Could “Repair for Equity” be Part of the Solution to the “Affordable Housing Crisis”?

Lawmakers all over the U.S. are tearing their hair out over the lack of affordable housing, and trying desperately (generally through lots of restrictions of property rights and lots of taxes that lead to a lot fewer new units than the private market could have built) to make housing more affordable for both renters and buyers.

They overlook or dismiss the things that people are doing with other people that create affordable housing by creating housing OPTIONS, especially in rental and bread and butter areas, that banks and governments can’t match.

One small solution for one set of renter/buyers is Repair for Equity deals. When done right, they have the strong potential to make homeowners out of people who can’t qualify for a bank loan, and at a lower monthly cost than renting. And the fact that YOU can make a lot of money PROVIDING them is an added bonus; all that income makes you want to do MORE, which makes this option more available to more American.

Let me explain.

I didn’t actually start out out wholesaling properties. My first 30 or so deals were actually what some people call ‘Repair for Equity’, some call ‘Option to Buy After Repairs are Made’, some call ‘Sweat Equity Deals’, and some just call ‘Slow Flipping’.

Basically, these deals work like this:

  1. You buy a property needing repair, but which is livable, at a discount of 25-30% below market
  2. You offer that property at a higher, but still under-market, price, on payments to people who want to live in it and have the skills to fix it up
  3. That buyer puts down a small up-front payment, repaired the property, and either finances it conventionally or continues to pay you until the final payment is made and he owns the property

There are dozens of mix-and-match variations of this deal, but the general benefit to you is that you get a high return with no repairs or management, while the buyer gets to use his skills and the your financing to acquire a property he wouldn’t otherwise be able to, at a price that allowed him to have immediate and future equity in the property.

I did perhaps 150 of these deals for myself and others between 1989 and 1998. Then I stopped, for the simple reason that as the availability of easy institutional financing increased, it got harder and harder to find viable buyers who couldn’t just go buy any house they wanted.

But the world has turned, and many potential buyers with a lot of skills and a little money and not a lot of credit are out there once again, looking for these deals. If you can provide the supply, the demand is back, big time—and, when they work, these deals can be a lot more profitable than either wholesaling or retailing the same property, with less hassle than renting, too.

Let me give you the most recent example of the ways in which these deals can create income and cash for you with minimal hassle:

Last month, I sold a 4 bedroom brick home on a nice street in a rental area.

The buyers were a young couple, and the husband had grown up on the street. The wife’s father was a contractor who had originally approached us about buying the house as an investment, but bowed out when his daughter and son-in-law decided they wanted to live there.

I bought the property for $11,000, using a private mortgage at 8% interest. The after-repaired value is around $65,000. My estimate of repair costs—which included hiring contractors to do all the work—was around $25,000.

I did no work to the property, but sold it within a month to the young couple for $35,000 on a contract for deed under the following terms:

$2,500 down

8% interest

10 year term

Principal and interest payment $394/mo.

The couple is expected to (and qualified to) to all of the work on the property.

So why in the world is this a good deal for them? I mean, they paid $35,000 for a house that needs $25,000 in work and will be worth $65,000 when they’re done!

Here’s why:

  1. They won’t spend $25,000 to do the work. They’ll buy the materials (mostly through the contractor father, who gets discounts on most building materials) and do the work themselves. That’s why it’s called “Repair for Equity”—because they’ll actually invest somewhere in the $10,000-$12,000 range in the property, for a total of $47,000, max. And yes, it will be worth $65,000, and that’s $18,000 in equity for their work
  2. In the meantime, they’ll live in their own home for a total PITI payment of around $450 per month. The identical houses next door and across the street are rented for $825—thus, they’ll actually save almost $400/mo. vs. renting the same property
  3. AND, in 10 years, they’ll own that house free and clear. The low sale price allows a shorter amortization than the usual 30 year with payments that are still reasonable. Every month, they’re buying quite a bit of mortgage pay down, which wouldn’t happen if they rented and wouldn’t happen if they borrowed 30 year money from the bank.
  4. Plus, owner financing is the only way in the current market that they could buy a house at all. The wife had just gotten a new job after a lengthy layoff; the husband’s credit was bad thanks to the loss of her income and a divorce a few years back.

