Hot Tips For Real Estate Investors - Part 3 10.
10. No Option
When buying a home from a distressed owner a good
technique, as explained in “Single Family Homes – The No Risk
Investment”, is to offer to let the sellers remain living in the home
as renters. As you buy from them at a below market price you can
explain that they can continue living in the home (on a lease) and
you will give them a five year “right of first refusal” should you
ever decided to sell the home. That means that should you offer
the home for sale and find a buyer they can have the right to match
the price and buy the home.
Every distressed owner believes they can find a way out of
their problem in due time, so this offer can be appealing to them.
They can remain in their home, keep up appearances and not have
to do any explaining about their troubles to friends or coworkers.
In this situation it can be a mistake to offer the seller an
option to purchase the property at a later time. Courts can construe
the deal to be a loan and not a sale. The “right of first refusal”
avoids that situation.
11. 15 or 30?
When you buy property should you tell your loan broker you
want a 15-year loan or a 30-year loan? It is stylish for financial
writers to stress the tens of thousands of dollars in interest you will
save if you go for the 15-year loan.
11.
The shorter loan period may be OK for the everyday
homebuyer, but not for a disciplined investor.
Look at this:
Investor #1 gets a 15-year loan of $90,000 at 10%. The
payments over 15 years would be $967.14 per month. At the end
of the 15-year period the loan would be paid off.
Investor #2 gets 30-year loan for $90,000 where the
payments would only be $789.81 monthly. That is $177.33 less per
month than the payment on the 15-year loan. If #2 keeps investing
that $177.33 difference at an average return of 15% during the first
15 years of the 30-year loan period the investment would grow into
a sum of $118,546!
At the end of 15 years investor #2 still owes $73,489 on the
mortgage, but he has an investment of $118.546 he can use to pay
off the mortgage and have $45,057 left over!
$118,546 -$73,489 = $45,057
Both #1 and #2 pay off their mortgage loans in 15-years, but
after paying #2 is left with $45,057 because he understood how to
leverage the most return from his money.
If he was an experienced rental home investor he could have
made at least 15% by using that money to buy more houses or
discounted mortgages.
The reason this plan won’t work for most ordinary
homebuyers is that they won’t save and invest that monthly saving.
12.
12. House Hopping
Here is an easy way for a person with a very limited amount
of cash to begin investing in single family homes.
As this report is being written a homebuyer can buy a home
with an FHA insured mortgage for about a 3% ( or less) down
payment. An investor loan would require a down payment of six
or seven times that amount.
You could buy a $100,000 home for about $4,000, counting
down payment and closing costs. Live in the house a year and then
do the same thing with another house. A house a year for five
years and your investing program would be off and running.
In some areas you can do this with new homes, but in most
cases you would be looking for good resale homes. Bargain hard,
so that when you move and are ready to rent your house it will
generate positive cash flow.
I call this House Hopping. You don’t have to live in the
house for a year, but moving is no fun and to do so more than once
per year may prevent you from continuing to build your portfolio
of homes.
13.
13. Homes for Rent Ads
A good place to prospect for homes to purchase is the Homes
for Rent classified ads. Call those ads and ask if they would give
you an option to buy the property if you were to rent the home? If
they say yes, you next ask if they would allow you to sublease the
home if you guaranteed to take care of all ordinary maintenance
problems and never bother them?
You will find some people who will be interested in this
offer. They are usually people who either want to move and have
not been able to sell their home, or they are landlords who have
had their fill of dealing with tenants.
You then make a lease/option offer as explained in Single
Family Homes – The No Risk Investment. You would agree to
take care of all maintenance under $100. The owner would be
responsible for major costs like water heater replacement or roof
repair.
14. Wealth Transfer
Here's a way to help your children (or others) get started in
real estate investing. You can transfer some assets to your children
over a period of years by selling one of your income producing
houses to them and accept as payment their unsecured,
personal note at a nominal rate of interest.
14.
They can use the income from the property to make
payments on the note. Since the note is not secured by a
recorded lien on the property they can get a new first or second
mortgage and use the proceeds to make a down payment on
another rental property.
Help them understand they must not take on more debt than
the income from the properties can support. Run this plan by your
attorney or CPA for suggestions.
15. Get Paid to Buy!
Some homeowners are so distressed that they will pay you to
take a house off their hands. This can occur when an owner is a
bad manager and has had so much trouble with tenants that he just
wants to dump the property. He is not financial distressed - he is
"bad tenant" distressed!
For example: The owner paid too much for the property and
has very little equity. He chooses poorly and has had nothing but
trouble with tenants. He wants out!
You agree to take over his problem for a lump sum of cash,
say $3,000, and a three-year lease with option to purchase. Offer
monthly lease payments at less then you know you can get from a
new renter. What you agree to pay monthly may not cover his
mortgage payment, but he is so happy to have the problem
property off his hands he is willing to come out of pocket for the
balance of the monthly mortgage payments. This document and accompanying materials are designed to provide authoritative information in regard to the subject matter covered in it. It is for illustration purposes only and presented with the understanding that the author and publisher are not engaged in rendering legal, accounting or other professional opinions. If legal advice or other expert assistance is required, the services of a competent professional should be sought. |
