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10 Roads To Real Estate Investing Profits

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By Tamera Aragon

“Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth.” The Bible – Ecclesiastes 11:2

This is good advice as long as you don’t get so spread out that you are doing too many things but nothing with success. It’s important we understand the fine line between focusing on one real estate niche without putting all your eggs in one basket, (so to speak).

To simplify the terms of real estate investing, there are really only three ways for investors to make money in real estate:

  1. Real Estate Appreciation and Equity
  2. Cash flow while you own it
  3. Assignments: Payment when you flip a real estate contract without owning it.

So where do you start? Let’s try to answer this question on every aspiring real estate investors mind. Since real estate investing encompasses so many types of exit strategies or I like to call profit centers, it’s important to study and pick those you are most passionate about. otherwise called exit strategies.

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The following is a summary of Ten of the Most Popular Real Estate Investment Strategies with their advantages and disadvantages.

1. Rentals or Cash flow Investment Property: These types of investment properties are the ones which generate rental income. These are mainly apartment buildings and rental houses.

  • Advantages: One of the easier ways to get started, and good long term return on investment while also earning monthly income.
  • Disadvantages: Risk of not renting property leaving you with the mortgage payment and no income. Property management can be a challenge. You typically will wait awhile to sell your property so payoff is slow.

2. Lease Option. This is when you buy a property, then sell to someone else via a rent-to-own arrangement.

  • Advantages: You get higher rent, and the buyer is usually responsible for maintenance. Cash flow can be good.
  • Disadvantages: Most rent to own buyers don’t complete the purchase (this can be an advantage too, but it does mean more work for you). Bookkeeping must be done properly and can be complicated.

3. Fixer Upper Investment Property. These types of investment properties are the ones which are in ugly condition and need renovation. These properties can be acquired to flip after fixing-up quickly or held to rent out.

  • Advantages: You can receive a quick return on your investment (months). You usually get below market value pricing on properties bringing you instant equity.
  • Disadvantages: Higher risk. (Many unpredictable expenses come up in construction). You get taxed heavily on the gain when you sell in under a year.

4. Vacant Land. Many options including just holding while appreciating. You can also split it and sell it.

  • Advantages: History has shown that land always appreciates in value (it’s the buildings on the land that go down. It is simpler than most real estate investments, with the possibility of great profits.
  • Disadvantages: It can take a long time to increase in value. You have expenses, but no cash flow while you wait unless you sell the contract before closing.

5. Commercial Real Estate. These are any building containing 5 units or over and/or buildings sited for commercial use.

  • Advantages: Long term triple-net leases mean little management and high returns. Lending is usually based on the value of the property vs. personal credit.
  • Disadvantages: Commercial property valuation requires a more complex method, taking into account the income potential of the property. This is recommended for the more experienced investors as there is a lot more involved to set up and maintenance.

6. Buy property with Forced Appreciation. Buy in the path of growth and holding until values rise. For instance buying a lot in a residential development prior to roads being completed.

  • Advantages: Can yield large profits, especially if you buy low to start.
  • Disadvantages: Future price is not predictable – the market can turn, the developer can go out of business. You have expenses with no income while you’re waiting.

7. Preconstruction Investment Property: These types of investment properties are acquired directly from a developer before the construction or renovation is completed.

  • Advantages: Low money out of pocket to tie up property while being built. If purchased in appreciating markets, you make money in equity at closing and can instantly re-sell at a profit.
  • Disadvantages: You can’t always predict what a market is going to do. If market depreciates, you have lost money. Also higher tax rates in selling quickly.

8. Pre-Foreclosure Investment Property: These types of investment properties are the ones which you buy from sellers who are behind in their payments and may lose their property to the bank via foreclosure.

  • Advantages: You have opportunities to buy properties at below value pricing – “Instant equity”.
  • Disadvantages: Legal liabilities are higher. Finding these properties requires a lot research and footwork to find a deal that works. You can do all the work and still not have a deal with enough equity to profit after expenses to sell, (taxes, realtors, etc).

