There are numerous opportunities in real estate investing, but you have to have a skilled eye at identifying them. Inexperienced investors pass up on great opportunities because they lack the know-how to spot the gold from the seemingly uninteresting properties. Discussed below are five ways you can profit from real estate.
Retailing – Buy, Fix, and Profit
Retailing, in three words, is buy, fix, profit. Many newbie investors enter the real estate trade using this strategy. I’m sure you already know all about this strategy. You buy handyman specials at great prices, rehab them, and sell them for profit. One costly mistake a handful of fledglings commit is underestimating the cost of repairs. Savvy rehabbers already have a network of contractors and a checklist of repairs to watch out for and their estimated costs. They do not rely on the sellers saying that the repairs do not cost much. If they do not cost much, why don’t they do it themselves? To be on the safe side in retailing, you have to use the higher estimates to cushion you from errors, and then add another 10 percent to serve as contingency fund. Better safe than sorry.
Wholesaling – Find, Assign, and Profit
In this strategy, you look for a property offered at great deals, arrange this property under contract from the seller, then you look for an end buyer or another investor interested in the property and you assign your contract to him for a higher price. You earn from the assignment fee you get from the strategy. Ideally, assignment fees range between $3,000 to $20,000, contingent on the particular deal. If you are assigning the contract to another investor, do not forget to leave room for him or her to make a profit. This is a great strategy for newbie investors because it does not require much capital, thus entails less risk, and is easy to execute. For a more elaborate discussion, refer to our previous post, Kick Start Your Real Estate Investing Business Through the Assignment of Contract.
Subject To Investing – Buy and Sell In Many Ways
There are a number of advantages when buying a property that is subject to existing financing. First, you do not have to obtain a new financing from a bank or anywhere. This means that your credit standing does not count here, and is also not at risk. So if you have a failing score, don’t worry. You do not need to have a substantial amount of money to fund the deal. You can obtain financing for down payment from a private money lender. Through this strategy, you can speed up building your real estate portfolio without the need for your credit or your own money. Also, you do not have to sell the property entirely for cash.
If you know how to attract prospective deals, you get all sorts of deals including sellers who are more interested in relief from debt rather than profit. These are homeowners who are motivated to sell because they are having a hard time paying for mortgage. For this type of deals, experienced investors do not promise anything to homeowners when they take a property subject to. When you buy a property with this type of deal, you can sell it in many ways.
In this strategy, you acquire a property from a seller and allow the seller on title until you get to sell it at some time. With this acquisition, you can dispose and profit from it by selling it all cash, rent it out, or lease/option it to a tenant buyer. If you like, you can make it your personal residence.
Before you acquire and make money from the property though, you have to do your due diligence and ask about its current financing. If you locate a property subject to a fixed rate loan with low interest, you may be in for a good deal. However, if the mortgage is adjustable, you must have a clear exit strategy before you take the property. Find out how much are the monthly payments, ask if they are current, and how much equity is on the property. Get to know the estimated cost of repairs needed for the property. Look at your database of buyers and see if there is anyone interested to buy a property within the area where the property is.
You can delegate the paperwork needed for closing to an attorney. This includes a purchase and sales contract and an authorization to release the lending information. You also need to set insurance on the property and secure title insurance.
Lease Options – Buy, Lease, Get Cash and Cash Flow
An exit strategy for the property you have acquired through Subject To is via Lease to Own, where you get a non refundable deposit which ranges between $ 2,000 to $10,000 depending on the market. Tenant buyers who pay higher down payment tends to pay you till the end. However, beware of tenant buyers who pay little down payment. Since they are not risking anything here, they could afford to just abandon the property and cause you headache. So choose your tenant buyer well.
Lease To Own has several advantages: you receive a non refundable deposit in advance; tenant buyers tend to treat the property as their own so they do not vandalize it; and if they default, you can expel them from the property and you can start looking for another tenant or tenant buyer.
Options – Pay Option Fee, Sell And Profit
In this strategy, you have a seller who agrees to sell the property at a set price for a particular period of time. When you are not able to sell it within the set time, then you lose nothing save for the $10-Option deposit. With this minimal risk, options are great when dealing with upscale properties.
As an illustration, say, a seller who is relocating would like to sell a property that has $850,000.00 in mortgage, and the property is valued at $1,000,000. By just paying the Option deposit, you can option the property for the remaining $750,000 for 90 days. If you can sell it for more than this amount, you get to keep all the proceeds.
Knowing these five great ways of making money in real estate gives you an upper hand in evaluating deals, allows you to pick those with great potential, and protects you from opportunity losses.
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