What Do We Do With The Houses We Buy?

You may be wondering what we do with all the houses we buy. When we decide to buy a house, we always have in mind and end goal for that particular property. Our offer price as well as our end goal (or exit strategy) is usually different depending on the location and condition of the house we plan to buy.

This are the main exit strategies we take when we decide to buy a house:

1. Fix the House and Rent It.

When we buy a house in a city we like, we’ll usually remodel the property and end up renting it to a local. We usually hire a local property management company that will take care of the day to day operations, the rent collections and will fix any problems such as leaking faucets or broken toilets.

In the future, if there is significant appreciation in the market, we might offer the house for sale.

2. Fix the House and Sell it.

When the house is in a market with low rents, we might rather fix up the house and sell it for market value. After we remove any liens and fix all the legal problems, a contractor and his crew will gut the house and replace almost everything with brand new materials. We also paint it, change the carpets, remodel the bathrooms, and sometimes even buy some new furniture and appliances. We then hire a home staging expert who decorates the house with inviting artifacts.

3. Fix the House and Lease Option It

A lease option is what some people call a rent-to-own agreement. In some cases, we’ll lease the house to a local resident and offer her the “option” to buy the before a set date (usually between 3 and 6 years), at a predefined price. The price of the house is adjusted to account for inflation. This is very useful for people who are looking to buy a house but do not have enough money for a down payment, or not eligible for a mortgage loan due to poor or nonexistent credit record.

4. Sell The House As Is

If rents are low or we don’t really want to hold property in a market, we might still buy the house, fix it up and sell it to an investor. Usually a local investors, but also institutional investors such as REITs and other types of funds. A house that needs little repairs can be sold to a real estate investor as a “handyman special”. A handyman special is a property that needs little repairs, and not a full rehab. The investor will usually remodel the house and flip it to an investor.

5. Wholesale The Opportunity to Another Investor

When we know we have a house that needs a little bit more work or is in an area where we are not interested in owning, we might wholesale the contract to a real estate investor. Wholesaling a house means selling the contract for a modest fee, usually around $5,000 US. For example, we might have a house under contract for $120,000 but the real market value (after repairs) is $160,000. In this case, we might sell the contract of $120,000 to a local “rehabber” who will invest $20,000 in repairs, plus the $5,000 on the contract assignment fee. The investor will ultimately sell the house for retail price, thus making $15,000+ in profit.

6. Partner Up With Other Investors

In some cases, when we get the opportunity to buy a house in a town we are not very familiar with, we choose to partner up with a real estate investor with local knowledge. In such a case, our company or one of our private lenders might provide the funds while the local investor uses his local expertise and geographic location advantage to buy the house, fix it, market it and sell it. The profits from such a sale are shared between the two parties. If a private money lender was used to finance the deal, the loan is payed back before the profits are shared.

At the end of the day, regardless of the exit strategy we execute, the end result is [usually] profitable. At the same time, by investing in distressed houses we are able help people who need money fast. After our workers are done, they’ve usually turn the block’s eye-sores into the most desirable property in the block; this helps renovate and beautify the city while making affordable housing options available to the local communities where we buy.