Getting the Best Profits on a Real Estate Lease Option

Those who know how to achieve real estate investing success have many different strategies when it comes to lease options. Some simply use the lease period to fix up the home and check it out to ensure that it is structurally sound and a good investment. Others will rent it out and make some profit until they can exercise the option to buy, at which point they turn around and sell the house. Still there are others who get more creative and find other strategies that let them make a nice profit out of a real estate lease option situation.

Simple Methods

If you choose to fix up the house during the lease period then you will be taking a slight loss in the beginning. You will have to pay money each month on the lease while also paying out money to fix up the house. Some investors prefer this option, though, to simply buying a house and flipping it. It allows you to see everything wrong with the house. If you run across something that would be too costly to fix or something that is a deal breaker then you ride out the lease option contract and not buy in the end. If everything is fine then you can usually turn around and sell the house for a nice profit once your lease option ends and you buy the property.

Many people rent out a real estate lease option property. This will allow you to have renters who pay the monthly lease until you get the option to buy. You can do repairs or have your renters do repairs for a reduced rent cost. Like the first option you still get a chance to see what is really wrong with the house, but with this method you are not losing so much money on the deal in the beginning. You still get the chance to sell the house once your lease option contract is up and you buy the property. When you sell you can increase the price over what you paid due to the fact that you have done repairs and made improvements and make a nice profit.

Find a Buyer Early On

Some investors who achieve real estate investing success make sure their lease option will pay off. Instead of waiting to sell when their real estate lease option is up and they buy, the investor will start actively looking for buyers before their option of lease is up. This way they can find someone to buy the property instead of them once the option is up. To make this work you will set the price on the property for the buyer you find to a higher price than what you are supposed to pay.

There are many ways that you can make money off a lease option. Some who achieve real estate investing success just fail to see exactly what they need to do to make a profit on this type of deal so they walk away without ever giving it a try.

There is actually little to lose by just trying a real estate lease option. If you are a new investor or you are having trouble finding good properties to flip then a lease option may just be the best choice for you as you search for real estate investing success.

Back to Basics on Buy and Hold

This past week was spent catching up with friends we haven’t seen in awhile. When these old friends ask what we’re up to, they aren’t surprised to find out it’s real estaterelated, given that we began investing in real estate in 2001. While most have heard the stories of ourcrack house adventures in the early days, they are startled to learn that my husband Dave and I are full time investors.

A few made comments about how “lucky” we were to begin investing 2001 because we rode a really rocking wave of value increases on those properties. And a few commented on how they wouldn’t be buying houses right now because they think the values are going to go down again.

I tried to explain to a few interested folks that appreciation is icing on the cake but it’s not actually the foundation of what we do. But most people seem pretty hung up on house values and what the values will do in the future … and I suspect there are still real estate investors out there that get caught up in these thoughts too so I thought it was time to remind everyone of the basics of buy and hold real estate investing.

There are three ways to make money as a buy and hold investor and one big bonus many forget to think about too!

Appreciation is the way that captures an audience. Who doesn’t love hearing stories about home prices doubling and people making big bucks on a quick flip? It’s a great story.

But we never set out to make money through big property value appreciation. Because we do a lot of market research and carefully select the areas we buy in, we often see solid growth in the value of the properties we buy, but that is not our number one focus for making money. We’ve always focused on a more long term strategy which sees us making cash flow each month and building our wealth by other people (our renters) paying down our mortgages.

That’s it. Appreciation is obviously pretty nice but it’s not the foundation of what we do.

Let’s look at a basic example. Pretend you found a nice property for $100,000 two years ago, and you bought it for 25% down ($25,000). Today, here’s how your investment looks:

1) Depreciation: Bad news, your property went down in value by 5%. It’s now worth $95,000.

2) Cash flow: Rent each month is $1,000. Your mortgage, insurance, taxes and miscellaneous expenses are $800/month. Income minus expenses = $200/month. 24 months x $200 = $4,800 in income so far.

