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7 Different Ways Anyone Can Become a Real Estate Investor
Being a real estate investor is not really that hard, Sometimes you do not need any money down. Other times you do not need any of your own money down. Below are 7 Methods to buy property and earn money.
1 - Buy and Flip
This is a Method where you buy Real Estate at below Market Price and sell quickly and make some fast profits
2 - Buy Fix and Flip
This is Similar to method 1 except you would typically hold the property a little longer so you could do some fix ups, This method is designed to yield a higher profit then Method 1.
3 - Buy and Hold
You buy the property and find a renter. If you were to buy 2 Properties a year for 10 years you could have 20 Properties all earning you a positive cash flow when you retire. Even a modest positive cash flow of $500 a Month per property in Todays dollars would equal a $10,000 a month retirement income
4 - Wrap Mortgages
This method works well with people who have a hard time getting a mortgage because of income or credit or both. You sell them the property on a contract. You keep the existing mortgage and stay on title. You then wrap the old mortgage with a new mortgage. Let's say you have a 30 year mortgage at 6% for a $100,000 with a monthly payment of $599.55. You Give them a 30 Year Wrap mortgage at 8% for $125,000 with a monthly payment of $880.52. You could have provisions where if they refinance in 3 - 5 Years and pay of your mortgage and become sole owner.
5 - Lease Option
Lease with an Option to buy is similar to a wrap mortgage but they are renting the property at an above market rent. They do have a right to buy at some fixed priced in the future. As an Example you could rent them the property in Example 4 for $900 a Month. They will be able to purchase the property in 3 years at 5% below the appraised value (from an agreed upon appraiser). They also agree to keep the house in good repair. If they make all payments in a timely fashion $100 of each months rent would go towards the purchase price.
6 - Equity Share
Equity share involves and investor and a Homeowner. The Investor will put down the down payment and the homeowner will live in the house and make all the monthly mortgage payments. The investor will own 50% of the House and the homeowner will own 50% of the House. After 3 - 5 years you will either sell the house payoff the mortgage and return the down payment to the investor and then divide what's left or the homeowner will refinance the house and buyout the investor. (Sometimes the investor will record a 2nd trust deed with low or no interest against the house to secure there interest)
7 - Buy Low Refinance High
Another popular method is to buy low and refinance high. You buy a property for $70,000 with $5,000 down leaving You a $65,000 mortgage. You do $10,000 worth of improvements to the property and then refinance it for $110,000. The Difference between the new loan at $110,000 and the old loan at $65,000 would be $45,000 cash in your pocket. Your net cash would be $30,000 since you have placed $15,000 cash in the property already. You can now use method 3 find a renter and hold the property long term. You could also use methods 4,5 or 6 to have a positive cash flow now and lock in a profit in 3 to 5 years.
The above are just some of the many 100's of methods successful real estate investors use to earn money. The key component in any of the above methods is finding the right financing. A loan for the buy and hold method may be very different then the loan for the buy and flip method. The wrong loan could be the difference between a nice profit and a modest profit or maybe even a loss. (You wouldn't want a loan with a large prepay penalty in the buy and flip method) make sure you work with an experienced loan professional who can Tailor a loan to meet your needs
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Copyright © 2005-2006 Mike Makler
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