Woody's daughter wanted to go intobusiness, so he bought a large house and converted it into funkyretail space. The problem was that neither the public – nor after a shorttime his daughter – was much interested in funky retail merchandise. So the store stayed empty and abandoned for 4 years.
Jeff has a different idea. Funky office space might succeed where funky retail fails. Jeff convinces Woody that there's little risk in taking a chance on his own vision of the future when the building has sat idle for four years, Woody agrees and theystructure the following transaction:
Jeff will lease the building for 2 years at $900 per month, but he won't pay anything to Woody. He'll use the money to convert the retail space to office space, install necessary lighting, landscaping, paving, carpeting, paneling, etc. At the end of that time, Jeff has an Option to buy the building for $180,000 with all of the $21,600 in improvements credited as the down payment. Woody carries back a $158,400, 6% mortgage with interest-only payments of $792 per month.
In order to secure Woody during the first two years, they agree that he has the right to monitor the improvements to assure that Jeff is actually making the changes agreed upon. These are made a part of the Lease terms, spelled out on a month-to-month work progress chart.
After 2 years, Jeff will get credit for his $21,600 costs as a down payment. He'll complete his purchase at the original price they agreed on. Jeff keeps all income from any sub-leased space he manages to rent over the interim 24 month period.
Everything goes as planned and the work is completed. At the end of 2 years, Jeff’s net rental income is now $1800 per month from small offices he rents. With payments of about $1300per month once taxes and insurance are added to his payment to Woody, Jeff is making $6,000 per year in net rental cash flows on his investment of $21,600. That boils down to a 28% yield on the same equity that Woody is only earning 6% on. That's almost five times as much return as Woody is getting.
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There are many ways to acquire cash flow real estate. Getting bank financing is not necessary once you learn the art of creative financing.
Jack Miller’s ART OF THE DEAL Online Seminar will teach you how to put together creative financing solutions like this one. The online seminar includes 14 video lessons plus 14 downloadable audios plus a workbook. SEE DETAILS HERE
