How to Invest In Multiple Properties Using Creative Financing
Now that the real estate market has calmed down somewhat, those in the Melbourne area who are in the market for residential property have a greater number of properties available than was the case previously. A real estate investor may hear this and think “rich! I’m rich!” However, if you already count a few properties among your investments, you might need to use some creative financing measures in order to buy up some of these newly available deals.
If you are of the fix it and flip it school of real estate investors, you probably already know how you will finance your next purchases by using the proceeds from the sale of property which you presently hold. In fact, you may never need to put any cash out again after your first few property sales. But what do you do if you are buying property to rent it out, or if you are not yet investing in real estate on a scale which permits you to finance one purchase with the sale of another property?
As a real estate investor you understand that you need to get the best possible deal on the purchase, and traditional financing through banks doesn’t always provide that. Plus, they can be plodding and you haven’t got the time for that.
Well, one creative financing option that is prized by real estate investors is assuming a loan. When you assume a loan, you buy a property simply by taking over the loan payments from the current owner. For this strategy to work for you, you need to find a property that was originally financed with a low interest rate loan and currently has a high market value and a high payoff balance. Now is a great time for considering this strategy with the ripple effect from the U.S. mortgage meltdown keeping interest rates on the high end.
You should of course only use this financing strategy if the current owner’s mortgage features an interest rate which is lower than the prime interest rate at present. You must also be certain that the loan agreement in question has no “due on sale” clause.
Another great creative financing strategy option for investors is the lease option. This can save an investor a great deal of money. A lease option, simply put, is like a futures option in the stock market. Think of it as a “rent-to-own” arrangement, but with a deadline. You pay only a very small amount up front to the current owner – this is not refundable, much like an options premium on the stock market. You have then bought the right to rent out the property as well as the right to sell the property on or before the expiration date of your contract.
If you sign on to an agreement such as this, you should be certain that you have a “Full Right of Assignment” clause included in the contract. This will allow you to sell this property without any further consent form the current owner of the property. Such agreements also carry the stipulation that the owner must, upon request, sell you the property at a previously agreed upon price at any time before the expiration of the contract. You can cancel this contract at any time, but you will of course lose the premium by doing so as well as any rent you have received to date.
By thinking outside of the box, you can do very well in real estate investment. It is important to keep in mind your current situation, whatever that is and plan accordingly. An experienced financial advisor can help you to tailor your strategy for your particular strategy.
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