Perhaps it’s obvious why I’D want to do this deal, but let me enumerate the reasons anyway:

  1. I put no money down, and got $2,500 down
  2. I paid $11,000 for the property and sold it for $35,000
  3. My monthly payments to my lender are $80.71 a month; I’m getting $394
  4. I didn’t have to repair anything
  5. If I choose, I can now sell the property subject to the contract for deed to another investor for around $24,000, paying off my underlying loan, and creating a return of 16% for the investor/buyer

Sounds great, right? And it is, under the right circumstances. There are tons of people who want a deal like this, and tons of deals that you can make work like this. However, like any real estate transaction, it can go wrong if it’s done with the wrong people or not set up correctly to begin with. The primary risks are:

  1. The buyer doesn’t make payments, and you’re forced to take the property back. Depending on how you conveyed control of the property in the first place (Lease/option, contract for deed, and seller-held mortgage are all options), you might have to do that through foreclosure. In states where judicial foreclosures are the rule, this can take months and cost several thousand dollars.
  2. The buyer doesn’t pay the real estate taxes due on the property, and it’s sold at tax sale or a tax lien is issued against the property. You’ll end up paying the taxes in order to retain your 1st position lien on the property
  3. The buyer doesn’t purchase insurance, or the insurance lapses, and a fire or other damage to the property occurs

For these reasons, it’s crucial that you do the following:

  • Screen the buyer as you would any other borrower or tenant. Make sure that he has the income to support the entire principal, interest, tax, and insurance payment AND that he has the excess income AND skills to do whatever work is necessary. Check his criminal and civil record, employment, and so on.
  • Make his taxes and insurance part of his monthly payment. The simplest way to do this, AND make sure that the tax and insurance bills are being paid, is to get a loan servicer involved. For under $20 a month—usually paid by the buyer—a loan servicer will take in the payments, pay the underlying mortgage payment, if any, and escrow the taxes and insurance for payment when the bills are due. The balance is, of course, sent to you, and the servicer notifies you if payments are late or not made.
  • Make the term of the deal as short as practical. Back in the day, I and others set up these deals as 30 year amortizing land contracts or mortgages, often with balloons in 2-5 years.

But thanks to Messrs. Dodd and Frank, who knew a lot more about owner financing than, you know, the people who do it every day, these balloons are now illegal. One option, of course, it to offer a lease/option rather than an actual financing instrument, but they have their own set of problems.

So the balancing act for you is that you want to give the buyer more than enough time to create his equity, but not be in a 30-year relationship with him. So I typically do the shortest amortization I can that still results in a PITI payment that is less than rent. In most cases, this is under 15 years; in some, under 10. Your buyers LOVE this, by the way—the idea that they could own a property in 10 or 15 years for less than the rent payment, I mean.

  • Make sure that the paperwork is detailed, correct, and correctly recorded. You may use a contract for deed strategy, or you may choose a wrap-around mortgage or deed of trust to memorialize these deals. Whichever you choose, you and your buyer both need to understand your rights and responsibilities under the terms of the contract, and any contract you use will need to be recorded in the public record. Each of these contracts is heavily governed by and state law, so don’t just grab one out of some course and use it. Have a local attorney draft and/or review the contracts before you use them.
  • Address default at the beginning of the deal. Sometimes, buyers default on these deals due to reasons that neither of you can control or predict. Divorce, illness, job transfer, and other unforeseen problems can force the buyer into a position where he can’t pay. His options at that point are to 1) resell the deal himself to pay you off 2) give you a deed in lieu of foreclosure or 3) be foreclosed on. I strongly suggest that you outline these options (with a heavy emphasis on why #3 is an option he wants to avoid at any cost) and get his agreement that #2 is the most right, fair, and pleasant of his choices. This won’t guarantee his cooperation in case of default, but will make his cooperation more likely.
  • Do a real closing. You’re selling a property; there are tax prorations, transfer taxes, and county forms to be dealt with. There should be a closing statement prepared. The purchaser should be encouraged to get title insurance, and you as the lender should get a lender’s policy. These things—especially the latter—require a qualified attorney or title agent.
  • No one gets in no money down. A buyer without a down payment is a buyer who’s not qualified. A buyer who hasn’t made a significant down payment—5% or more—is a buyer who’s much more likely to walk away from the deal.
  • Selling these deals to people without the skills to renovate them is an invitation to disaster. You’ll often hear this: “If I get the property back with half the repairs made, I’m ahead of the game, because I’ve got a more valuable property to resell.” That’s all well and good, except in the case where the buyer’s repairs are of such poor quality that they have to be redone, or where the buyer does things to the property that make it less valuable.
  • Be aware of the other requirements of the DoddFrank Act and Safe Act as it relates to these deals. Since contracts for deed ARE considered “financing” under these new federal regulations, you must follow the guidelines set out by them. In short, they include the requirement that you verify the buyer’s ability to pay, that you not include “growing equity” provisions (that is, the loan balance doesn’t increase over time), and that, if you do more than a handful a year, they be processed through a “licensed mortgage originator”. You need to familiarize yourself with these rules; they’re ridiculous, but followable.