9. Assignments: This strategy has you get into a property at a discount, preferably with a known buyer in place before you commit to your purchase. After you are in contract to purchase a property, you would sell your contract for a fee to someone else. For example you get into purchase contract to buy a $120K property for $100K. You turn it to an investor for $110K and profit $10K cash without the cost and hassles of ever closing on the deal.

  • Advantages: This is a great way to make quick cash with low or no upfront investment, low risk and fewer headaches from closing and ownership. This strategy creates a win win win outcome for everyone involved.
  • Disadvantages: This will only work if the property you are buying has equity so that you may buy it a discount. In declining markets, this type of property is harder to find. Also when dealing with banks on REO’s or Short Sales you will find they will not allow you assign your contract. However, there are ways to get around this if you plan and handle the contract correctly up front.
    Do you want to know how I have managed to get around not being able to assign a contract? I have purchased properties in the name of an LLC set up exclusively to buy properties. I then sold the LLC to someone, making them the owner of the LLC, therefore making them responsible for closing on the purchase contract and end buyer of the property.

10. Flipping – Wikipedia defines Flipping as is a term used primarily in the United States to describe practice of buying an asset and quickly reselling (or “flipping”) it for profit ..

This description pretty much explains property flipping, with there being a slight difference from that description of flipping assets. In real estate you can get into an agreement to flip a contract you have gotten into before you even buy it. This can be done with ease when you know exactly what your buyers want and with no money out of your pocket utilizing transactional funding. Flipping can also mean closing and quickly reselling your property, sometimes even doing both transactions the same day – this being subcategorized a “double closing”.

  • Advantages: My favorite strategy. You work the deal backwards. You create relationships with buyers who can close quickly with cash. Then you find a property meeting the needs of your buyers. This strategy allows you to profit literally from no money down, with lower risk and very little of your own time.
  • Disadvantages: The law requires you to disclose your intent to resell quickly to sellers. When dealing with banks, this can sometimes cause your offer to be rejected. You must buy properties in the name of an LLC in order to utilize transactional funding. Setting up and maintaining an LLC will cost you money. Though the intent of a buyer might be to close on the transaction, sometimes “life happens” and something causes the buyer to be unable to follow through. You may have to walk away from earnest money if you cannot find another buyer quickly

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Now that you that you have learned strategies to consider, you will need to consider the type of properties you want to go after, developing a marketing strategy to find motivated sellers of those deals. Over the next months I will be sharing steps and strategies on how to profit investing in real estate 12 different ways.

Please leave a comment if you have anything you would like add to what I have written here with the heart to support fellow real estate investors. (Any solicitations for business will not be published) I appreciate the feedback!

Tamera Aragon

Tamera Aragon is a professional online entrepreneur and has bought and sold over 300 properties, establishing her as an expert in the real estate investing field. Since 2003, she has purchased over 10 million dollars in real estate and currently holds properties all over the world. Tamera’s focus is on the booming Foreclosure market, buying Pre-foreclosures, REOs and Short Sales. Tamera who is a noted Author, Success Trainer, Speaker & Coach, shows her passion for helping others with the 17 websites she has created and several specialized products to support fellow investors throughout the world. When Tamara is not busy running her website, she is very involved with her Fiji joint ventures and investments. Tamera Aragon is one of the few trainers and coaches who is really “doing it” successfully in today’s market. Tamera’s experience has earned her a solid reputation in the industry as well as the respect and friendship of many of the top national real estate investment and internet marketing experts. Tamera Aragon believes her success has garnered her the financial freedom to fully enjoy her marriage and spend quality time with her children.

Learn live and in real-time with Realty411. Be sure to register for our next virtual and in-person events. For all the details, please visit Realty411Expo.com or our Eventbrite landing page, CLICK HERE.

Creative Financing Options

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By Tod Snodgrass

https://creativetransactionfunding.com

Whether you are an experienced Real Estate Investor (REIer) or are a newbie in this industry, there exist many innovative funding techniques you can use to finance current and future deals. Generally referred to as creative financing, these terms refer to alternative or unconventional approaches that REIers may choose to utilize to acquire investment properties, using OPM: Other People’s Money.

