Okay ladies, today we are going to discuss our little friend – residual income. As real estate investors, we all know that getting some passive income coming in is the GOAL. So, I want to share with you exactly how I have done this so that you can go out and do the same thing in your area.
Don’t let fear or any other self-limiting lies keep you stuck, y’all. The only person who is going to change your life is you. So, are you ready to learn? Okay. Let’s do it.
How to Add Residual Income with Real Estate Investing
Way back when I first got started investing, after I learned about the amazing thing called owner financing, I found a fantastic little deal. The deal was with this little dinky house that had a purchase price of $6,000. I worked it out with the seller that they would provide owner financing (also known as seller financing) for the property over the course of 3 or so years while I paid them $200 each month to pay it down.
And I know you might be thinking that this is some little tiny deal, but y’all the same setup works for really big purchases just the same. You can set up owner financing and make a deal with your seller that both of you agree with and then go out there to find the buyers.
Now, when I got this deal going, I had no idea what I was going to do with the property.
But I had 90 days to figure it out before I needed to make my first payment. So, I got to work trying to find a buyer or tenant-buyer.
I marketed the house for sale OR lease option at a price of $15,000 and $400 a month for two or three years. Take note of this, ladies. Right there with the $400 coming in I created for myself a $200 monthly residual income from this property.
However, if someone wanted to be a tenant buyer and do the lease option, I was going to get some amount of money upfront from that purchase price. That is the option fee. The amount depended on what the market told me it could afford.
So, I talked to a lot of interested buyers, discussed some deal potentials, etc. but in the end, no one would give me the $15,000 for the property.
The neighbor, though, approached me and said they were willing to give me $12,000.
They also did not want to give me $400 a month, but they would be fine with $300.
This might seem like maybe not as great of a deal, but in terms of the math, it still worked. I would have doubled my initial cost for the property AND made $100 residual income for a few years.
I was perfectly happy, but we needed to figure out the option fee. So, I asked the buyer how much they would be willing to give me in order to move into the property.
They answered $5000. Awesome.
And since this deal was such a small one, I told my buyers that I would give them full credit of the $5000 towards their purchase price. This meant that they only owed me $7000 more.
Remember, though, I still owed my seller the full $6000 for the property. So, once I received the cash from my buyers and deposited it into the bank, I called my seller to talk.
I said, “Hey, let’s say we were to forget about the owner financing and I was going to give you cash money this weekend, how much would you take for the house?” Now that I have OPM – other people’s money – I knew I had the angle to renegotiate. And he did! He said, “I’ll take $3000.” DONE.
So, I paid him that money and still had $2000 in my pocket from the $5000 lease option PLUS $300 coming in monthly towards the $7000 left.
Once I paid off my seller that house was mine, free and clear. This meant that every single penny that came in from there was MINE. When all was said and done, this one little “dinky” deal gave me $9000 over the course of a few years.
Let’s be real, y’all. This deal cost me a few hours of time, pushing some papers, putting out a bandit sign, and talking. There was no sweat or hard labor to fix up the property, etc. In fact, I had never even stepped into the house! And that $300 a month could buy me another property in 10 months. Or I could simply use that money to help pay off other needs or debts of my own.
But, that’s the beauty of residual income. Yes, there is some effort and energy used up in the beginning. Let’s be honest, though; it is not much. Those few weeks of effort and energy was going to pay me back in dividends for a few years. There is nothing better than that.
Remember how I said that this kind of deal could be made for any priced house? It absolutely can!
All you need is the ability to negotiate at a price that allows you to sell with a $300 monthly profit margin. In one year, the house would net $3600.
Now, imagine doing one of these every single month. Each house would add to that amount and the profit would multiply, since each property would be an additional $3600 a year. At the end of one year doing this, you would have a MONTHLY residual income of $3600!
Think you can do that? Trust me, it is super easy to find properties where you can get a $300 monthly difference.
These deals are out there! But you have to be willing to get out there and find them.