In years past, before I more closely controlled these deal, I had a number of problems along these lines: one buyer removed the supports for the porch, intending to rebuild it, then left in unsupported until the porch collapsed, pulling off part of the siding in the process. Another “Handy Harry” framed a 5×5 bathroom in a 12×9 living room, creating an l-shaped 4×7 living space. Another cut a “pass through” between the kitchen and living room, in a load bearing wall, without supporting the resulting opening.

Each of these “buyers” had something in common: they were not experienced renovators. Today, my buyers must have the background to do the necessary upgrades, or must have an experienced rehabber who will sign an affidavit that he or she will be doing the work on the property.

Like any deal, repair for equity arrangements must be carefully controlled to be advantageous to both you and your buyer. But the demand is high enough, and the deals available enough, that they are, once again, worth adding to your exit strategy arsenal.

AND, you’ll be doing your little part to make housing more affordable for Americans.

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Wholefailing: The Top 3 Reasons For “Failure to Launch”

            Go to any real estate association anywhere in the country, and you’ll meet endless excited folks who are sure that their futures—and fortunes—lie in wholesaling houses. Go back 6 months later, and you’ll find that 90% of those folks have never successfully closed a deal. In most cases, this isn’t due to “inactivity” or “fear” or any of the usual excuses. Many of these folks have actually tried, and failed, to make a go of it. In my experience, there are 3 main reasons for this:

  1. They don’t understand WHY wholesalers make money. They understand, at least in a basic sense, HOW it happens: you put a deal under contract, and you find someone who wants to pay more than you did, and that “more” is your profit.

But they don’t understand something very basic: that buyers don’t just write a check because the deal is available, or cheap, or even because it’s cheaper than other properties that might be for sale in the same area.

Buyers for wholesale deals are real estate investors, right? So in order to be interested in a deal, the deal can’t just “make money”; it has to make ENOUGH money to provide a satisfactory return for the cash, and hassle, and time, and energy, that the buyer will have to put into it. No investor buyer HAS to buy a house this week; if he doesn’t see one that gets him a return that turns him on, he can just keep looking.

Wholesaler wannabes who don’t ‘understand the motivations of their buyers well enough, and therefore end up spending weeks trying to flog contracts to an unresponsive audience,  end up frustrated and convinced that it ‘doesn’t work’.

  • They don’t learn the most basic thing they need to know: how to evaluate properties correctly.  Ok, so you get it: the deals you offer have to be priced at no more than 70-75% of the after repaired value of property, so that the buyer feels compensated for his investment, and that’s the deal you’re offering.

Or is it?

One of the most common mistakes I see the ‘YouTube University’ crowd making is that they have no real handle on how to comp properties, inspect them, or estimate repair costs. Someone online told them that a property is worth the Zestimate, or the Zestimate – 10%, or the average of the values on Zestimate,, and And that a roof always costs $5,000 to replace. Or that rehab is always $25 per square foot. And they believe it, and operate accordingly, and then think that buyers are “just negotiating” when their buyers tell them that that their $10,000 repair estimate is 50% of the real costs.

Reality is much more complicated than these rules of thumb, and it’s just a fact of life that if you’re serious about wholesaling, you’ll get serious about learning how to do the basic evaluation that has to be RIGHT in order for your price to be right.