In today’s unpredictable real estate investor landscape, it is very important to have a range of funding options at the ready before you dive into a property investment deal. Let’s face it, to be a successful REIer takes money. It does not necessarily have to be YOUR money, but before you can successfully pull off a deal, chances are SOMEONE’s funds are going to have to be brought to the table. Plan ahead. Line up funds before you need them because they have to come from somewhere.

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Make sure, before you commit to any real estate deal, that you have all your web-footed waterfowl neatly arranged in a linear fashion.

A. Lease Option: You may encounter a situation where you are not ready yet (either experience- or financial-wise) to purchase a property, either for your own personal use or as an investor. That is where the lease option can work best. Doing so provides the opportunity to purchase a property at the conclusion of a pre-arranged leasing-type agreement. This approach allows you to potentially build up equity through monthly rent payments.

The landlord benefits by earning monthly revenue. Typically, and depending on specific contract terms, a portion of the monthly rent payment is credited toward the future down payment on the house. This technique normally works best in a buyer’s market.

B. Down Payment Assistance (DPA). Many REIers are finding themselves caught in a new type of financial squeeze when it comes to the percentage of the purchase price that hard money and private lenders require that they bring to closing, i.e. “Skin-In-The-Game” (SITG) cash.

Until recently, it was possible to secure, say a 90% loan from such lenders, with the borrower required to contribute the other 10% as their SITG capital. And while those terms are still available in some cases, many REIers are waking up to a new reality: They need to bring closer to 20%-30% SITG cash to closing in terms of actual down payment money, with a general average of around 25% DP money currently required.

Upping the SITG percentage is a risk-reduction strategy employed by lenders in response to what they perceive as new uncertainties in the real estate investment marketplace, on a go-forward basis. The reality for REIers caught in this new “liquidity squeeze” is that they now may need to potentially come up with tens of thousands or even hundreds of thousands in new (SITG) investment capital above what was previously required.

Without new SITG capital, the REIer cannot close on the deal. A potential solution to this new dilemma is what we refer to as “Down Payment Assistance (equity) funding”: This is where a third party provides the needed extra SITG/DP cash in return for a modest share of the profits. See below for info about DPA.

C. Seller carryback loan. Plainly speaking, this is simply owner-provided financing. The seller acts as the lender or bank, i.e. he carries a mortgage–usually a second position loan–on the property and collects monthly payments from the buyer. Such an arrangement can be a win-win for both the buyer and the seller. Often the buyer (an REIer in this case) may be willing to pay more than the asking price in trade for advantageous loan terms on a seller carryback mortgage.

Further, the buyer is often willing to pay a higher interest rate on the seller carryback loan than the seller could earn from a CD from their local bank. Also, should the buyer default, the (previous) seller can always initiate foreclosure action and take the house back from the second position. The buyer benefits since they don’t have to go through the arduous and time-consuming chore of trying to get a bank loan; this is especially true if the buyer has a low FICO score or other credit or background issues.

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D. Buying a property “Subject-To”. What this means is that the REIer essentially takes over the seller’s remaining mortgage balance (thereby effectively “assuming the loan”) without making it official with the lender. This is a popular strategy among REIers, especially in an era of rising interest rates, since the loan being assumed probably carries a lower interest rate compared to a new (bank) loan.

Savvy REIers often employ the Subject-To method to take the place of a hard money loan. However, most REIers limit the use of Subject-To loans to relatively short-term time frames, i.e. for a few months until the REIer can either refi the loan or sell the property as part of a fix-flip strategy.

E. Hard Money: A hard money loan refers to asset-based financing where the borrower receives funds that are secured by real property. In most cases, private investors are the biggest suppliers of hard money capital, which are then funneled through hard money brokers.

While the terms (interest rate, points, time frames) of hard money loans may vary, there are several common characteristics: they are usually easier to obtain vs. a conventional bank loan; credit scores and income verification are not as important as the asset value involved; they are usually for shorter time frames (say for 6-24 months); while they charge higher interest rates, the good news is that they often can fund pretty quickly if the deal is right. They usually focus on the ARV (After Repair Value) to determine the loan terms, including important factors such as the rehab blueprints, scope of work, etc. They usually prefer to work with experienced rehabbers who have a clear plan to repay the loan within the specified time frame.

