I picked up my copy of Buy Low, Rent Smart, Sell High by Scott Frank and Andy Heller at The Real Estate Wealth Expo in New York City a few years ago. It was the biggest convention I had ever been to and it was packed with over a hundred real estate gurus pitching every get-rich quick scheme imaginable.
For the most part, I was unimpressed. Gurus teaching slick sales tactics and questionable techniques for taking advantage of people while they’re down didn’t sit well with me. That being said, I did meet a few people with ideas that justified my ticket price.
The first was Mike Summey, the author of Weekend Millionaire’s Secrets to Investing in Real Estate; and the second was Andy Keller. Both of these men immediately struck me to have a strong sense of integrity, ethics, and sincerity about them. I could tell that money wasn’t their only motivator.
The innovative plan that Andy and Scott describe in their book is well thought-out. It combines the benefits of a long term buy & hold strategy with the capital benefits of a shorter term strategy. Ethics is at the forefront, with fairness at every level: buy, rent, and sell.
I like the fact that the book is very analytical. Being a “numbers person” I enjoy the level of detail in the descriptions. Most books on real estate are long on concepts but short on specific examples. This book is just the opposite.
The cornerstone of the plan is consistently buying homes at a 10-20% discount. The authors’ preferred method is forming a relationship with a bank and getting access to foreclosed homes before they get to a courthouse auction.
They identified this stage in the process as the best for their needs for three reasons:
- The home is already out of the previous owner’s possession. This avoids the undesirable work of tracking down and negotiating with distressed sellers.
- A relationship with a banker often gives them first looks on new homes to the market.
- It avoids the risks associated with blindly buying a foreclosure on the courthouse steps.
At this stage in a a foreclosure, banks want to get rid of homes quickly and are often willing to let them go for a 10-20% discount.
To Hold, or to Flip?
In developing my own real estate strategy, I’ve often found myself uncertain whether to pursue a long term buy-and-hold strategy or a short term “flipping” strategy. Being a long-term thinker, my preference is to buy and hold. The long term benefits of holding a rental property far outweigh any short-term gains that can be made by flipping.
The problem with buy-and-hold strategies is investment capital. If you are going to buy a house every year with a 10% down payment, you are going to have to come up with a lot of extra cash every year. That can be a big problem for the investor without a lot of money.
Flipping can provide you with an influx of cash to reinvest, but it tends to be risky. When considering all the fees that go into buying and selling a home, much is lost in the process; not to mention the fact that you are foregoing the long-term benefits of holding.
Scott and Andy’s plan seems to blend these two strategies nicely, while reducing risk at the same time.
Scott and Andy have developed a unique type of lease-purchase contract that gives a mutually beneficial relationship with their tenants. They have eliminated all of the strong-arm tactics of traditional lease-purchase contracts and structured it on fairness.
A lease-purchase contract is different from a traditional rental agreement because it gives the tenant the ability to buy the home at the end of the contract. Scott and Andy’s contract is different from a traditional lease-purchase and has several advantages for both the tenant and landlord:
- A tenant with bad credit is offered the opportunity to build equity to be used for a down-payment while fixing their credit situation.
- The tenant locks in a fair-market value for the home at the signing of the contract, meaning that they could potentially execute it years down the road profiting from any appreciation.
- The upfront option money is reasonable and can be applied to their down payment if they decide to execute the sale portion of the contract.
- The rent is set a fair-market rate.
- Tenants tend to take better care of a home that they might potentially buy, reducing maintenance costs.
- It eliminates the holding costs of waiting possibly months for a buyer. Landlord maximizes profits by collecting rent while tenants prepare to buy.
- Most tenants decide not to execute the sales portion of the contract, allowing the landlord to keep their option money.
The fact that most tenants decide not to buy creates a unique blend between selling and holding properties.
The holding and selling decisions are made naturally. A certain portion of homes sell, adding an influx of cash needed to buy more homes, while the rest are held, locking in the benefits of long-term capital gains.
I love the simplicity of this approach compared to agonizing over which properties to buy and which to sell.
Six Profit Centers
This program gives investors access to six different profit centers:
- Equity gained by acquiring homes at a 10-20% discount
- Cashflow from monthly rental payments
- Tax write-offs
- Equity gained from tenant paying down the mortgage
- Home appreciation if tenant extends the lease-purchase agreement
- Option money obtained if tenant does not execute the sales portion of the agreement.
Buy this Book
If you are interested in real estate investing, I would definitely recommend this book. I love the creativity that was put into forming an investment strategy that blends short term and long term benefits while keeping honesty and ethics at the forefront.
Buy Low, Rent Smart, Sell High by Scott Frank and Andy Heller