  • They don’t REALLY understand the process. You’d be amazed at how many wholesale deals fall apart because the wholesaler doesn’t have the right contracts, or doesn’t know when to get paid, or doesn’t know how to guide the deal to the final closing.

You can’t think that your buyers or sellers will have or know these things—that’s up to you.

If you’re serious about making real money wholesaling, you need to be serious about understanding that business. It’s simple, but it’s a lot more complex than the Facebook and YouTube gurus make it seem. If you want people to invest time and money in your deals, maybe it’s time to invest some time and money in your education.

I have the most complete, detailed, easy-to-understand, guaranteed wholesaling course available, and you don’t even have to leave home to take it. If you haven’t been to wholesale school, learn all about it and get registered HERE.

Advice for wholesaling “package deals”

It seems like every new Wholesale School student immediately stumbles upon a landlord who wants to sell ALL of his properties, then wants to know how to tackle a package of 4, or 9, or 37 single family homes all at once. And they’re already rented, and the don’t need any work, and the new wholesaler is excited because this looks like a deal that could make tens of thousands of dollars all in one fell swoop.

These deals are problematic for a number of reasons:

1. I rarely see one where the landlord isn’t asking more-than-market for the properties. He’s willing to sell, but isn’t really anxious to sell

2. It’s basically never the case that the houses don’t need work. Yes, I KNOW there’s someone living in them. That doesn’t mean that the roofs aren’t 22 years old, or that the furnaces work consistently, or that they won’t need a $5,000 turnover when that tenant inevitably moves out.

3. Each property has to be evaluated separately, which is a LOT of evaluation for a deal that’s unlikely to come together.

4. Coordinating a single buyer to buy a whole package of non-turnkey properties, especially if they’re in different parts of the city, isn’t easy. Coordinating 9 buyers to close 9 properties on the same day is even harder.

If you find one of these deals, here’s how I suggest approaching it:

  • First, get a list of addresses, rents, and major repairs/upgrades needed on each property. If the seller can’t be bothered to get you these, he’s not motivated and you can move on.

  • Next, comp each property. If he’s asking full market value and has indicated that he’s not flexible on price or terms, move on.

  • Assume that each property needs a MINIMUM of $20k in work, run your numbers. If he’s asking a lot more than your numbers tell you you can pay and isn’t flexible on price or terms, move on

  • If A-C seem fine, ask him to show you his best property and his worst one. If it turns out that even his best one needs more than $20k in work, adjust your numbers accordingly and make a soft offer for the package.
  • At this point, if you’re a brand new wholesaler, and the seller says yes, it’s time to get someone more experienced involved in the deal. Yes, you’ll have to give away some of your control and your profit, but if the package is bigger than about 4 properties, some or all of them will probably have to be CLOSED before they can be re-sold–it’s just more practical to do it that way–and you’ll need someone with money, or a bigger buyer’s list, to help you with the full inspections/evaluations of all the properties.

Most of the time, you won’t get to E on these. I evaluate probably a dozen of these packages a year, and rarely put them under contract. When I do, it’s nice, and yes, it’s a big payday–but for the most part, they’re not good wholesale deals.

In Praise of the Dog-and-Pony Show

If you’ve been around the real estate education world awhile, you may have noticed that live trainings come in several very different flavors.

There’s the “seminar” or “workshop”, which is usually 1-2 days with a single speaker on a single topic, and ranges in price from around $200-$1200.

There’s the “bootcamp”, which includes 4-6 days of training focused on a single strategy or system, and which often includes 1 or 2 additional “selling speakers” each day mixed in with the education. With a price tag of $3,000-$10,000, bootcamps are (or at least should be) extremely complete as to their particular topic.

And then there’s the “dog-and-pony show”, often pitched as a conference, convention, or wealth-building weekend. These events usually carry a low-price tag (under $400) and feature multiple speakers in 90 minute-2 hour sessions, during which they lay out the basics of their area of expertise then sell a homestudy course, bootcamp, or other product to those who want to learn more.

It’s unfortunate that dog-and-pony shows are often viewed, incorrectly,
as the lowest common denominator of live training events.

Because of their low entry fee and the lack of in-depth education on any single topic, they have a reputation as being primarily for unsophisticated investor wannabes, or for folks who are too broke to afford the 4-figure price tag of the bootcamp.

