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Are you ready to turn your portfolio of uncertainty into a reliable cash flow machine?
Real estate offers one of the fastest ways to earn a substantial cash flow return. Many people believe they must have a large sum of money to invest in real estate. There are many real estate investment strategies available, and a number of them require little to no money. The major investment when using these strategies is time. If you’re a beginning real estate investor and don’t have a lot of money to invest, these tactics can help you get started. Others may require an initial cash investment. Those with fairly good credit can often get started with a loan. Three of the most common strategies for real estate investing are wholesaling, rehabbing and lease options.
1) Wholesaling
Wholesaling is a favorite real estate investment strategy for many beginning real estate investors because there is no risk, and it requires no money to get started. Wholesaling allows you to control a property under a specific set of terms and enables you to market it to another buyer. This may be a buy and hold investor, a rehabber, a rent to own investor or another wholesaler. The goal is to buy low and sell quickly for fast profits; therefore selling prices should be kept low. The profit is made in the spread between the offer price and the selling price. Profits can range between $500.00 and $10,000 for wholesale deals.
Wholesaling doesn’t provide the profit potential that exists if you take the time to prepare the property for sale on the retail market, but the process can be executed with much greater speed. It is important to keep the price low so that the buyer can make a profit. At the same time, the sale must also benefit the seller. Most home owners that sell to a wholesaler are looking for a fast sale. The best way to benefit the seller is to ensure that they have a buyer for their home and that all the details are managed competently so that the house closes quickly.
It’s best to have a buyer’s list of investor’s who purchase regularly before locating a property. Locating buyers is relatively easy. Most large cities have a real estate investor’s club or an ad can be placed in the paper. There are a number of ways to find motivated sellers. Placing ads, posting signs or calling sellers direct are just a few ways. Once you locate a home with sufficient equity and the seller agrees to sell to you at below market price, you need to protect your interest with a purchase option agreement. The next step is to contact your buyers to find one who is interested in purchasing the property. When it’s time to close, there are several options available. You can assign the option contract to your buyer and let them close, close with the seller and then later with the buyer or close both the sale and purchase simultaneously.
2) Rehabbing
Rehabbing can be great fun, but it involves considerably more time commitment than wholesaling. You should plan on the process taking around three months and this does not include locating a property and time to sell. Rehabbers need access to cash; either their own or through a lender. You can borrow from a regular bank or if your credit is not the best, you can usually get a short term loan through a hard money lender. The types of houses you’re searching for are typically vacant and in need of repair. Prior to making an offer on the house, you should estimate the cost of repairs.
When determining what to offer for a house, add the cost of repairs, holding costs, cost of reselling the house and your profit. The holding costs should include insurance, electricity, water, yard maintenance and any other expenses incurred while the house is being sold. Resale costs include any marketing or real estate agent fees. Never take on a rehab project that offers a profit of less than $10,000.00. That figure allows a buffer against any unforeseen expenses. Rehabs can be light, needing only paint and flooring or major, requiring a roof and wiring work. Make sure you are prepared for to bring the house up to marketable standards. New investors often overlook severe problems in their excitement to get started.
When marketing the house, you can choose a realtor or sell on your own. Placing a sign in the yard and an ad in the paper are the most common marketing strategies, but there are tremendous opportunities on the internet as well. When marketing online, make sure to use good quality photos with your ads. Take time to ensure the house has nice curb appeal. The yard is the first thing a buyer sees. If it is kept nice, it will attract more buyers.
3) Lease Options
Lease Options are another no money down real estate investment strategy. Depending on how you negotiate the contract, lease options can provide a sizeable initial payment plus rental income. This strategy entails locating motivated sellers who either need to move or have already relocated and are making two house payments. Once you locate a house, you offer to pay the seller a nonrefundable lease option payment plus their monthly mortgage payment for a three year option to purchase the house. After the seller agrees, you begin marketing for a tenant to lease the home for a monthly payment greater than the mortgage payment.
Lease options can provide cash flow from several different avenues. Not only is there a monthly income, but the investor has an opportunity to make a profit from the sale of the home at the end of the lease. Alternatively, they may choose to use the rental income they receive toward the purchase of the home for permanent rental income. One of the biggest advantages of using the lease option agreement is that you aren’t obligated to purchase the home but have control of the property for the stated period of the lease. If things don’t work out as planned, you haven’t risked any of your own money.