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HOW TO GET THE MOST RETURN FROM A TURNKEY RENTAL INVESTMENT
By Nancy Conrad, Vineyard Funding Capital Group LLC
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The Scenario
John is an investor who has wisely secured his retirement by buying turnkey rental properties in his self directed IRA.
These are managed by a rental company that takes care of all the problems and lets him know when expenses come up.
He receives a 10% return on his investment every month like clockwork.
It’s a great deal because his investments are secured by real estate.
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The Scenario
But John can do even better by becoming the bank.
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The Scenario
Let’s look at two different ways to increase the balance in John’s IRA so he can retire with more money.
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The Scenario
One of John’s properties is a 2 bedroom/1 bath rental unit with 800 square feet and a full basement in Pontiac, Michigan.
It rents for it out for $800 a month. After taxes, insurance, and management fees, John deposits $628 monthly.
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The Scenario
John’s Deal looks like this:
Purchase: $62,830Rent: $800Net: $628ROI: 10%
That’s a fine deal for John.
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Scenario 1: Seller Finance
He could buy more of these properties and get a great cash flow to pay him throughout his retirement years.
USING THE 30/20 DEAL WITH A PARTIAL
Seller Finance Scenario
But it would take him 10 years of accumulating rent to buy another property.
What if we could speed that up?
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The 30/20 deal
John decides to sell the house for $75,000 with financing to tenant/buyers.
They agree to pay John 20 percent down and pay him the remainder for 30 years (30/20)
John gets $15,000 and charges 7.5% interest for 360 payments on a balance of $60,000.
John receives a payment of every month and never has to worry about “tenants, toilets, and taxes.”
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The 30/20 deal
So, John now receives a payment of $419.52 on his remaining investment. It’s a little less than what he got previously, right? Maybe.
What kind of return is that?
Initial Investment: $62,830Down Payment: -$15,000TOTAL IN THE DEAL: $47,830ROI: 9.99%
Not bad – he’s still getting around 10%
$419.52
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The 30/20 deal
But here’s where it gets even more interesting.
Let’s say John sells some of those $419.52 payments to another investor who also wants 10%.
What will that look like?
$419.52
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The 30/20 deal
Along comes Kathy, another self directed IRA investor, who is looking for a good return.
She offers to buy 10 years of those payments for a lump sum that pays her 10% on her investment.
She offers to buy those payments for $35,000.
$35,000
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The 30/20 deal
If John’s tenant/buyer hasn’t sold the property, he’ll end up with the loan after 10 years, and they will still owe him $52,076.64.
And John’s position looks like this:
Initial Investment: $62,830Down Payment: -$15,000Kathy’s Partial Purchase -$35,000TOTAL IN THE DEAL: $12,830
Continuing ROI: 39.22%
39.22% ROI
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The 30-20 Scenario
That gives John $50,000 to reinvest in other things…so he can grow his IRA a LOT faster.
USING THE 50/50 DEAL
But what if John sold the property to another self directed IRA investor and financed it for that investor over 10 years?
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The 50-50 Scenario
Let’s go back to Kathy…
She wants to own some turnkey rentals too. Rents go up, home values go up, and she likes that.
She offers to pay John HALF now and the other half over 10 years.
Besides, she’s got more time to accumulate value in her portfolio, and this fits her plan.
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The 50-50 Scenario
With the 50/50 deal, John’s position looks like this:
Purchase: $62,830Sell to Kathy: $75,000Down Payment: $37,500Total Investment $25,330Payments: $445.13ROI: 17.30%
He gets GREAT cashflowAND…a chunk of money to reinvest elsewhere.
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The 50-50 Scenario
John can take his money and put it into another investment.
And do it all over again.
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The 50-50 Scenario
Here’s how it looks for Kathy:
Purchase: $75,000Down Payment: $37,500Rental Income $800Expense: $172Mortgage to John: $445.13 Net: $182.00
Kathy is looking to grow her IRA in a safe and dependable way paid by someone else: her renter.
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The 50-50 Scenario
She can sell the property at any time, or lease option it to a new tenant/buyer.
As long as she keeps paying John, she can control a cash-flowing property inside her IRA.
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The 50-50 Scenario/ The 30-20 Scenario With A Partial
Everybody wins in both situations.
John grows his IRA cash flow roughly twice as fast.
And Kathy, who may not have as much capital as John, can grow her IRA without having to personally make deposits.
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SUMMARY
With careful and persistent application of these two scenarios anyone can grow their IRA real estate investment portfolio more quickly, no matter what side of the equationthey’re on.
HERE’S TO YOUR SMARTER AND MORE FRUITFUL RETIREMENT!
HOW TO GET THE MOST RETURN FROM A TURNKEY RENTAL INVESTMENT
By Nancy Conrad, Vineyard Funding Capital Group LLC
Questions? Send them to
Nancy Conrad, Asset Manager
Vineyard Funding Capital Group LLC
[email protected] Box 18476
Phoenix, AZ 85005
480-442-4586
