What Is Leverage and Why Use It
Making the Most of Fixer Upper Leverage
When starting out in a fixer-upper business, you will first have to consider many things. It is never indicative to success to jump into any business venture prematurely and without proper planning. You will first have to learn as much as you can about the business before jumping on the bandwagon.
Depending on how your business is financed, buying and selling these properties may involve very little or a lot of money. One good way to leverage your interests is to employ the use of other people’s money and resources.
Most people think that success in this field of business involves a lot of hard work. Yes, hard work is an essential element to success in this field. However, knowledge is also important. And if you are to succeed, you will need to use your wealth of knowledge to the limit.
An example of how good strategies can help your success is to understand how leveraging can make dealing with fixer uppers profitable and easier on the budget.
The truth of the matter here is that you can get other’s money to work for you. You can earn more without plunking your cash in as investment. While it seems counterintuitive – who, in his right mind, would ever hope to get good returns on investments when he or she hasn’t put in any investments at all, one must think – it truly is possible to get other people‟s money, time, and expertise to work for your own benefit.
Using Other People’s Resources
One way to think of OPM (Other People’s Money) working for your benefit is think how most people expect to make earnings from fixer upper ventures.
First off, most people would want to purchase the property itself. They could do this through a couple of ways. They could purchase the land out of their savings or take out loans to pay for the property.
This method, while good in itself, has some limitations. If you use your savings to buy property for a venture – and for some unforeseen reason, the venture goes bust and you are unable to sell the property, then you may have practically thrown your life savings out the window.
You can make other people’s money work for you here. For example, what if you take a 95% seller’s financing plan. This means you only pay for around 5% of the property’s value. Then, you proceed to lease the area to tenants. The money you make from the rentals can be used to pay for the loan.
House Flipping Basics
In the end, theoretically speaking, you would have only paid 5% cold cash for the property, and made the property itself – with the help of its tenants – pay for the property the rest of the way. If the property costs $100,000, then that means you only pay $5,000 to own the property after some time – with extra income to boot. Not a bad proposition now, is it?
This is, in effect, having other people pay for something you will own in the future, and is one of the smart ways to make investments.
You could also use other people’s resources such as time and expertise when trying to make money from fixer upper homes. For example, if you aren’t well-versed in renovating properties, why not have other people do it, and make a profit at the same time.
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How? Take for example a home that is sold by a distressed owner – house unkempt, needing repairs. Now, as a fixer upper yourself, the first thing you would want to do is think of how you can purchase and renovate the place, and then sell it on the market.
But what if, instead, you make plans to purchase the property and then show the property to other fixer uppers who may want to the take the property from your hands and do the hard work of renovating and selling the property on the market.
You can then sell the property again to this partner and have them renovate and sell the property. Just don‟t forget to take your profit from the pay you will be asking of them for the property! This, in technical terms, is called flipping.
If you look at it closely, you will have had made somewhere close to what most people in the same business make without even having to do the hard work required of them – remodeling, renovating, and marketing.
The technique there, however, is that you will have to be aware of how to choose potentially great properties. If you have an eye for that then it won’t be much of a problem.
If you do this, you will have effectively used other people’s expertise and time in helping you make a good profit. This is a great way to leverage other’s assets to work for your advantage.
We have much, much more on the subject if you are interested
When I was just getting my real estate license back in the early Eighties, I worked, for a while, under a broker who was a virtual magician at buying a house, fixing it up, and reselling before that was even cool. I will talk more about him later, but the fact is, I have a warm place in my heart for people who an do this well.
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Photo by roya ann miller on Unsplash
Broker Don Martin, founder and CEO of Martin Properties, besides helping hundreds of FSBOs save thousands of dollars, also delivers seminars, keynotes and motivational messages to real estate and sales professionals. His 30+ years of experience in sales, marketing, real estate, promotion, management and technology has empowered thousands to expand their knowledge and achieve their goals.
