By law you need to put some kind of consideration down to make a contract valid. Be it earnest money or a boat, there has to be something of value given to a seller in order for a contract to be valid. There are many different investment opportunities, but today I'm going to focus on just one.
First of all if you are in the investment property business and you usually only have one thing in mind...making money and that is what this blog will teach you how to do. First thing I suggest is find a Realtor that can teach you about lease options and owner financing. These two approaches can save you tens of thousands of dollars in taxes and monthly payments on your investment properties. (Read my futures articles on how to save on your taxes by using lease options)
A fixer property is, by definition, a property that needs minor cosmetic repairs to a complete tear down to the studs to bring it up to market conditions. In a lot of cases, a property can be bought with traditional bank financing. But with a property that needs extensive repair a traditional bank will not lend on it. This is where an investor needs to be creative with a seller. Vacant fixer properties are usually the best candidate for the methods I'm proposing today.
When I look for a potential property for a client, I look for vacant fixer properties that have been on the market 4-5 months. The reason these help are because usually the owner is getting desperate. They are usually paying two mortgages. The key to this strategy is to already have the buyer for the fixed up property prior to even having the property purchased.
I have 10-15 buyers at any given time that can't get traditional bank financing, but have money for a down payment of 3-5%. We find a fixer property that meets their requirements and purchase it with 1% of the down payment for the lease option agreement from our end buyer. We then fix up the property and hand over the keys to the new owners. In two years when they have built up their credit they can buy the home from the investor at the pre-determined price and their 3-5% then goes toward their down payment and the investor gets the difference between the pre-fix up price and the after fix up price with no money out of pocket. Even the fix up was paid for by the end buyer with their monthly lease payments for the first two years. It truly is a win-win for everyone involved. The original seller sells his home for his desired price, the investor gets tax free capital gains and the end buyer gets the home they always wanted at a discounted price over current market value of the home with bad or no credit. (Read my future articles on how to get your tax free capital gains when buying and selling investment properties.)
The key to the whole process is to use others money to purchase and fix up the property. Use a credit card from either Home Depot or Lowes to fix up the property. Make sure not to overspend. Just do what is necessary to make the property livable and desirable to the end buyer. Then in 90 days when the property is ready and you have your end buyer move in you can start to pay your credit card off with the lease option money that is coming in monthly. Make sure you offer the end buyer 2-3% off current market value, so they can immediately have equity in their home for them fronting the money for the purchase of the fixer property. For investing to work and continue to work for you, you need to make it a win-win for everyone involved. If someone feels they have been ripped off, you can lose all your money in a law suit and that just isn't worth it. (Watch for future articles how to protect yourself from lawsuits.)
Maybe even make a trade with the end buyer that you will give them .5% off the price if they do some of the work themselves. Someone with no credit and who really wants a home will do whatever it takes to save money and if you are there to help them, they will tell their friends about you and bring you future money. If the property is a major fixer up, do the major fixes and leave the minor ones to the new end buyer and give them a sweat equity discount.
For future investing tips and money saving ideas for investors, feel free to contact me any time.
Respect Realty LLC (Expect More)
At Respect Realty, LLC our agents believe in 100% dedication to client satisfaction. We specialize in property and land acquisition around the Portland Metro and Vancouver, WA area. We delight in working with first time home buyers and sellers to guide them from start to finish. Our doors are always open and we are always happy to assist you with your real estate questions.
Reach out today, we look forward to talking with you!
Todd Clark and Seraina Aguayo (Owners of Respect Realty)
Respect Realty LLC (Expect More)
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