3) Other people’s money paying down your mortgage: Assuming you have a mortgage at a 5% fixed rate and 25 year amortization, at the end of the two years you will owe $71,805 on your $75,000 mortgage. You have now built an additional $3,195 equity into the property ($75,000 – $71,805 = $3,195) using the rent money you collected to pay down the mortgage.

Your property may be worth less than you bought it for, but you’ve still made $7,995 from it in two years (from the positive monthly cash flow and the principal your renters have paid down).

And – remember – you only actually realize a gain or a loss in property value when you sell the home so you really haven’t LOST the 5% the property went down. If you haven’t sold it and you’re still making money each  month don’t worry about it!

Focus instead on the fact that you’ve made a 32% return ($7,995 divided by $25,000 invested) on your money after 2 years. And if you hold onto it, and ride the market cycle back up, when you do go to sell you’ll likely enjoy a nice lift in value to add to the other two ways you’ve made money on it.

On some of our properties we’re paying down as much as $1,000 per month on the mortgage using the rent money we’re collecting plus we make $500 to $1,200 per month in positive cash flow! Even if the value on those properties never changes we are making money each and every month through the cash flow and growing our wealth by $12,000 a year.

Plus, the big beautiful bonus of buy and hold investing is that you’ll have been enjoying some nice tax deductions along the way that can help offset income you’re making with this property and with other sources too!

I tried explaining this to some of our friends but they kept coming back to the question “What do you think house values will do in the near future?” so I eventually gave up and said my crystal ball is broken but they will eventually go up in most areas. Then I quickly changed the subject over to their jobs, kids and travels. It was easier … but for my fellow real estate investors remember that appreciation is just one way to make money with buy and hold real estate.

Advantages of Private Money Over Bank Loans | Understanding Real Estate

Since the credit bubble first burst, traditional sources of investment property loans have all but dried up, forcing real estate investors to find alternative sources of capital. Seasoned investors have been using private money for years, so it’s not an uncommon method of real estate financing, but when money was easy to come by at conventional banks, most investors took the familiar route. But now many people are realizing that finding the real estate deals is the easier part of the business these days, but getting a loan to buy the property is the hard part! So what do you do?

A great many real estate investors are turning to private lenders to fund their purchases. Private lenders can be anyone. They could be friends you already know, either very well or just casually. They could be relatives. Or they could be business owners, doctors, attorneys, and other professionals you do business with everyday. Private lenders in general don’t promote, and may not even realize they have the potential to make great money until they meet an investor— like you— who educates them. Since no one is getting a very good rate of return on their money these days, whether it be in a CD, mutual fund, IRA, or in the stock market, many everyday individuals you never thought of before as lenders could have money to lend to you for your real estate deals. It’s a win-win situation: they make a much higher interest rate than they could make elsewhere, and you set the terms you know you can afford.

Imagine how many great deals you could do if you had access to lots of quick cash—other people’s—not out of your own pocket. Imagine never again letting deals pass you by due to the rules and limitations of banks! And also image going to closing and only signing two or three documents instead of two inches worth!  Private real estate money deals are incredible simple and the total paperwork is normally less than 10 pages. In addition, investment property loans from private real estate money sources usually have no points and little upfront or back-end fees. You won’t find that at a conventional bank!

Establish your credibility with those who have “deep pockets” and you’ll have access to all the money you need for any estate deal. If private lending is new to you, first educate yourself about this type of real estate financing. Knowing the advantages can mean the difference between making a good deal work, or losing yet another to your competitors.

Evaluating your property investment | Reuters

By iTrust Financial Advisors (www.iTrust.in)

Investing requires discipline - one can’t blindly invest money without knowing what one is getting into. Investing into Real Estate is no different. Here is a checklist that you should use when evaluating your property investment.

1. Desirability of the location: This is the single most important criterion to value real estate.

2. Reputation of the builder and quality of construction: Properties by some developers are worth a lot more than others because of quality. Don’t always go for the lower price because there could be huge execution risk with less reputed builders

3. Payment terms: Time-linked or construction linked payment plan, and cash vs. cheque component. This will affect your cashflow in other aspects of your personal finances.

