|Multiple-Profit System For Real Estate Investments
There's a missing component of return in real estate profits that very few
investors have ever tapped - but could readily tap into if they knew about it and how to do
it. Real estate Guru, Jim Evans, explained that most real estate professionals calculate
their return on investment by adding up their traditional four real estate components and
dividing by the down payment (or equity in succeeding years).
The four traditional components are: appreciation (if the real estate goes up
in value), cash flow (gross income less expenses and debt service), principal payoff (each
time you pay the mortgage part is principal payoff), and tax savings (multiply your
depreciation by your tax level and you get a tax savings in dollars). The down payment
includes the cash down and the non-financed closing costs due at closing.
Let's take a residential income property to make these components more concrete.
Let's say you buy a duplex for $200,000. Assume that you bought it under appraisal, which
is $240,000, and you could sell it within a reasonable time for $240,000. Suppose you put
down 20% or $40,000 and the closing costs were $10,000.
The principal payoff would be about $400. The tax savings for an investor in
the 15% tax level might be around $1,200 in actual dollars. Let's say the cash flow is 5%
or $10,000. If the property goes up in value 2% then it would be worth 102% of $240,000
or $4,800 in added value for the coming year.
The traditional components total $16,400 (400 + 1,200 + 10,000 + 4,800). If
we divide that by the total down of $50,000 then we get 32.8% rate of return (16,400 divided
This is great and will beat stocks all day long and any bank! But it just
scratches the surface for what is really possible!!
Mr. Evans explains that the fifth component is usually the greatest profit
component for real estate return. This is Equity Discount. Look at the above example where
the investor bought the property for $200,000 but it was worth $240,000 and could be sold
for that price within a reasonable time. This means that the investor would realize
another $40,000 in benefits for buying the property.
Add this $40,000 to the traditional components of $16,400 and you get $56,400.
Divide that by the down payment and non-financed closing costs of $50,000 and you get a
whopping 112.8% return. This is really exciting.
Most investors that buy foreclosures and "flip" the properties
instinctively know that they must buy the property at lower than appraisal price but they
don't know how to accurately compute their return. It is a known factor, though. Many
gurus say that you make money "when you buy the property." Jim says you make money
in real estate "when you buy AND when you sell."
Combining all of these five components is what Jim calls the single profit
system. In other words, you have one property and you make five components of profit on that
What if you could make multiple, simultaneous transactions, with multiple
profit systems? What if you could reduce the down payment, closing costs, and need to obtain
a mortgage in the first place? What if you could cut out or reduce rehabilitation costs, loss
of rents while rehabbing, and other costs?
That would truly be exciting! Not only very exciting but very profitable.
This is the essence of the multiple-profit real estate investment system. You
use several properties to create multiple profits. Here's an example.
Let's say that you arrange to buy the property outlined above but you add one
feature - you arrange for a trade on that property. If you found another property that you
could buy for $200,000 and was worth $240,000 and you arranged for them to be exchanged
simultaneous you would make another $40,000. And you wouldn't be responsible to obtain
mortgages, pay closing costs, rehabilitation, loss rent, or anything! You just show up at
the closing and collect the profit!
If you did just that, you'd make another $40,000 added to the $40,000 (a
whopping $80,000) from the other property (you wouldn't get the tax benefits, cash flow,
principal payoff, or appreciation - just the double Equity Discounts). Your down payment
would be zero or perhaps $100 in closing costs. The owners would pay the title insurance,
etc. Thus, in this case, for a double-profit scenario, your return would be just about
infinite. In reality, you wouldn't need to qualify for a mortgage and you'd be anxious to
do as many of these as you could.
Now, what would happen if you could find three properties and do a simultaneous
three-way exchange? If they were all discounted $40,000, then you'd make $120,000!
Reality says that very few investors can do this because they don't know how to
structure the transaction, find the properties, write it up on a binding contract, and
actually go through the problems s/he will have to close it. It can be done, though. Each
transaction is difficult, but doable. Even if the investor had to try on multiple
transactions until one went down, he would be far ahead and be able to do this regardless
of his credit or down payment ability.
Suppose further that the investor couldn't buy the properties simultaneous but
he could buy the first property. Let's say then that he took the first property, with the
$40,000 discount, and then traded it for another property, with an additional discount, in
a month or so. S/he'd have $80,000 in profits in the new property.
Let's further complicate it - say that the investor wanted to do this but
couldn't qualify for the mortgage and didn't have the down payment. There are several
solutions to those problems. First, the investor can typically buy the property for 100%
hard money financing if s/he can find the right property. Second, the investor can most
assuredly find a co-investor that will put up the down payment and qualify for the loan - if
the right property can be found.
So, assuming that can be covered, all the investor has to do is find the right
property. Most people will look in foreclosures, rehab properties, and the like. They may
be missing many bargains that are theirs for the asking if they just asked. They should
check pre-foreclosures, people that want to trade, or owners that just hate their property.
Jim did his first double-profit in 1974. He'd found a nice 15-unit apartment in
Salt Lake City, Utah, that could be discounted for cash. He also found a nice 4-unit apartment
that wanted to trade up.
Jim paid $100 to a nationally recognized exchange expert to help write up the
deal. He has used that same formula for tens and hundreds of millions of deals. It was well
Basically, he wrote an agreement to purchase the 15-unit apartment, and then had
the owner of the 4-unit trade for his interest, simultaneously. The result was that Jim
walked away with the 4-unit apartment, with no down, no closing costs, and heavily discounted.
Jim actually got cash at the closing to buy the property for no down!
A few weeks later Jim refinanced the 4-unit apartment and put some additional
tax-free cash in his pocket. It was a sweet deal!
He has done many similar transactions, and some with three-profit deals. One
was some land for a 4-unit, the 4-unit took an 8-unit apartment, and the 8-unit apartment
took the land. Jim walked away with cash profits on all three at the closing. No closing
costs, no mortgages, no rehab, no lost rent, and no risk!
In one of the three-profit transactions, Jim put the transaction together and
walked away with a property free and clear, for his profit. This cannot be done in any other
way! You cannot buy foreclosures for nothing and even tax sales require some cash. When you
walk away with a free and clear property, with cash to boot, you know you are doing the
In addition, an investor can add trust deeds, cars and boats, barter credits, or
anything else of value to these transactions. Everything else is just your creativity after
you learn the basic formula and how to write up the agreements.
Doing single-profit deals with no down, no closing costs, and not even paying
the earnest money are quite common with his system. One of Jim's clients, Robert, in Orem,
Utah, just closed on a $107,000 home for $66,500. Before he closed, he had written offers
for almost $20,000 more. Robert is now looking at higher single-profits and possible
Jim is the co-owner of Property Exchange, LLC, and PropertyExchangeUSA.com web site. He has
written Equity Recycling Key to Real Estate Wealth and gives his Master Guide to Modern
Exchanging Seminars and also the new Multiple-Profits Real Estate Investment Seminars.
His rate of return, option, and rehab formulas will soon be available on In-Hand.Com software
for the Palm and on Microsoft applications. Jim has taught real estate principles for two
colleges, for three real estate schools, adult education classes, and is featured in
national magazines, television, radio, and other net articles. He can be reached at 801
(685 2711) or email@example.com. Investors may request a free information kit on his
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