Real Estate Option: Powerful Strategy For The Buyer
By Andrew Vaughey | June 24, 2008
Author : Jacques Coquerel..
For us to begin the inspection of why a real estate option can be a powerful strategy when it comes to making maximum profit in real estate, we first need to know what real estate option is. A real estate option is defined as the right - not the obligation - to buy a property for a specified price (strike price) during a specified period of time. An owner of a property may sell an option for someone to buy it on or before a future date at a predetermined price. The buyer of the option hopes the value of the property will either go up.
If you’re looking for a strategy that will lower the risks, allow leverage, and cut on cost, then the real estate option is it. This strategy also makes possible to minimize downside and an option consideration lower than an earnest money.
The other benefits of this strategy aside from being mentioned above and knowing each closely will allow you to exploit its full benefits.
The most advantageous benefit of real estate option is the full control over the property by the buyer of an exclusive option. While the option is in effect, you’re sure that there will be no other buyer that can lay their hands on the property during the period of the option. Even if you’ve not fully owned the property yet, you now have full control regarding its availability.
Another benefit of real estate option is the reduction of the risk involved with the changing of the property value when the option matures. If you’re the investor or buyer, you reduce your risk of paying bigger money than what the current value of the property during the option maturity. If you think that the price of the option is bigger than the current value of the property at option maturity, you can just refuse to buy the property without any legal consequences on your part. The only money you would be losing is the option consideration.
Not only this strategy can be a great money saver, it could be a leverage builder, too. To do this, you should include a provision in your agreement between you and the property owner to allow you to sublease the property to another person. You could generate income from the difference of the rent money your tenant pays you and your obligation to the property owner. You could practically say that your rent is being paid by another person in this sense.
In order for you to build equity towards the purchase of the property at option maturity, you could include in the agreement that a portion of your monthly obligation will go to the purchase price of the property. What’s more exciting is that when you have a subtenant, the rent you get from your subtenant will pay your monthly obligation plus it’s building equity towards the purchase price. This is a great capital saver for you.
Some properties offered for optioning, however, are problematic. The owner could be facing looming foreclosure or government reacquisition so that you could be in big trouble if you signed up for an option with these kinds of property - you could lose your money. A thorough background check, however, should prevent this from occurring.
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Buy An Apartment Building With No Money Down - Is It Realistic?
By Andrew Vaughey | May 27, 2008
Author: Ted Karsch
The brand new apartment building investor/buyer should be aware of what I consider to be the most important rule to multifamily investing:
First, the new apartment investor MUST find a profitable property
This may sound obvious but, in my role as an apartment building financing specialist, I speak to dozens of aspiring investors every week who call me or email me saying that they found a great piece of real estate, with a super CAP, in an excellent area, that is 95% occupied and that they would like to find a loan to purchase the apartment building. Unfortunately, many of these “great opportunities”, upon closer inspection of such documents as rent rolls and the income and expenses, it becomes clear that the apartment building does NOT “debt service”. This simply means that the real estate does not produce enough income on an annual basis to cover all expenses including the loan payments, taxes, insurance and maintenance costs. After doing the math, the investor goes back out into the field, armed with more knowledge. Persistence usually pays off because there are plenty of profitable properties for sale, it just takes some time to find them.
After finding a profitable apartment building THEN the investor should seek financing
Commercial mortgage companies and apartment building lenders almost always require a buyers contribution to be 20% of the purchase . The purchase price shouldn’t be confused with what the buyer thinks the property is worth, or even what the real estate recently appraised for. Banks are only going to lend money based on the purchase price of the apartment building. Of course, there are exceptions to this rule. One exception is when the investor is purchasing the place to do a construction rehabilitation of the property. In this case, the loan process is usually more involved and more documentation is required.
Many of the potential apartment building buyers that I work with don’t have the liquid capital required for the 20% down payment mandated by the bank. Here are some of the strategies that DO WORK in the real world. There are no secrets, despite what many “real estate gurus” will you, to financing an apartment building investment with no or little money down.
Many investors are not aware of all the creative methods that can be used effectively to raise investment capital. Here are some of the ideas that I have seen be successful in the real world, with real investors, buying real apartment buildings with less money down.
1) Incorporate a limited partnership and raise money from other investors. Forming a limited partnership for the purpose of raising money for an apartment building investment is a great solution if the investor does not currently have the liquid capital needed for the 20% down payment. A limited partnership should be formed under the direction of an experienced real estate attorney who understands the intricacies of this kind of partnership agreement. The limited partnership normally consists of one general partner and one or more limited partners. The general partner is the only member who has the power to make executive decisions concerning the apartment building investment. The limited partners invest their money with the expectation of receiving a return on their investment when the property is sold or as structured payments from monthly net cash flow. The investor/general partner should prepare detailed financial statements on the project to present to potential limited partners in order to convince them to invest their hard owned money. A good real estate attorney should be able to help with this aspect of the partnership as well.
