Buying assets for pennies helps the rich get richer. As mentioned earlier, one of the reasons that the rich get richer is that they have the means to take advantage of extraordinary deals when they become available. When people or corporations NEED to sell assets, a buyer with means is in an enviable position. Having immediate access to lots of cash, especially in today's market, allows the rich the opportunity to buy assets for pennies on the dollar. And guess what? If you can buy assets for pennies, you can turn around and re-sell them for nickels and still make a nice profit.

Because we are credit-card-rich we too have the opportunity to find and take advantage of deals that allow us to purchase assets for pennies. We must be careful because we are only rich for a finite period of time (usually 10-12 months) so any investment we make must offer a relatively quick return on investment. We therefore look for opportunities where our purchase price is at 50-80% of current true market value. If we are able to negotiate our purchase price effectively, we can put that asset right back on the market at a price that is still well under current market value thus encouraging a quick re-sale.

Keep in mind, this is NOT a strategy that we recommend but only illustrate to show what is possible with lots of experience. It has a LOT of potential downside so we recommend nothing more than a quick read to know what may be possible way down the line.

As an example, I will detail a recent deal from earlier this year. It is a piece of real estate at an RV park in Riverside County, CA. The details are as follows:

This particular transaction is among the best, and most satisfying deals we've ever done. It all sort of happened by chance. We were visiting family and friends over the New Year's holiday out at this remote rv resort in Riverside County, California as we have done each of the past few years. The place is pretty neat. There is a beautiful 14 hole golf course that runs through the middle of the resort with most lots situated on or right by one of the 14 holes. There are a number of meandering lakes and fountains on the golf course and a backdrop of majestic mountains surrounding the whole area. Many of the lots have been upgraded to include elaborate set-ups replete with built in barbecues, retaining walls, stamped concrete, outdoor fireplaces with sunken or raised patios, etc. It is a luxury spot for dedicated rv'ers and was a big hit when the economy was strong. This article from the New York Times describes the experience much better than I can.

New York Times article about Rancho California RV Resort

This year, I noticed an alarming number of "For Sale" signs on lots throughout the resort. Clearly the turn in the economy has hit vacation home properties like this pretty hard. I sensed that there was probably a motivated seller or two who could probably be enticed by someone who could offer them quick cash.

I identified a particular lot that I felt to be among the best and nicest of those that were listed for sale. The negotiation took a number of days but ended at a price that was amazingly attractive. We were able to purchase the property for $124,000 (about 77% of current market value) mainly because we promised the seller a very fast, no-hurdles escrow since no loan was needed. Note that "current market value" does not mean, "what the seller wants for the property." It means, what the property should reasonably sell for in the current market. While escrow was in progress, we immediately started word-of-mouth marketing the property for re-sale at a price well below current market value deciding to sacrifice some potential profit in the name of closing a quick deal. While the original seller's asking price of almost $170,000 seemed to scare off any serious bidders, our way-under-market asking price of $149,900 encouraged immediate interest. As it turned out, we closed escrow on the purchase Feb06th. On the same day that we closed, we got an official offer from a new buyer at a price $15,000 above the price we paid. Of course, we did not accept their initial offer but after 2 days of back and forth offers and counteroffers we agreed to sell for $145,000. And better yet, they were so excited about the great deal they were getting that they insisted on an extremely quick escrow to close on Feb24th.

As listed in our recap above, after taking out all the fees we needed to pay to get in and out of this transaction (closing costs both as a buyer and then again as a seller, partial HOA, partial property taxes, etc) our total profit for this deal was a little under $14,000.

As happy as we are about the return in dollars, we are even more excited by the return on investment achieved here. We funded escrow with our $124,950 (purchase price + closing costs) on Feb05th (one day before escrow officially closed) and were able to have that original $124,950 + about $13,750 in profit safely back in our bank account by Feb25th. That makes a total of 21 days that this money was tied up in this investment which returned a total of 11%. An 11% return in 21 days is unbelievable. It annualizes to a return of over 190%. In other words if I were able to find and repeat this type of an investment over and over again every 21 days for one full year, I could convert that original $124,000 into over $235,600. And imagine if I did it with the full $400,000 I have access to for the next 12 months!

I'm reasonable enough (barely), and busy enough at my "real" job, to know that I obviously won't find and execute on a deal like this every 16 days for one full year but it definitely gets me excited and motivated to keep my eyes wide open and looking for the next great deal. And it is a taste of what it is like to be rich and be able to pounce on deals when they arise.

Excited by these quick profits, we have repeated the process. We currently own 2 lots at Rancho California and are renting them out as we wait to secure new buyers. Both lots were negotiated down to levels that allow us to re-sell at fire-sale prices and still achieve a profit.

On the second of these deals, the seller refused my final offer of $118,000 and countered at $135,000. I thought long and hard about what to do. $135,000 was still a very good deal for the lot but would make it very hard for me to realize much of a gain on a re-sale. My real estate broker suggested that I meet him halfway at $127,000. After much thought, I instead went back to him and repeated my $118,000 offer but said I would happily put the entire $118,000 immediately into escrow as good faith deposit. The seller, at that point, immediately knew that he had a pretty much guaranteed $118,000 in his pocket and could almost taste the money. It did the trick, sealed the deal and the offer was accepted. Money talks.