Alternative InvestingArticleCommercialInvestment StrategyMultifamilySingle Family
Understanding four basic strategies will help you tackle any situation you encounter.
We’ve all done it.
At some point, we’ve driven by the house with the abandoned vibe and thought, “Man, somebody should buy that and turn it into a (insert: restaurant, boutique, salon, office, remodel, etc.).” Some of us may even have momentarily considered doing it ourselves. That’s the voice of our inner real estate investor talking.
Most people continue down the road, but a few special people will listen to that voice and attempt to act.
How do we make this dream a reality? Most real estate investors either empty out their savings or apply for a loan at the local bank. But what happens when you don’t have adequate savings or credit for bank loans? Do you walk away from what could potentially be a very good real estate deal, leaving it for someone else to come along and profit from?
The strategy savvy investor won’t let less-than-ideal circumstances stand in the way of achieving their goals.
There’s a lot to be said for unwavering determination. Diligently working one or two investing strategies will definitely pay your bills, but it won’t make you rich. But, that’s the route most would-be investors take when learning how to navigate the world of real estate.
Because every situation is different, a savvy investor needs to be familiar with and confident about these basic strategies:
- Lease options
- Owner financing
If you have a clear understanding about how they work, you will be able to tackle any situation you come across.
The Strategy Savvy Approach in Action
Here’s an example of the Strategy Savvy approach that I’m referring to.
Mary Smith bought her home two years ago for $215,000.
The company Mary works for closed its doors last month, so she’s out of a job, with no prospects in sight. With her savings depleted, she can no longer afford the payments on her home and needs to sell quickly or face foreclosure. She now owes $195,000, but with the recent plant closings and general economic downturn, Mary’s home is only worth $200,000 now. The average real estate investor won’t help her sell it because of the narrow profit margin.
Mary has two obvious options: She can either rent out the home or let it go back to the bank through foreclosure.
Although Mary doesn’t have the desire, money, or knowledge to deal with being a landlord, she doesn’t want to ruin the good credit score she has worked hard to build.
Many people across the country face similar situations every day, but who helps people like Mary Smith?
A savvy real estate investor knows all strategies and understands how to make them work out for a win-win-win situation when the average investor would just walk away.
As Mary researches her options, a website ad catches her eye. Laura Phillips, a local investor, claims to be able to help people in Mary’s situation. The content on the site is professional and relevant to what Mary is dealing with, so she decides to give Laura a call.
After meeting with Mary and evaluating the home, Laura presents her with two separate offers. Mary accepts Laura’s lease option offer of $195,000 with zero down and $1,400 a month for a one-year term. Laura agrees to be responsible for maintenance and repair costs during the option period. Mary is able to move on without the worry of covering her mortgage payments or being a landlord.
Since Laura doesn’t plan to occupy the home, where does she have room to profit in this deal?
Laura has a pool of potential buyers and sends the house information to a few she thinks might be interested.
Jack and Lois Lehman fall in love with the home and settle on terms with Laura: $200,000 purchase price with $5,000 down and $1,600/month for a term of one year. They agree to be responsible for maintenance costs and repairs, and there is no early cash-out penalty.
The situation is ideal, as Jack just got a job transfer from their hometown two hours away. Lois and the children can move to the new house with Jack immediately while they wait for their old house to sell, and they don’t have to worry about short-term renting or long commutes for Jack. Once the sale of their old home is complete, they are able to qualify for a bank loan on the new house and close well before the one-year term is over.
Mary received a fair price for her home, and she doesn’t have to deal with landlord headaches or foreclosure.
Laura receives a $5,000 down payment and $200 a month in positive cash flow.
The Lehman family moves into their new home on terms that give them time to get things in order for a bank loan that will cash Mary out.
Learning Savvy Strategies
Someone with the right knowledge can apply the overall concept illustrated in this example to almost any property situation.
With the crazy real estate climate and barrage of reality “fix-and-flip” real estate investing shows, more budding entrepreneurs are looking at investing in real estate as a viable way to expand financial portfolios and satisfy their dream of becoming the boss.
For those considering taking advantage of the opportunities to be found in every town across the country, there is no shortage of education available for getting started on the road to real estate investing. Almost every method of delivery is available—from books and digital media to live seminars and one-on-one coaching. The majority of these resources tend to focus on teaching one or two strategies, however, leaving large gaps in a prospective real estate investor’s training.
Outdated information can lead to legal difficulties and cost thousands of dollars in “learning curve” losses. In addition, not knowing all the strategies available and how to properly execute them can result in deals slipping through the cracks, relegating what could be a rewarding career to a hobby.
Fortunately, savvy investors have a valuable resource available, right at their fingertips.
REIPro Investing software is the premier one-stop-shop for all aspects of real estate investing. With a vast education library and tools to help determine the perfect strategy for virtually every property situation, it’s designed to guide and streamline the process for all real estate investing experience levels.
Knowing how to properly execute all strategies and how to decide which is right for each situation ultimately determines the level of success an investor will achieve. If you take the time to become Strategy Savvy, the future of real estate investing looks bright indeed.
Suni Goff’s passion for real estate remodeling design and talent for insightful, well-researched writing are the cornerstones of a prolific, successful career spanning 20 years in the real estate marketing and rehabbing world. She’s also ghostwritten numerous professional articles, educational programs, and books for 11 best-selling authors.