2) Raise capital from friends and family This may seem like an obvious solution but it is surprising how many investors neglect to look close to home when trying to fund a good apartment building investment deal. Unfortunately, if the investment doesn’t work out as intended the investor not only is risking his investment capital but he is also risking a close friendship or good relationship with a family member. Because of this it is generally a good idea to have a qualified real estate attorney draw up a formal agreement that clearly spells out the responsibilities of all parties involved.
3) Obtain owner financing Most owners of apartment buildings are experienced investors who are financially adept. They are accustomed to receiving and utilizing some form of owner financing to structure their investment projects. Many great properties have been purchased from sellers who have for some reason or another neglected the property or are ready for retirement. Sellers who are motivated to relinquish ownership of their apartment building will be more willing to offer some form of flexible owner financing.
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Steps To Help You Gain Success With Real Estate Investing
By Andrew Vaughey | May 26, 2008
Author: Eliza Maledevic
Huge numbers of rich people in the world have become rich by investing properties in real estate. For those who want to become wealthy, they go with real estate investing.
Some people who want to protect their wealth or those who wish to become wealthy; they use properties as their investment vehicles to achieve their goals. If you are one of those people who wish to go with Siesta Key real estate, read on since this article will teach you steps to successfully invest properties.
What do you usually do with your time? Most people spend lots of their time working or sleeping. What do you do with your spare time, maybe about 6 hours a day? How about with your day offs, what do you typically do? You have to make use of your time. In order to successfully invest, making use of your time is the key to it.
Get a paper and pen and jot down all the things that you do each day even all the activities that you do. In doing this, you will find out how many hours that you spend with none essential activities, so you will just wasting lots of your time with nothing. Knowing that you have few hours available time, you can use these time in making money. If you will cut out few hours of your watching TV time, you will find out that it could have a huge impact in your life.
Take note, those wealthy people out there do not spend much of their time spending time in watching TV. You can cut down or you can totally cut your watching TV time and just spend time in making money.
But of course, before entering to such business, you need to gather all the information needed. You have to gain the necessary knowledge about how it works. You can read books about real estate investing. Surfing the internet and find some tips, guidelines about real estate investing and many others ways to learn. Yes, learning is very important.
Now that you are decided to go on real estate investing, you have to look for activities and ways that can help you in doing your quest properly and successfully. You need to focus on things that can aid you to achieve your goals.
One of the important things that you should do is to set your goals. If you will not set your goals, you won’t now what you want and life and you wouldn’t gain success without setting goals. Plan where you want to go and what you want to achieve and on top of all these, you need to understand why you want to achieve all of the goals that you’ve set.
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Asking A Seller To Carry Back - How To Get Owner Financing Investing In Real Estate
By Andrew Vaughey | May 26, 2008
Author: James Orr
Many people are afraid to ask for owner financing when they are buying an investment property, and sellers hardly ever offer it up front. But it can be a great way to sweeten an otherwise mediocre deal. So how do you ask for it?
First, if you can approach the seller face to face, do so. It is always better to avoid passing your request through multiple parties; you are the one who can best present your offer. However, a real estate agent who specializes in investor deals can be a great asset in presenting such an offer because they are already familiar with them and can allay any of the seller’s concerns.
Second, the structure of the offer itself is very important. Since investors are looking for deals that work - that have equity and/or cash flow - it can be embarrassing offering a price significantly below asking. But an offer which includes choices for the seller, including owner financing, is the best way to ask for a discount.
Here is an idea of what an offer might look like. For a seller asking $200,000, I would offer $170,000 all cash, OR $200,000 with owner financing. I would explain to the seller that I could give them their full asking price if they could carry back at a slightly lower interest rate than the bank or at a monthly payment amount that allowed the property to cash flow for me as a rental.
Not all sellers will be willing to do this. But if the market is slow, and their house has been for sale for a long time, then they may be more willing to sell with terms in order to get their full asking price and finally have their house sold. But you won’t get this type of deal unless you ask for it.
Finally, most sellers will feel better about the deal if you put something down. They want to know that you have something to lose and can’t easily walk away from the property - leaving them with the headache of foreclosing on the house to reclaim the title. The down payment, like everything else, is negotiable. But creative buyers should remember that even though they are not using a bank to finance the full purchase price of the property, they can still seek a 10% or 20% first loan from the bank which they can turn over to the seller as a down payment.
So, don’t be afraid to ask for owner financing. A seller will probably never spontaneously offer to carry back, but he or she may say yes if you only ask. Good Luck!
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