Breakdown of real estate investment
Hundreds of people want to invest in Real Estate, 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: get a Real Estate Agent license and become a broker for a brokerage house or invest their own capital or obtain financing for a property they plan to rent until cash flow becomes positive. . Sounds pretty simple, doesn’t it? That is until you start throwing terms like “subject to” and “wholesale” and “lease purchase changes” into the mix. Hey? Exactly.
Let’s break down the strategies commonly used among real estate investors these days. I won’t go into too much detail with them, but basically I’ll give you an overview of each strategy. From here, you’ll have a better idea of which route you’d like to take in your future investment efforts.
wholesale– Wholesale is when you find a motivated seller who is willing to sell your property at a substantial discount. Then you hire the property for the discounted price. Once you have the property under contract, you can start marketing the property for more than the contracted price. When you finally sell the property at its market price, you benefit from the difference between the market price and the discounted contract price.
dirty shorts– Short sales occur when a property is behind on mortgage payments. He then negotiates with the bank to see if they are willing to take an amount less than the full payment actually due. If the bank agrees, you benefit from selling the house to a buyer for more than the bank is willing to accept.
Lease Purchase– When you lease a property, you find a buyer who is willing to rent the house until you can qualify with traditional financing to buy the house outright. During the lease purchase term, said purchaser has exclusive rights to the property as it pertains to the purchase of the home. The price of the house is agreed in advance.
OwnerFinance– Owner financing generally occurs on properties that do not have underlying mortgages. The property owner is willing to withhold financing for potential buyers until buyers pay full price for the home or obtain bank financing. Ownership would transfer to buyers, but buyers would continue to make payments directly to the seller.
turning– Flipping is when an investor buys low and sells high. It may pertain to a fixer-upper or simply the assignment of contracts from one investor to another. Either way, the investor benefits from the difference between how much he bought the property and why he sold it.
rehabilitation– Rehab is the restoration of a home that needs moderate to major repairs. Rehabs can be classified into three categories: personal use, rentals, or flips. It usually requires equity investments or financing. Finally, the rehabbed properties are resold for a profit.
Subject to– Subject to is obtaining the deed of a property without obtaining a mortgage for the dwelling. Instead, the seller signs the deed to your house ‘secured to’ the existing mortgage. The buyer would make mortgage payments on the old loan, but does not need to obtain a mortgage to purchase this home. The buyer/investor can turn around and sell, rent or lease the house.
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 assignment fee. This could pertain to lease, wholesale or subject to purchase.
