of my main real estate investing teachers for many years. The guy is phenomenal! (Not to be confused with pneumonia…I’m dyslexic – what happened to “spell it like it sounds?”) Pete is one of the best and most creative deal structurers on the planet!
Pete has a great saying: “Use what you have, to create what you need, to get what you want.”
Until recently, I’ve never fully understood what he meant. But finally, the light turned on!
As real estate investors, we’re often asked by prospective tenants or buyers, “Will you work with me on the deposit?” The usual answer is, “No. Are you nuts?” Ok, perhaps we only think the “Are you nuts?” part.
Point is, we’ve always required the cash up front in order to make the deal work.
Similarly, when we’re buying a property, all too often, the homeowner also wants all the cash up front. Since I’m always light of having the amount of cash the seller needs, the deal is lost.
Now, let’s think like Pete. It’s not the cash that the seller wants, is it? Isn’t it what the cash will buy or do that’s the key?
Here’s an example. Last month, we had a property up for sale. We were asking $79,900, with $3,800 down, monthly payments of $595 at 10% interest with a 24-month call built into the note – we were selling with owner-financing.
One caller, who really wanted the property, asked about the down payment. When he learned it was $3,800, the wind went out of his sail. But before he could hang up, I said, “The $3,800 doesn’t have to be in cash. Do you own something of similar value?” He said, “Yeah, I own a mobile home. Would you take that in trade?”
The guy owned a twelve-year-old, paid-for mobile home in a local mobile home park. Because he wanted a house on his own land, he was willing to give me his mobile home as a down payment on the property!
Instead of me losing a buyer because he didn’t have $3,800 CASH, here’s how the deal was structured – and remember, when doing a deal like this, don’t think about what you’re not getting (the $3,800); stay focused on what you are getting (your property sold, plus a free-and-clear mobile home)!
We get a newer, free-and-clear mobile home, in good condition, in a well-managed park. We sell the mobile home for $11,900 with $500 down and monthly payments of $225 for 8 years at 18.02% interest. (AKA a Lonnie Deal)
The result: We turn the $3,800 into a monthly cash flow of $225. In addition, we’ll pick up $17,800 in extra cash ($9,700 interest + $8,100 gain)!
Again, Pete says it best: “Use what you have, to create what you need, to get what you want.” This is why he’s a national treasure!