Real Estate Investing Advice
There are many of you out there today that have been burned by the real estate market and the down economy. You believe you can’t buy now. Your credit is bad, you don’t have enough cash, not enough time has passed since your foreclosure or, for some other reason, you are renting and sitting on the side lines, or you are not investing in real estate because you believe you can’t.
While you are sitting on the side lines the “game” is still going on. I believe five years from now there will be those that will be saying, “I should have bought a back in 2012”. Don’t be one of those people. Certainly it’s more difficult today, but maybe not as difficult as you think. It will take time, persistence, and determination; and maybe making a lot of offers that will not be accepted. No one is going to deliver the deal to you – you will have to go out and get it, to make it happen. Consult an expert, but make your own decisions. There are many professionals out there, and they all have their place: home inspectors, real estate agents, accountants and lawyers; use them wisely, but remember, at the end of the day – only YOU live with your decision
You can’t just call your Realtor and tell him to find you a lease option, or an owner financed deal, or a partner to buy with. First: Set an objective. Then broaden it. Expand your price range or geography or age or size of house. Cast a broad net and cast it often. (Gregg’s 25 rules of real estate investing)
I know a company in town that offers on every short sale offering that comes into the Fort Myers Real Estate market that fits their broad criteria – over 100 offers a week. Five or ten a month get accepted.
What are some of the creative ways to buy today? I’ll list some of them and make a few comments about each. If you want to explore some of these, set up a meeting with your agent.
- Lease options. Also called a lease purchase. (Explanation of lease option here). This creative method is very popular today but the most important thing to know is that many sellers may accept a lease option once they understand it EVEN THOUGH THEY NEVER THOUGHT OF CONSIDRING THIS OPTION. Look for homes that have been a long time on the market and get a knowledgeable agent and real estate to help you structure the deal.
- Subject to Existing mortgage. This is an assignment or transfer of real estate where the purchaser agrees to take over monthly payments of principal and interest, but does not assume personal liability for the obligation. If the purchaser defaults, the lender must attempt to collect the debt from the original borrower, through foreclosure on the property, or other means. The original mortgage remains intact, and property title is not passed on to the purchaser.
- Assume existing Mortgage. In this case the purchaser, with the approval of the bank and the original debtor, assumes the liability for the existing mortgage.
- Seller finance. Seller financing also is not always advertised. (Explanation of seller financing here). Remember, you can always ask the seller to contribute PART of the money your need to buy their house and it need not be the entire amount. If you need a 70% loan to value loan and only have 20% down, you may be able to get the balance from the seller.
- Assignment of contract. This creative method is often used by real estate “bird doggers” that have the knowledge and time to find the good deals, put them under contract, and then assign the contract to another investor for a fee.
- Secondary position mortgages. You may be able to go to someone other than the seller for the loan of your down payment.
- Deferred payments. Structure your purchase to defer a lump sum or monthly payments for a secondary position. This deferment may coincide with the sale of another asset of your or an anticipated income event.
- Pre sell. I know of a few investors that will get a commitment for an investment and then go find it. In effect pre selling the deal to the party they will assign it to; n essence they develop their exit strategy before they buy.
- Pre lease. If you find an empty office building, get a commitment from an AAA tenant to lease for ten year, my bet is we could find someone to loan you the money
- Short Sale. Often you can get a lower price on a short sale than you would on a free marketed property. These contract are most often not assignable, so you will have to line up your purchase method before hand,
- Bank participation. Don’t rule out the lending bank as a participant in your acquisition. My best office deal was done this way.
- Syndicate. It may cost you $10,000 to $30,000 for good lawyer to form a syndicate or put together a private placement memorandum. I done both and for large deals they just may be the ticket. Do not take shortcuts on the legal side of things. A good attorney (email me for some referrals) can help you properly raise the funds for your adventure.
- Options. Control the property with an option. Give the seller a nonrefundable amount of money for a specified time period: This will allow you to refine your exit strategy – or sell the option.
- OPM. Other People’s Money: Your work their money.
- Pre construction. The time for buying preconstruction has returned. Small deposit may hold a property for the time it takes the developer to put his project together.
- Long Due Diligence. A frugal man’s option method: If you can get the seller to accept a long due diligence, your deposit will not be at risk like it is with an option, and it may give you the time you need to put the deal together while you control the property.
Folks, the above list is not all inclusive. There are probably a hundred I missed. But don’t rule out conventional financing. You may be surprised at how eager banks are to loan you money today; and how cheap. I’ll tell you this: I get calls from banks every week wanting to court our agents. Two years ago this was never happening.