4. Project approvals and licenses: This might affect your ability to get a home loan if project approvals have not come through yet.

5. Contractual guarantees: For assured return schemes get a written guarantee from the builder and post-dated cheques in your name. Understand the delivery date of your project

6. Demand and supply: Over or under-supply will affect both the capital appreciation potential and the rental yield you might expect.

7. Floor space index and carpet area: Local rules on the built up area and the available square footage (carpet area) might reduce the usable area. Recognize that what you pay for might not be what you get

Tips on the process of Real Estate Investing

When it comes to the process of making a property investment and exiting from it, there are a few things that you must keep in mind.

1. Transaction costs: When you buy or sell property, there are many transaction costs associated with these activities. You might have to pay a brokerage fee to the intermediary. If you have made a gain on the sale, there will also likely be a resulting capital gains tax liability.

You will also face some expenses related to the stamp duty at the time of the transfer and registration costs of the property. All these costs can add a material amount to the purchase or sale price of your investment.

2. Liquidity: Unlike stocks that you can sell readily and convert into money in the hand within a couple of days, buying and selling property takes time. Your ability to convert your investment into cash in hand is quite restricted.

Its not uncommon for deals to take up to one year, and still fall through at the last minute. So if you feel that you can sell your property to pay for your child’s education abroad once he/she gets admission, you might be in for a shock. To have easy access to this money, you might be better off putting it into a financial asset that you can access at a short notice (e.g., fixed deposit, or liquid fund).

3. Cash: Property investments are not always the cleanest when it comes to cash versus cheque component of paying for deals. Unlike mutual funds where KYC norms require that the investment be made in cheque and the PAN card details be shared, real estate investments can have a huge cash component to them. This might not suit everyone.

Copyright 2010 iTrust Financial Advisors Private Limited. All rights reserved.

How To Avoid Losing Money In Real Estate Investing

What is the most speedy way to lose money in real estate investing? Funding a lot of for a property? Choosing awful tenants? Taking out adjustable rate mortgages? It’s nothing of these. Although all of these guesses may end up from not being acquainted the speedy manner to lose money in real estate investing.

Let’s evaluate the steps an average new investor in real estate may take to set out a small business

1. The fresh investor employs a real estate representatives to research him a top-notch investment property. You can get excellent agents who can really facilitate a fresh investor, but not all are. The agent in this example unloads a house on the new investor that has been on the market for a long time. The new investor isn’t in love with the placement, it seems like a rough area, but he likes the fact that it’s a fixer upper, and he purchases the house.

2. Since the new investor is not handy with tools, he pays specialists to paint landscape and patch up the house. It seems to be costly, but the house now feels nice.

3. The new investor isn’t a people person and believes tenants may take advantage of him, so he hires a management company. He expects the company is aware what they are doing, so he infrequently goes by to examine on his new rental property. Later the new investor finds he is not earning on his property. The house it is hard to rent because of the site. And, he finds that the management company has been making pointless restorations.

The new investor is dispirited and decides to cut his deficits by marketing his house for lower than he put into it. He vows to never watch another Carleton Sheets infomercial.

What Gone Wrong?

The critical mistake was that the new investor relied on “specialists” to undertake the whole thing for him as opposed to learning to do things himself.

The secret’s not to rely on the so-called real estate professionals. It is in your long-term best interests to learn to do all of these things yourself, just as you would learn all aspects of any profession or hobby that you aspire. It is harder to perform all of it yourself, but it is more financially rewarding, more deeply pleasing, and become familiar with wide range of skills that designed to assist you in a good way all through life.

Take up a fresh philosophy that strikes you in the way of becoming self-supporting and self-reliant

My philosophy in real estate is that you choose and make money by way of careful consideration to detail, finding houses wanting restoration, adding value to them by mending them up yourself, renting out the property, handling occupants, and making repairs when tenants depart.

I think in holding on to what I have and in being self-sufficient. My money is made in the trenches, in completing what most people are unwilling to do, or don’t believe that the hard work is definitely worth the reward.

But let me assure you, it will be worthwhile.

