Hi Guys,
Rick Otton has a strategy called the 'Handyman Special'. Basically it involves purchasing a cheap house that needs a renovation (cosmetic) and then using an installment contract with the purchaser. The purchaser pays an upfront deposit of approx $10,000, renovates the property in a set time frame (eg: 6 weeks) and then moves in to the property.
After moving in the installment contract payments commence (usually 2% higher interest rate than your current mortgage). This provides positive cashflow while holding the property. In 12 months time they refinance with a bank and pay out the back end profit (usually $40 – $50k). The final sale price is agreed prior to signing the contract.
Is anyone using this strategy? My current borrowing capacity is $400,000. Is it possible to obtain new loans after each deal once the installment contract is signed? (each deal will be positive cashflow with a back end profit). In theory, I should be able to borrow up to $400,000 again after the first deal is complete (and then simply repeat the process!)
Cheers,
Brad
Hi Brad,
Your basically got it. You get a house that needs a reno. This does not generally include structure work as Mums and Dads cant do this work themselves.
The one that was done on Hot Property was bought at a cost of 285. It was estimated the work would cost 35k or so.
The buyers were offered the house at 340 and would be given a "sweat equity" credit as deposit for the 35k, making the buy price 305k.
The scope of work needed was decided on by the new buyers and the prospective buyers gave their input as how long they would take to do the work. They got a valuer to value the house on the assumption the works would be completed. The valuer said it would be worth 340 once the reno was finished.
The buyer completed the work on the house in the 6 weeks (they set the time time frame) and a valuation was done again.
The house valued to a round 355k and they got their own bank loan and paid out the seller (Rick Otton) the 305k.Yes he could have put them on an installment contract or a Rent to Buy for the 305k to make positive cashflow as well.
Dave
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