How a Young Professional Earned $35,000 with No Upfront Cost
Tags: Equity, Va Loan Programs, Zero Down Payment, Real Estate Market, Real Estate Investments

How a Young Professional Earned $35,000 with No Upfront Cost

As I am preparing to send out my quarterly updates to my past clients, one particular purchase in 2020 caught my attention. I always find it helpful to hear about others’ success stories, so I thought it would be great to share with you how one of my buyers earned approximately $35,000 in home equity in 7 months without a dollar out of pocket.

This is a case study on the nuts-and-bolts of how homeownership helps generate wealth in a real-life example.

Let’s travel back 7 months ago, we were in May of 2020 — about 3 months into the pandemic, and Spring was coming to an end. I represented my good friend / buyer looking to purchase a home, and we have been on the market looking for a little while. After many showings, he set his sight on a 2-story home in a suburban neighborhood of Sacramento. This listing was very popular for a few reasons: it was located near freeways and shopping centers, it was in a mature neighborhood with parks, and it was well-updated throughout. This listing was launched at $285,000, we wrote an offer for $10,000 over the asking price competing against 5 other offers.

Ultimately, we came in second, because the winning offer had a conventional loan, meaning they had a lot more down payment upfront; whereas my buyer’s offer was VA. If you don’t know much about VA loans, it is a lending program available to veterans for 0% down payment — meaning if you are a qualified military personnel either active duty or veteran, you can buy a home with no money out-of-pocket.

If you are a qualified military personnel either active duty or veteran, you can buy a home with no money out-of-pocket.

So we received a rejection, and my buyer was bumped out; but I reached out to the listing agent and told him, my buyer was very serious. If the first-place buyers somehow changed their minds, we want to be in back-up. Lo-and-behold, 2 days later I got a phone call, first-place buyers backed out due to their own personal situation, and we got into contract.

I won’t bore you with the details of the transaction, but one critical thing we did, and I recommend to all home buyers was getting thorough inspections. During the inspections, we found roughly $2,000 of dry rot repairs ($2,000 is not much, by the way), and a leaking bathroom upstairs under the sub-floors. We hired a licensed contractor to come out to bid on the job. Here’s what we ultimately got for my buyer: $2,000 repair credit towards the bathroom, and $2,000 worth of dry rot repair.

VA loan has another perk besides 0% down, sellers must repair sect 1 of the pest report for the loan to go through. So my buyer spent $0 towards down payment, bought a home that got all necessary repairs taken care of before he moved in, and got $2,000 repair credit, so he can spend it on the leaking bathroom and renovate to his own vision after moving in.

VA loan has another perk besides 0% down, sellers must repair sect 1 of the pest report for the loan to go through.

Fast forward 7 months later, the housing market that slowed down temporarily during the beginning of the pandemic picked up with a fury. My buyer lived in the home for barely 7 months saw comparable homes in his neighborhood that was selling under $300,000 now selling around $330,000. He made $35,000 on a $295,000 home, that is a 12% return. All without any upfront initial investment. If $35,000 does not sound quite so much, how often do you get an extra $5,000 a month for 7 months straight?

I should also warn my audience that I do not advocate my buyers to make purchases based on market timing. We don’t know if the market is going to go up or down, it is certainly not every day that we see 12% increases in home value in a 7-month-period. But guess what? Even if the home stayed the same in value, or went lower than your purchase price, you now own a home: no landlord can tell you you can’t own a pet, no upstairs neighbor telling you to quiet down, and you are not paying rent every month.

Even if the home stayed the same in value, or went lower than your purchase price, you now own a home.

About the Author

Danny Lau has set up several successful small businesses, he is a top real estate sales professional, and he shares real estate investment advice through his YouTube Channel.

Disclaimer

This article is intended for informational purposes only and should not be considered financial advice. You should consult a financial professional before making any major financial decisions.