Should you learn:

1) to research and recognize investment assets that are fitted with potential,

2) to like doing the restorations, and

3) to apply the proven methods to deal with problematic occupants, then you will succeed where many people fail.

Making Real Estate Money-The Best Way for Real Estate Investors to Handle Calls

Let's assume you have run an ad geared toward generating calls from sellers.

The first question is, How is the call answered? I don't know about you, but I don't have time to sit around waiting for my phone to ring, so my phone is answered by voice mail. The caller is required to leave a message if he wants to tall to me.

To me this accomplishes two things. First, it will help to determine motivation level. If they are motivated, they will leave a name and number. Now some people may call and not leave a message. And that's OK with me. I figure that the people who don't leave messages have their reasons. One might be they are not motivated. Another might be that they were tire kickers. They may also have a penchant for secrecy, so that even if I managed to get their number, when I try to call the SECOND time, they may well screen the call. So again, I don't worry about the people who call and don't leave a message.

Staying in control

The second thing answering by voice mail does is give you a name and number you can call on your own terms, at your own time. What I mostly don't do is to answer my phone. Why?? When you answer your phone the caller controls the conversation at the outset. You're unbalanced because you don't know what the caller is calling about. When you get good at handling the telephone this is easy to handle, but for beginners it's much easier to collect calls on a voice mail.

Now you have a name and number of someone who called an ad designed to produce sellers. You're ready to call back. What do you say?? I would start something like this.

Mr. Smith, my name is Jim Piper. You called on an ad in the Metropolitan newspaper that said "I Buy Houses." How can I help you?

What does this do? It throws the ball to the seller. He's now required to give you an answer to an open-ended question. In other words, he can't answer by saying "Yes" or "No." He's required to talk. You're now firmly in control of the conversation. The next thing you do is shut up and listen! Allow the seller to take the conversation where he wants to go. Don't interrupt!

Your agenda

Just because the seller is now talking doesn't mean you don't have an agenda. You do. Here's your agenda. You want to determine if the seller has a property for sale. If he does, you want to determine the details of the property such as location, number of bedrooms and bathrooms, garage, basement, and overall condition. You want to determine the details about the existing financing on the property. What type of loan is it, what is the loan amount, what is the interest rate, when was the loan originated, what are the monthly payments, is the loan current, etc. You want to determine the seller's perception of the value of the property, how quickly he needs to sell. You want to determine the motivation level of the seller. This is your agenda.

Until you know the answer to these questions (and others) you can't know whether there is a deal, or have any clue as to how to do the deal.

Get answers before you look at the property

The above agenda should be firmly in your mind as the phone conversation begins. If you can't remember it, have your questions written down on a piece of paper next to your phone. Your goal is to get the answers to all of these questions BEFORE you make a decision to get up out of your chair to go look at the property.

If you run into a problem and forget what you want to ask....DON'T PANIC. Simply tell the seller you have another call coming in, and place the seller on hold. Now you sit quietly at your desk and review your notes. When you're ready get back on the line with the seller, apologize, tell him your phone has been ringing off the hook today, and ask your next question. As a matter of fact, this will help to strengthen your stance. Everyone likes to do business with someone who is busy. You might try putting people on hold for that reason alone.

Here's where the call gets more complicated. The seller is talking but he may not be talking about what you want to know, or in the order that you want the information. That's OK too. Take notes on what the seller is saying. Periodically summarize. Then ask your next question. "Mr Smith, so you have a 3 bedroom, 2 bath home and the roof leaks. How old is the furnace?" Your questions are a track to run on, a place to come back to when the seller strays. "Mr. Smith, coming back to the financing for a second, does that monthly payment include taxes and insurance?"

During the phone call the seller may ask you questions. It's OK to answer a question, as long as you reestablish control following the question.

Example: "Do you charge a commission?" "No, Mr. Smith, I don't. I'm not a real estate broker. I simply buy houses as real estate investments investments. (Pause) How did you determine that particular value for your property?"

Example: "What would you pay me for my house?" "Mr. Smith, it would be impossible for me to know that right now before I know your situation completely and before I have seen the property. What were you wanting for the house?"

