My Real-estate Investing Strategy
When doing real estate investing it is very important to find good deals.
1. Property should be 70% or below Appraisal value.
The best property to find is no more than 5 years old but in most cases older property will work for the deals I put together.
Having a motivated seller is key for deals (pre foreclosures, down sizing, and divorce just to name a few)
Whole sale investors
Using bird dogs to find deals for you( usually you can find a newbie that finds deals for you that he does not have the means to close on, most investors pay only about 500-1500 dollars for deals brought to them, just depend on the deal and how much your birddog does for you)
REI forums are a great source to find deals from other investors
2. Deals with little or no equity;
They are used for lease optioning to a buyer or rental property
For example you find a property that has a motivated seller (reason mention about) property is in great condition (need little to no rehab) you find a buyer who is interested. Example; property is worth 200k and just was built less than a year ago, buyer just move in about a year ago and went into financial difficulty. Property owner only been in the house less than a year and home is in great shape. Most investors would turn since there is no equity in home. You would enter buyers seller agreement with owner putting the home under contract, meanwhile you run an ad in the paper “Owner financing for a great home” this will be covered more in my next section.
Finding a great deal in a home means nothing with out an exit strategy.
Running ads in the newspaper I ran an ad in the paper saying “owner financing” and over 40 potential buyers called me. Most of them will not qualify for your deals but will build a great buyers list for you to contact for other deals. You want to get as much information about the caller as possible. Work history, reason why he/she needs owner financing, Credit history (callers usually know their FICO), currently living condition, and I hope you get the point. I have found that most of the callers needed to move within weeks, some have large amount of cash and some none at all. Just do your best to check them out or running a credit check would not be bad idea.
REI forums to other investors this is a great way to get your wholesale property sold but also a great resource for information. There are all walks of people, lenders, wholesalers, other investors, and just about any thing to do with real estate can be answered in the forums.
Friend at work this person is just someone you know and told them what you do to make lots of money.
Just by having a conversation about what you do to a person at the
mall or on the golf course. Same as friend from work, just tell everyone you know and meet about what you do and how you can help them buy a home.
Methods to close the deal
This could be a tough one, depending on your current situation.
Bank loan (Not my first choice but it works too)
Conventional financing, investor loans season or no season(in season you will have to hold home for 2 years or more before selling and non season loans do not have that clause).
Private Lenders- Friends, family members, people you do not know but looking for a good return for their money. This is a good source for putting money down on a loan. It helps get the loan and once you sell the home you would pay off your private lenders. You could put together a good presentation for private lenders that would explain what it is that you do and how they can make money too. There is a book around that explains this in detail, but for my article we will say; Presentation should explain your business and how you plain to make money in real estate investing.
It will offer your private investors a good opportunity for a return on their investment. You could compare CDs, MMA, IRAs, or any type of investment returns. Explain how long you would like to keep their money and how much interest you will pay. If you offer a private lender 12% on the dollar, you would be surprised how many of them will offer money after cashing out their CDs.
This could come in any liquid asset but preferably cash/check. I personally have never done this but when I was looking at ways to get funds to close deals, I researched this thoroughly. In most cases, you do not have to pay a monthly payment on loan offering full return after the sale of home or refinancing and pulling out equity. Anyhow, what a private lender would make on 10k at 5% in one year would be pennies compared to 12% or even 15%.
Hard moneylenders (High interest rates with points) these lenders close faster (2-15 days) than conventional lending but will have interest rates from 13-18% and 1-6 points. Great source for a short-term loans or Rehab deals that require rehab money to rehab home.
Subject 2 This is a buyer’s seller agreement that says you are purchasing the home subject to the existing owner loan terms. If seller had a good interest rate at the time of your purchase and current rates are much higher, this is where you would benefit using a subject 2 contract. On the other hand, if seller had 10% interest rate and current rates are lower, you could still use the subject 2 contract but should refinance once home is in your possession.
Lease options lease options are used to either purchase property or sell property and do not require a lender to get involved. This is the best kind of deal to put together if you have little to no money as an investor. On the other hand, if you control the property using a lease option with assign position rights in contract, you could use the form to sell a home to a buyer with less than perfect credit but funds to put down for the deal.
When using a lease option to structure a deal with a buyer you want to give the buyer your clause. This could be the maintenance on the home, cutting grass, and what will happen if buyer does not exercise his right to purchase home at the end of terms(typically you should set terms for 1-3 years). Note: If you used a lease option to purchase the property, you want to ask seller for a 6-year option, which give you plenty of time to own the home and make money. Generally, on a lease option I would require the buyer to put down 3-5% to purchase the home.
Using a trust deed I am not sure about purchasing property using this method but will update article in the future.
Assign Option is use for assigning your rights to purchase a property to another investor. What happens is when you purchase a property from the seller using a buyers seller agreement, be sure to always add the assigned with purchase clause in contract. This allows you to assign property to another investor/buyer. This could be used in any purchase agreement if seller consents to this.
Types of Deals
Every deal will be different, which means no two deals are alike. Most investors stick to doing one thing great and just replicate the deal repeatedly. This works great for most investors, depending on what you are trying to achieve. Me personally, I wanted to learn the variety of ways of doing deals. That is partly because of the way the market changes with rates going up, rates coming down, and many other reasons that I will not cover.
Whole sales deals- Deals that usually comes from other investors; for example the fair market value is 100k and owner (seller) for what ever reason is letting his equity go for 45k.
Rehabs- These are cheap deals and comps in the area are much higher. Home may need a complete make over such as the bathe room, kitchen, walls, window, and floors. Depending your resources with contractors, rehabbing could cost you very little or most of your equity. When looking for rehab homes to fix them up, try to stay below the 65% of fair market value. 100k for fair market value, 65k or less for purchase, 15k in rehab work, and whole sale property to another investor or put it on the market for retail value. This would depend on the market how fast you resale property. Rehab homes can be good rental property or a good lease option to another buyer.
FSBO for sale by owner-These are deals that are either rehabbed by owner or someone wanting out of the home and not willing to pay a real estate agent to list property. I tend to stay away from these deals because most of the time it is another investor or home owner looking to make a healthy profit and not willing to take a lost in equity. Not all FSBO deals are like this but do the numbers and see if it works.
Pre foreclosure deals- These deals are all over the place, in every city, county, and state. If you are, an investor that does short sales, in a buyers market you will have plenty of deals available for you. Pre foreclosures deals are owners that cannot pay for their home for whatever reason. Finding these, deals are simple, by doing a google search for a listing website and register. You will pay a fee but could profit from a good listing. If you have someone that already has a database of sellers in foreclosure, you probably have to pay a few for it home being referred.
Types of Market
When investing into real estate is very import to understand the type of markets.
A sellers market is a great time to sell all you property at retail prices (This is partly because interest rates are down)
A buyers market is a great time to buy property (This is partly because of interest rates going up)