With more than 20 years (and well into 6 figures) invested in real estate education, I can attest that dog-and-pony shows aren’t better or worse than workshops or bootcamps—they simply fill a different purpose, and one that’s just as valuable as any other live training.

Dog-and-Pony Shows provide a buffet of ideas from which to pick and choose. For the real estate entrepreneur who’s looking for a first strategy, or the next strategy, investing in a full-blown bootcamp that digs deeply into a single strategy at a high cost can be risky. If it turns out that the particular strategy isn’t for you after all, you’ve invested a lot of time and money to find this out.

A better way of choosing a strategy is to compare and contrast the techniques that are—and this is important—working in TODAY’S market. A Dog-and-Pony show gives you the chance to do this, and in a very quick way with a low investment and no obligation. Don’t get me wrong, you can do the same thing by attending your local real estate investment association meetings—for a year or more, given that most groups meet just once or twice a month—but at a dog and pony show, you can discover in 2 or 3 days exactly what a WHOLE BUNCH of the most active investors in the U.S. are doing to make money right now.

I’ve never been to a conference like this where I haven’t walked away with scores of brand new ideas and at least one new strategy that I wanted to fold into my business. Just as importantly, I’ve never attended one where I didn’t hear more about something I’d been contemplating and decide, after hearing the 90-minute summary, that it really didn’t fit into my business or my life at all.

And I don’t know about you, but I’d a lot rather spend $200 figuring out that strategy “X” isn’t something I want to pursue than waste $5,000 and 5 days on a bootcamp to show me the same thing.

Dog-and-Pony Shows expose you to the BEST networking around. Real estate investors love to network. In fact, it’s one of the 3 pillars of real estate success, along with education and action.

It’s through networking that we meet the folks who help us through partnering, mentoring, or just plain motivation when they share their successes with us. It’s through networking that I discovered that Quickbooks is the best accounting software for real estate investors, and that online data backup systems are safe, and that I was paying too much for my property insurance.

It’s also through networking that you get the all-important personal referrals from other students that tell you which educators deliver on their promises, and which have incomplete courses or poor customer service. And which national lenders are still investor friendly. And which markets are still declining, and which are recovering.

Dog-and-pony shows are worth the investment just for the chance to hang out with other real estate entrepreneurs. And they’re especially good for this for two reasons—first, they tend to be much larger than the average bootcamp, which gives you more brains to pick. Second, they attract investors from a much wider range of specialties and with a much broader set of knowledge and experience. The typical bootcamp draws people with a specific set of skills or interests—dog-and-pony shows, thanks to their wider coverage of topics, bring in landlords, rehabbers, wholesalers, private lenders and borrowers, new investors looking for money partners, and seasoned investors looking for birddogs.

Dog-and-Pony Shows give you the chance to interact with lots of national experts, in person. A high-quality conference of this nature brings together real experts, not just speakers who sell a lot of courses. And the REAL experts tend to hang around before and after their presentation to network, answer questions, and so on.

Your chance to pick the brains of people who are literally at the top of their niche in the real estate field (and in many cases have been for YEARS) is absolutely priceless. There’s nothing that will build your own knowledge and confidence like spending face time with people who’ve done hundreds of deals in up and down markets—and no place like a dog and pony show to meet these folks by the handful. Since they’re NOT presenting every moment of the day (like they are in their own workshops and bootcamps), they have time to meet you, help you, and motivate you.

Plus, and I’ll admit that this is a personal prejudice of mine), I REALLY like to meet experts in person before I invest a dime in their courses or products. I want to ask them questions, evaluate them as people, know that they take a personal interest in their students, and make sure they’re really IN the market (not just making their living selling products). You can get a real feel for this just by chatting for a few minutes with the speaker about your own situation and deals. Only dog-and-pony shows give you this opportunity

The RIGHT dog-and-pony show also gives you ample opportunity for team-building. Quality dog-and-pony shows attract quality vendors to sponsor them. If you’re looking for a new insurance agent, the best asset protection attorney for your real estate business, a management company for your rentals, investor-friendly lenders, or any other team members that will help you run your business more effectively and cheaply, these conferences are the place to be.

