Expenses Escaped
Ashley and I have been blessed to have Peter Fortunato as one of our main teachers since we got into real estate investing.
When it comes to creative real estate transactions, Pete is like one of those guys that does chainsaw wood carving. He walks up to something that looks like a stump to everyone standing around, cranks up his creative chainsaw mind and begins to chip away at the deal he envisions. And when he’s done, a beautiful piece of artwork is standing before you.
I can’t tell you how many times I’ve called Pete when I’ve been stumped (pun intended) on a deal. Pete normally listens for a few minutes, and then comes up with a totally different way of structuring the deal… and it works!
Long story short, Pete is a creative deal structuring genius.
The way Pete teaches his real estate investing classes is through the case study approach. He tells stories of deals he’s done, how he did them, and then he expounds on about 10 other ways he could’ve done them. The whole point of his teaching style, I think, is to get you to open your mind to the possibility that there’s always more than one way to create a good deal.
With most of Pete’s case studies, there’s a morale to the story that you can take home with you to help aid you in your deal structuring.
One of those “morals” is, “Expenses escaped is income to the seller.” Let me tell you about a deal we just purchased using that exact mentality.
We were meeting with an elderly woman on a fixed income who had recently been widowed. (Is this story already pulling at your heart strings?) She was living in a house that her loving husband had mortgaged to the hilt a few years prior in order to finance preventative maintenance so she’d have nothing to worry about when he passed.
He was a good man with great intentions. He had made plans to take care of his wife even after his passing. And they had calculated the payment on that mortgage to be something they could manage on their fixed income.
What they hadn’t counted on was that when he died, some of his benefits stopped coming in.
That situation left this widow with little to no equity in this home and not enough monthly income to make the house payment. On top of that, her children were planning to move her out of state in order to take better care of her.
So, she was about to be an out-of-state owner of a house she couldn’t afford and couldn’t sell. She was in a pickle.
We agreed to buy the house from her and leave her mortgage in place after the sale. Even though she knew this was her best option, I could tell that in heart it hurt that she was receiving very little money from this sale.
That bothered me. I don’t like for a seller to feel that our deals are not win-win. It was at that point that I remembered what Pete said: “Expenses escaped is income to the seller.”
I whipped out a piece of paper and began to add up all the expenses this widow would “escape” by doing this deal. This included things like mortgage, tax and utility payments and even yard maintenance.
When we calculated those all over 12 months, it revealed that this widow on a fixed income was going save over $10,000 annually.
That was an effective $10,000 a year raise that would significantly improve her quality of life. This knowledge lifted her heart and solidified this as a win-win deal in her mind.
So remember, it’s not always about negotiating price. Sometimes the expenses a seller escapes gives them the income they need in order to do the deal.
Joe and Ashley English buy houses and mobile homes in Northwest Georgia. For more information or to ask a question, go to www.cashflowwithjoe.com or call Joe at 678-986-6813.