By Glen Andrews
Submitted 0729AM on Thursday 21 August 2008
The author has permitted the reprinting and redistribution of this article.
Let’s discuss “the five profit centers for real estate investors.” We’re going to touch on the basics of each one and go into a little detail about how you can make profits investing in real estate with each.
When you set up your marketing machine, you will soon be getting several leads per week. The one big question you must ask yourself when going through these leads are… can I Wholesale it, Retail it, take it Subject To, LeaseOption or Option the property. How am I going to get paid
So let’s start off with,
Wholesaling wholesaling is finding a great deal on a property, getting the property under contract from the seller at a great price, and then assigning your contract to another investor or end buyer for a higher price. This is a great strategy for cash flow. It’s easy to do and you have very little at risk.
Let me give you an example Let’s say you found a great deal on a property from your marketing. It’s a 3 bed 2 bath 2,000 sq ft heated home in a good area. The property needs $15,000.00 in work. The seller is asking only $100,000 dollars for the house and you find out it’s worth $165,000 the owner can not afford to fix it up. So you offer to pay 100K for the property but you have no money to fix up the property.
You can wholesale it to another investor looking for properties in this area who will gladly fix it up. You get the property under contract with the seller for a $100K. You then call other investors to see if anyone would be interested in a bargain property. Tell them to drive by it, if they like what they see from the outside to call you back and you’ll get them inside. They call you back and say Glen we like the house when can I see it.
You then say… Yes, it’s a great investment property. How quickly can you close if you like the inside If they say within 10 days then you ask… are you closing with all cash or hard money If yes, you have a good buyer. If you ask, how quickly can you close and they say within 30 days. Ask them how their getting their financing If they say they’re going to a bank or broker to get funding tell them that you have other buyer who have offered cash and can close quickly and move on.
So now you have a buyer. Call the seller tell them that you’d like to schedule a time to come back by the property and show it to someone quickly, and to get an idea of the costs involved to fix it up. I’ve never had a seller object to this.
If your buyer likes what he sees then ask them… how much of a deposit can you afford to put down If they balk at this just say well, we haven’t worked together and I need to know that you’re going to close. It’s ok if they don’t want to put money down just make sure you verify that they have the funds in their bank account or verify with the hard money lender that they have worked with this person before.
Fill out the assignment of contract, have then sign it first. DO NOT EVER sign the assignment of contract first and then send it. Always fill it out without your signature and fax it to them. Have them sign it and fax it back to you. You will send them a signed copy after word.
Once you have signed the assignment of contract send it to your closing agent and let them know that you’re assigning your contract and give them the name and ph # of your new buyer and hard money lender. Let the closing attorney know that you want to close within 10 days. Call your seller and tell them when the closing is.
Your assignment fee should be any where from $3K- $20K depending on each deal. Don’t get greedy. You know the old saying… Hogs get fat. Pigs get slaughtered. Let them make a good profit so you can use them in the future.
The next profit center is…
Retailing This is how most investors start out. Find an ugly house get a great deal and fix it up and sell it for a profit. I think most of you understand this concept. The one Dangerous thing that I’d like to point out is that a lot of investors underestimate the repairs. I have a repair sheet that I go through, where I already have the pricing for someone else to do all the work. I set up the repair sheet so that the prices are on the high side just incase you make a mistake. I then always ad another 10% to the total fix up costs.
Example let’s say you have $15K in repairs. You would then ad 10% to the total which comes out to $1,500.00 Dollars. This is your fudge factor. Don’t ever let a seller tell you that it doesn’t cost that much. There’s a reason why they didn’t fix it and most times it’s because it costs too much.
Next we have my favorite Subject To Investing
Buying properties subject to the existing financing gives you several ways to sell the property. You’re not tied to selling the property for all cash. You don’t have to have good credit and you don’t have to go to the bank to get new financing.
When you have you’re marketing working you will find all kinds of deals where the sellers just want debt relief. I never make promises to a homeowner when I take a property subject to. We buy most of our properties this way. We then have multiple ways of selling the property.
Subject to is buying a property from a seller, leaving the seller on title until you sell the property sometime in the near future. Now you can sell it for all cash, you can lease it to a tenant, you can leaseoption it to a tenant buyer. You can move into it yourself.
Here’s what determines a good subject to deal.
What are the current payments on the property and can I cover them with a tenant buyer Is the existing financing good Meaning… is it a fixed rate loan with low interest rate. Stay away from adjustable unless you know your exit strategy. Does the house have a lot of fix up costs Do I have a buyer on my buyers list that’s looking to buy a home in this neighborhood How much equity is in the property
In most cases we have our attorney close these so we only need to get a purchase and sales contract signed and an authorization to release lending information. The attorney gets all the other paperwork signed and notarized. You will have to put insurance on the property and make sure you get title insurance.
Let me explain how powerful Subject To Investing is…
First, you can buy all the properties you wish to without qualifying at a bank. You’re credit is never at risk. You don’t need a lot of money to get into these properties.
When you find private lenders who have 5K – 30K dollars, you can give them a great return on their money and never use your own. You can then build a portfolio of properties very quickly without using your credit and without using your money. That’s how you build wealth.
Our next way to profit is Lease Options
When you buy a property Subject To you then can sell the property on a Lease to Own and receive a non refundable deposit. It’s usually anywhere from 2K-10K depending on your market. The more of a down payment you receive the more likely they are to cash you out. If you get a small down payment understand that the tenant buyer has nothing at risk and will walk away from the property and leave you with a mess. I don’t say that to scare you, I just want you to realize that if the tenant buyer has NO skin in the game the less likely you are to get cashed out.
The great thing about LeaseOption is that you get a good non refundable deposit up front.
The tenant buyers usually take better care of the property because they have an owner interest in the property.
If you do have a problem with them not paying you can just evict and get the house back just as you would if you were renting it.
Next and lastly we have Options
An Option is basically getting the seller to agree on a specific price for a specific time.
Options work great on high end properties. With an Option you have really nothing at risk but your Option deposit which is usually only $10.00 dollars.
Let me give you an example… Lets say you have a seller with a property that he owes $750,000.00 and the property is appraised at $925,000.00. The owner is moving and just wants the property sold. You can Option the property with a ten dollar Option fee for the balance of $750,000.00 for 90 days. Anything you can get above the $750,000.00 is yours to keep.
That’s the power of being educated in all aspects of real estate investing. Most investors are throwing away GREAT deals because they’re not educated in the 5 profit centers of real estate investing and they’re loosing thousands of dollars on their marketing capital.
Glen Andrews The #1 real estate investing and marketing coach. httpwww.realestateinvestingeducation.info
If you would like to take advantage of the market and learn how to invest in real estate and you are local to the Dallas Fort Worth area, I know a really great teacher and mentor here in Arlington Texas. Please take a look at his web site: DennisJHenson.com, Dennis has a great Mentoring and training program, I know because I am one of his former students. I learned a lot from his one on one teaching technique. – Michael Harman 817-457-7572 email@example.com