Hundreds of people want to get into real estate investing, but don’t know where to start. With so many different types of methods and strategies available, one could feel a bit overwhelmed and completely lost. The most common route people think of when entering Real Estate is one of two things: obtain a real estate broker license and become a broker’s agent or invest your own equity or obtain financing for a property you plan to rent. until the cash flow is positive. Sounds pretty straightforward, right? That is until you start including terms like “subject to,” “wholesale,” and “purchase-by-lease” into the mix. Hey? Exactly.
Let’s take a look at the strategies in common use among real estate investors these days. I won’t go into too much detail with them, but I’ll basically give you an overview of each strategy. From here, you will have a better idea of the route you would like to take in your future investment endeavors.
Wholesale– Wholesaling is when you find a motivated seller who is willing to sell your property at a substantial discount. So you contract the property for the discounted price. Once you have the property under contract, you can begin to market the property for a price higher than the contracted price. When you finally sell the property at its market price, you get the difference between the market price and the discounted price of the contract.
Short sales– Short sales occur when a property is behind on mortgage payments. Then you negotiate with the bank to see if they are willing to accept less than the total settlement actually owed. If the bank agrees, you benefit by selling the home to a buyer for more than the bank is willing to accept.
Lease purchase– When you rent a property, you find a buyer who is willing to rent the house until you can qualify with traditional financing so that you can buy the house right away. During the term of the lease purchase, that buyer has exclusive rights to the property with respect to the purchase of the home. The price of the house is agreed in advance.
Owner finances– Owner financing generally occurs on properties that do not have underlying mortgages. The property owner is willing to withhold financing for potential buyers until the buyers pay the home price in full or obtain bank financing. The property would be transferred to the buyers, but the buyers would still pay the seller directly.
Flip– Flipping is when an investor buys low and sells high. It can belong to a home that needs repairs or simply the transfer of contracts from one investor to another. Either way, the investor benefits from the difference between how much he bought the property and what he sold it for.
Rehabilitation– Rehabilitation is the restoration of a house that needs moderate to major repairs. Rehabilitations can be classified into three categories: personal use, rentals, or cartwheels. It usually requires equity investments or financing. The rehabilitated properties are eventually resold for profit.
Subject to– Subject to is obtaining a property deed without obtaining a home mortgage. Instead, the seller signs the deed to your home ‘subject to’ the existing mortgage. The buyer would make the mortgage payments on the previous loan, but does not need to obtain a mortgage to purchase this home. The buyer / investor can then turn around and sell, rent, or rent and buy the home.
assignment– Assignments are the transfer of rights from one party to another. As an investor, you can assign your purchase rights to another buyer or investor for an allocation fee. This could pertain to lease, wholesale or subject to purchase.