Who, what, where, when, why and how

Remember the 5 B's? Who, what, where, when, and why. Add to these the word "How" and write them down by your other questions. These are powerful words. These are probing words that enable you to find out more information about the seller's comments. Use these frequently.

"Why do you need to sell so quickly Mr. Smith?" "Where will you be moving if you sell you house, Mr. Smith." "Why do you say that Mr. Smith"? "How did that happen Mr. Smith?"

Notice that these words force open-ended answers….in other words the seller can't answer with a simple "yes" or "no." Open-ended answers ALWAYS produce more information than the answer to a close-ended question.

Your job is to ask all the questions necessary to get a complete picture of the property, together with financial information regarding the property, and a psychological picture of where the seller is at. Keep asking questions until you have this complete picture. Then, and only then, will you know whether the pre-conditions for a deal exist.

Depending on the answers, you may wish to make an appointment to see the property. Or you may wish to handle it differently. "OK, Mr. Smith, here's where we go from here. I'll need to do a little homework on my end to figure out if your property meets my criteria. If it does, I'll need to see the property. When would be a good time to call you back?" This buys you some time to evaluate whether it is in your interest to go look at the property. But don't take too much time with this process because, if the seller is motivated, he will sell the property quickly.

The perfect phone call

The perfect phone call is one where the seller is talking, and you're listening. The perfect phone call is one where your questions are giving you information, and the questions are leading the conversation to it's conclusion. The conclusion of the perfect phone call is either setting an appointment to view the property, or informing the seller that you have no interest in the property. The purpose of the perfect phone call is not to make a verbal offer. Last time I looked, an offer can't be signed over the telephone. The perfect phone call elicits information which enables you to determine whether you want to pursue the deal.

Making Real Estate Money-Money lessons from Dad | Bankrate.com

Money lessons from Dad | Bankrate.com

In preparation for Father's Day, the National Foundation for Credit Counseling sent out a release stating that 41 percent of Americans learn personal finance skills from their parents. That stat comes from its 2010 Financial Literacy Survey.

My parents have opposite money personalities, and I've learned from both of them.

The other day my dad, 81, said to me, "Your mom enjoys spending money, and I enjoy saving it and watching it grow. But now, I really don't care what happens to it. If we don't spend it, you'll get it and you'll spend it."

I replied that they should spend it, and that I don't have plans to leave a lot of money behind for anyone. In fact, I hope to save enough to at least get me through retirement.

Different priorities

My dad worked for a farm equipment manufacturing company for 35 years, so he has a pension and health benefits. The pension payout is modest, but consistent for 25 years and counting. Between the pension,Social Security and my parents' savings -- that three-legged stool financial experts talk about -- my parents have enough to meet expenses. Their house is paid for. They don't travel much and they eat home-cooked meals. They don't have expensive hobbies. And they're content with their 20-year-old, no-frills television set. A couple years ago they splurged on two new cars and a computer. Their favorite store is Walmart.

By contrast, my husband and I play golf, but not during the winter when rates are too high. We dine out once a week. We usually take a surfing vacation to Costa Rica in summer. We have a mortgage and an HDTV. We are saving for retirement, but not to the maximum extent possible.

Great gift

I don't remember too many money discussions between my parents when I was growing up. Every summer when my brother and I were kids, the family would travel by car from Illinois to Florida to visit my grandfather for two weeks.

I didn't know until fairly recently that my parents pretty much kept their finances separate. Dad paid the household expenses. Mom would use her earnings to buy me and my brother clothes during our youth. Her generosity extended into my adulthood. After I got married, she bought me a set of fine china and crystalware.

The greatest gift my parents gave me was a college education. After I graduated, I approached my dad, telling him I'd like to go on to get a master's degree. He said, "You would? Uh. OK." And that was it. I went to school for another year.

I didn't realize until much later in life what may have been going through my dad's head when he hesitated for a second there. My daughter graduated in December and recently mentioned that she'd like to get her master's degree. I said, "What for?" I failed to rise to the occasion like my dad did.

But then, I'd never be able to fill his shoes.