Real Estate Investing Facts

There are three strategies you need to learn to be effective and profitable as a real estate investor. Here they are:

- “Traditional” Cash Purchases

- Subject-To The Existing Mortgage

- Lease-Option

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Let’s take a look at each one right now:

“Traditional” Cash Purchases

This is the one that’s the most obvious, and here’s how it works:

The Buyer and Seller agree on the price for the property. The Buyer then brings cash to the closing table and pays off the purchase price in cash.

(It’s important to understand that the Buyer may have acquired a loan to supply the cash. It doesn’t really matter – there is still cash at the closing table which pays the purchase price.) While I prefer to use creative strategies to buy real estate, the “cash option” is always great to be aware of.

After all, there will be circumstances you face in which cash is the only real option, since the seller needs to receive a large amount of cash to make the deal work.

Even if you do not have cash (or the credit to acquire cash), you need to be familiar with cash transactions. Why? If you find a property worth $100,000 and the seller is only asking $50,000, do you think there’s a way for you to make money on that situation even if you don’t have the money to buy the property? The answer is a strong YES!!! (We’ll talk more about this type of strategy in a coming pst…)

“Subject To The Existing Mortgage”

This is, without a doubt, one of the most powerful strategies available to real estate investors. Imagine this scenario…
You, the wise investor, find a home owner facing foreclosure. The home is worth $250,000 and the balance of the debt is $180,000, including an “arrearage” (missed payments) totaling $12,000.

The home owner knows that they can no longer afford the home, and all they want is to save their credit from a foreclosure. So they agree to let you have the house for $180,000 – the balance of the debt.

Does this really happen? Every single day.

But the question is this:

What do you do if you don’t have $180,000 to pay off the mortgage? This is clearly a great deal, and the house is in excellent condition, but what do you do if you don’t have all of the necessary cash?

The answer to that is a “Subject-To” transaction. What if there was a simple way to influence the home owner to transfer title to the property to you (which causes you to be the owner), and in exchange you’ll simply make the payments on his existing mortgage for him?

This is a clear win-win scenario. The home owner, who knows they can’t afford the home, is relieved of the monthly payment. Furthermore, they are saved from foreclosure, which is the worst thing that can happen to a person’s credit report.

And for you, it’s a huge win…simply because you now own this property, without ever having to get a mortgage or put up the whopping sum of $180,000. Instead, you’ll just make payments on the existing mortgage.

Of course, you do have to pay the $12,000 in missed payments – but it’s a lot more practical (and possible) to find that amount of money rather than $180,000. All in all, it’s a HUGE positive trade-off in your favor.

“Lease Options”

The “Lease Option” is a great (and simple) strategy that allows you to either buy or sell a piece of real estate under very favorable terms. Here’s how it works:

A “Lease” is just an agreement that gives someone (the “tenant”) the right to use a property in exchange for payment of rent to someone else (the “landlord”).

An “Option” is an agreement that gives somebody (the “buyer”) the right (but not the obligation) to buy a property from someone else (the “seller”). The agreement specifies how long the buyer has to purchase the property, along with setting the purchase price and other important terms.

(For you legal beagles, the technical term for the buyer in an option agreement is “Optionee”, and the seller is called the
“Optionor”…)

The important point is this: If you purchase a property via a properly structured Lease-Option, then you have the following rights:

- To use the property however you like (within legal reason).

- To sub-lease the property to someone else and make a profit from doing so.

- To resale the property to someone else, and keep the profit from the sale.

And all of this comes without a credit check or the need for a lot of cash.

The Lease Option provides similar benefits to the Subject-To, but there are some critical differences. In fact, there are clear rules for when to use one versus the other, and violating those rules can cause significant legal difficulty.

We’ll talk more about those rules in the coming posts, so stay tuned!

Aiden Win

Mr. Foreclosure

Canadian Foreclosures

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Tags: buyer, closing, Investing, lease, option, payments, property, seller, structured, subject-to