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Real Estate Investing: Turn a profit without owning property

Posted March 20, 2008

"Homeowners are more flexible in today’s market than they’ve been in years. And that can create opportunities for you to structure low-risk, high-return deals — and even create cash flow without ownership." — Justin Ford

by Justin Ford

Baltimore – (TFN):  A married couple I know recently decided to separate. So the husband needed a place to live. Ideally, he wanted a house in the same neighborhood to make visits easy for their teenage children. He also wanted a lease of just four or five months, since he and his wife might reconcile. And if they didn’t reconcile, it would still give him enough time to figure out what to do for lodging on a more permanent basis.

What he was looking for turned out to be difficult to find. The few houses for rent nearby required one-year leases. The few seasonal properties had monthly rents twice his budget. So I suggested he try calling homes being offered for sale by the owners.

"But I’m not looking to buy," he responded. "My wife and I might get back together. And even if we don’t, this housing market might be another year away from a bottom."

"I understand," I said. "But we’re in a housing bear market, and there’s a lot of inventory. Some of those homes have been vacant for months. The owners might welcome getting some monthly cash and having someone there who could show the home to potential buyers. It’s worth a few phone calls."

He agreed to give it a shot. Not 10 minutes later, he struck pay dirt.

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He’d found a 5,000-square-foot home that backed up to a lake. And it was only about a half-mile from his wife’s house. So he called the number on the for-sale sign and asked the owner if she would consider leasing the property until it sold. After a quick discussion, they both decided the house was bigger than he needed. So she offered him a short-term lease on a two-bedroom home she had just bought in the same neighborhood. (Her intention was to move into the smaller house after selling the large one.)

He drove over to the two-bedroom immediately. It was the right size and location. They agreed on a rent a few hundred dollars less than he had budgeted. Within 10 days, he had the keys and a five-month lease - with the understanding that either party could terminate the lease with 60 days notice after the first three months.

It’s a perfect arrangement for him and the owner. But it only happened because homeowners are more flexible in today’s market than they’ve been in years. And that can create opportunities for you to structure low-risk, high-return deals — and even create cash flow without ownership.

Here are a few examples of what I mean…

Real Estate Investing:  A Lessee Who’s Making More Than the Lessor

One of my favorite single-family homes is a four-bedroom on a corner lot that a partner and I bought nearly four years ago. It’s in an emerging neighborhood three blocks from a popular downtown. We bought it for $153,000, and it’s now worth more than twice that. So we’re happy with our return on equity of over 250 percent. Yet the big cash flow on this property isn’t being made by us. It’s being made by the guy who leases it from us.

Enrique pays us $1,450 a month to lease the house - and that kicks off a few hundred extra dollars for us every month. Meanwhile, we give him the right to sublease… and he turns around and probably clears about $1,500 a month. Read on to learn how he does it.

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Posted by Justin Ford · Filed Under Real Estate 

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