Good dog-and-pony shows usually include vendor expos (often at no additional cost) and your chance to pick up new vendors, team members, and suppliers that truly understand YOUR business (and, by the way, compete for it with show specials and discounts). It’s worth the price of admission by itself.

Plus, they’re fun! Hanging out for a few days with your fellow investors or investor-wannabes, networking with speakers and vendors, and drinking up new ideas and strategies is incredibly exhilarating. The break you get from your “real life” and the motivation you get from meeting hundreds of like-minded people sends you home raring to take your business to the next level. For that reason alone, I will continue to attend dog-and-pony shows at every opportunity throughout my real estate career.

And the best dog-and-pony show in the country, bar none, is the National Summit for Real Estate Investors and Landlords, sponsored by OREIA. OREIA is a non-profit organization that holds the largest, most respected dog-and-pony show in the country once a year.

It’s the best, because OREIA reviews scores of speakers each year to pick the dozen or so that have the most down-to-earth, most workable strategies in today’s market—NOT those who sell the most product.

It’s the best, because OREIA attracts more than 1,000 investors from all over the U.S. for you to network with and learn from.

It’s the best, because it’s less than $200 to attend the main conference with 20+ experts on up-to-the-minute topics—and because it provides targeted education for both new and advanced investors.

And it’s the best because it includes tons of fun events, like the free networking reception, dozens of door prizes, a youth entrepreneurial academy for 15-22 year olds, and so much more.

If you CAN get to the 2019 OREIA conference and trade show in Cincinnati on October 31-November 3, do it. Your brain will benefit, your attitude will benefit, and your wallet will benefit.

Find out more about it HERE, and register while the price is still under $200 for all 4 days.

I’ll see you there!


Why Savvy People Choose Rentals By Steven VanCauwenbergh

Steven VanCauwenbergh is a landlording Phenom…at 45, he owns over 250 units, which he runs hands-off with a combination of people and technology. He’s presenting an all-day workshop at the 2019 OREIA National Real Estate Summit on exactly how you can do the same. It’s October 31st, and it’s included with your (cheap) registration fee. Sign up at!

Building wealth is all about the ROI (Return on Investment). Making your money work for you instead of just stock-piling it and hoping it will be enough to retire you.  As with any type of investing there is risk involved in being a real estate guru. But it has been my experience that the benefits far outweigh the risks. 

One of the most advantageous things about real estate investing is the ability to use leverage instead of cash to do your deals. 

Let’s say you have $50,000.00 that you would like to invest. You find a rental property selling for $60,000.00. The fair market value of the house is $70,000.  Banks will generally loan 70% of the fair market value. Therefore, you could get a loan for around $52,000. You use $10,000 of your “investment” money and purchase the rental property.  

If it’s a 3-bedroom house in a fair neighborhood.  The house would easily bring $750 per month or more in rental income. Yes, there are expenses—taxes, insurance, the payment on that mortgage, vacancy, maintenance. But even after all that, in effect the $10,000 you invested in purchasing this property is giving you a return of 15%.  How many other investments in your portfolio are showing you that kind of return? Don’t forget, you’ve only spent $10,000 of the $50,000 that you are planning to invest, so you can do it 4 more times.

Another super quality of buying real estate is you earn that ROI tax deferred.  You do not pay taxes until you sell that property. Your investment is going to grow and appreciate.  The mortgage is going to decrease, and you are going to build equity. Someday you may sell the property and have to pay taxes on the capital gain, but it should be at a lower tax rate. 

If you want tax free results, you could use a 1031 exchange to defer the taxes even further.  You could pass it on as an inheritance. You could use a charitable remainder trust and you could even use installment sales to spread out the gain over time. There are lots of ways to exit that real estate and defer the taxes. 

Now… get ready for the big one!!!  Real Estate Investing can get you tax free cashflow!  You take your rental income minus depreciation, mortgage interest, property taxes, maintenance and other expenses like travel, dining, entertainment, Home Office, PDAs, laptops, Internet, cell phone.  On paper it looks like you’re losing money even though you have cashflow. Yes… you heard me right, you have tax free cash going into your pocket with a leveraged investment. 
To coin a phrase that has been around for a while “JUST DO IT!”  I’ve built my empire with real estate investments. The portfolio I’ve built would allow me to retire today, but what fun would that be? I love this business!