The program I use follows this general path. I use an Equipment Lease Program (ELP) that has a whopping 75% cash rebate built in. I use the cash over and over again as each sale replaces the original buy/rehab costs…plus profit. The way I work it is as follows:
- Analyze each potential property using my formula with the goal of cash flowing a minimum of $300/month with debt service in place.
- Send out the rehaber to estimate the rehab cost for each project.
- Buy property if the rehab matches my criteria of what to rehab and being in the allowable budget calculated in the previous step. The numbers don’t lie.
- I use the funds from ELP for the buy and rehab
- Place property title in LLC (one property per LLC)
- Start rehab
- Use my Architectural firm (www.conceptsindesigns.com) to do 3D renderings of what the house will look like after rehab
- Use 3D’s to present to tenant to lock up before rehab is completed
- Use 3D’s, and the locked up tenant, to lock up end investor/buyer before rehab is completed.………..the idea is to use the presentation to lock up the tenant then the buyer before the rehab is complete, thus having the “exit strategy” in place before I need to execute it. This controls the risk factors for all involved.
- Finish rehab
- Add profit and sell to end investor as turn key deal with cash flow at a minimum of $300/month if they finance the purchase, and much higher (usually around $600-800/month) if they buy with cash.
- Take initial purchase money and repeat steps #1 – 7
- Take profits and start a second string of houses using same method.
- Take initial investments from both houses (you now have two house lines working at the same time) and repeat steps #1-7
- Take profits from first “house line” to pay off initial ELF debt
- Take profits from second house line to buy and hold. Since this is a cash deal, I get the benefit of the cash flow I’m selling to the end investors above but it is much larger since it doesn’t include debt service.
- Refi out cash based on after seasoning appraisal at whatever LTV is good at the time and still gives me at least $300/month cash flow.
If done correctly and efficiently, you should have the ELP paid off in less than 15 months. The terms on the ELP are: 6-8%, 3-5 years with no pre-payment penalty. The reason for the very high cash back rebate is due to the very high markup of the equipment to be leased…computer servers and their accessories. The finance company isn’t the one giving the rebate, the company supplying the equipment is. This is just a pre-paid lease.
As you can see, this program is attractive to both the flipper and the holder, or both at the same time, if the investor wants to be both. The flipper can focus on doing what they do best… the rehab and taking the profits while I take care of the rest. The holder gets delivered what they want…a “turn-key” property with tenant in place, rehab complete, and at least $300/month cashflow. I fit in as the service supplier, the conduit if you will. I have detailed analysis sheets for different areas showing what can be done and what the criteria would be number wise in each. Again, the numbers don’t lie.