In today’s shaky economy and crazy real estate market, you can set yourself free financially by investing in real estate with low-risk creative real estate strategies.
“Creative” real estate investing techniques have been around for a long, long time. When it’s easy to get cheap bank financing, they may not be as popular or necessary. But when times get tough, knowing how to invest in real estate without needing a bank is the key to your investing success.
Today, bank financing for real estate has dried up. It’s tough to get even if you have great credit. So now we really need to get creative about putting real estate deals together.
It’s Sort of Like 1980 – Different Time, Same Problem
Why is today like 1980? Because it was almost impossible to get bank financing then too. If you don’t remember those times, let me share a little history.
In January of 1978, the Prime Rate started the year at 8% and ended the year at 11.75%. The high mark during 1979 was 15.75%. In 1980, Prime went through the roof to 21.5%, the all-time record high.
Consider this. A $100,000 30-year fixed mortgage at 6% has a monthly payment of $600. At 21.5% the payment is $1,795. Big difference.
During this period, the banks had lots of money to loan, but the exorbitant interest rates made it impossible to get bank financing. No one could qualify. And even if someone could qualify, who would want a loan at 20%?
The market was difficult, to say the least.
It’s also almost impossible to get bank financing today. While the reasons are different, the effect is the same. Without access to bank financing, it’s just tougher to buy and sell real estate.
Creative Financing Comes to the Rescue
Knowing how to use creative real estate investing strategies puts you far above the crowd and gives you a super-edge over your competition. You have more options and flexibility so, when the competition runs out of cash, you can keep going and going and going…
Creative financing also lowers your risk because you do not need to use your own cash or credit. And low risk, no money down real estate deals are the key to the Mint.
Two strategies that are ideal for today’s market are “Subject To” and “Lease Options.” You buy the property by getting the deed and taking title “subject to” the existing mortgage, and you “sell” using a lease option.
Buy “Subject to” the Existing Mortgage
When you buy “subject to” you do not need bank financing because you are leaving the seller’s existing mortgage in place. The terms of the note that were initially created with the lender stay the same, including the name on the loan.
You are not assuming the loan. Rather, you agree to make the payments, and the mortgage stays in the seller’s name. You own the home, the seller owns the loan.
As a result, you do not have any legal liability for the mortgage. If there is a foreclosure on the property, it will not show up on your credit; it will show up on the seller’s credit because the mortgage is still in his name. So it’s imperative for you to be absolutely above ground and honorable in all your dealings.
This can be one of the fastest, easiest, and safest ways to close a good deal.
“Sell” on a Lease Option
When bank financing is tight, lease options are a great way to “sell” the property without giving up control.
A real estate “option” is the right to buy a property at a specific price within a specified period of time. Even though you have the right to buy, you do not have an obligation to buy the property if you chose not to exercise your option. A lease option couples a real estate “option” with a “lease” on the property.
With a lease option, a tenant is placed in a position to ultimately own the property they are renting. The tenant makes a non-refundable deposit (called “option consideration”) for the right to ultimately buy the home. The lease option tenant also makes monthly rental payments and handles minor maintenance.
You make a profit from the option consideration at the start, positive cash flow every month, then a lump sum when your lease option tenant buys the property.
If the buyer cannot exercise the option to buy in the specified time, you still keep the option consideration and monthly payments, and then find another lease-option tenant.
These are just two real estate investing strategies that work well, especially when no bank financing is available.
What do you think? Leave your comments in the box below…