F. Cross collateral loan. This REI method assumes you already own a rental property free and clear. You want to buy another rental property. A cross collateral loan allows you to use the 100% equity in the existing property as leverage to acquire the new property you want to purchase. With cross-collateralization, the lender places a lien on both the new property and your existing property. In this way, the lender receives adequate security should you default on the loan. Basically, cross-collateralization allows you to sidestep the normal down payment requirement and/or having to take out a brand new (bank) loan.

G. Retirement accounts: Use your self-directed IRA, Roth IRA, 401-K, corporate plans as investment capital, where it is legal, prudent and appropriate to do so. Utilizing a self-directed retirement plan can empower a REIer by boosting their retirement savings, one deal at a time. Since we are talking about your retirement money, an extra degree of caution is called for. You need to possess excellent due diligence and underwriting skills in order to properly assess the potential risks involved.

H. Cash-Out Refinance. If your personal residence has a good amount of equity in it, you can unlock that equity via a cash-out refinance by tapping some of that equity. Make sure you fully understand the implications of such a loan should things not go well with your anticipated new investment. A cash-out refi may feature (more) favorable interest rates compared to a hard money loan. Also, the interest you pay is tax deductible. You need to do a risk/benefit analysis before going down this road. Regardless, if a REI deal looks very promising, and you require fast capital to make it happen, a cash-out finance can be a good way to go.

I. 203-K Loan: This unique FHA mortgage enables you to finance both the purchase (or refinancing) of a house and the cost of its rehabilitation through a single mortgage or to finance the rehabilitation of their existing home.

1. Pros:

a. Lower credit score allowed
b. Smaller down payment requirements (as low as 3.5%)
c. Can provide temporary housing while a home is being repaired
d. Lower potential interest rates, compared to similar loan types
e. Ability to combine home purchase and renovations into a single loan

f. Low down payment and credit score requirements

2. Cons:

a. FHA mortgage insurance required
b. FHA loan rates may be higher compared to conventional loans
c. Process may require meeting with a 203(k) repair consultant
d. More extensive repairs require more paperwork
e. Potential for the additional cost of architectural assessments
f. Property must be your primary residence
g. You must live in the home for 12 months before selling or renting it out

J. More creative financing methods to consider include:

1. Approach friends, relatives, etc. Options can include debt or equity.

2. Equity investors. The advantage here is that you do not have to make monthly payments because there is no loan. When the deal is done, some sort of profit split is made to compensate the investor(s).

3. Credit card advances. This can be an expensive gambit. It is only to be undertaken when you are very sure of positive, short-term outcomes. The bank may charge several points and up to 29% interest rates, so be very careful with this one.

4. Joint venture: you bring the deal, they bring the money, split the profits at the end. This is a variation on an equity-type investment.

5. Hypothecate (borrow against) a mortgage note you own. Basically, you take out a loan by pledging the note, thereby using it as collateral to secure the loan.

6. Personal asset loans: pawn some jewelry; get a car title loan, etc.

Down Payment Assistance Funding Program

Are you a Real Estate Investor Pro (REI Pro) who has a property you want to buy, with a 70% LTV or better, but you lack some of the Down Payment (DP) money needed to close the deal? You need say, 25% DP, but can only come up with 10% and need 15% more (DP money.

The good news is if your deal meets our standard criteria (70% LTV or better = 30% or more equity in the deal, etc.), CTF can provide the missing 15% in DP funding. By not having to put out all your own capital into DPs–especially if you are low on cash–you’ll be able to do more deals. With your DP source already in place, it will shorten your time for getting positive confirmation from your primary lender, and for getting more deals successfully closed.

For more information about Tod Snodgrass, please visit: https://creativetransactionfunding.com.

Thank you.

Tod Snodgrass, President
Creative Transaction Funding LLC
8322 El Paseo Grande
La Jolla, CA 92037
310 408-7015
https://creativetransactionfunding.com

Learn live and in real-time with Realty411. Be sure to register for our next virtual and in-person events. For all the details, please visit Realty411Expo.com or our Eventbrite landing page, CLICK HERE.