Real Estate Innovation

If You Want To Be a Multiple Property Investor You Must Read This

Now that the real estate market is back in balance, home buyers in the Melbourne area have a significantly bigger pool of properties that they can choose from. This sounds like gold to the ears of a real estate investor, but for those investors who own multiple properties already they may need to check out some creative financing methods to snap up the hot properties.

If your strategy is to fix up and flip, then you may well already have a good idea of how to finance your future purchases with the proceeds from the sale of properties you now own - after your first few purchases, you might never need to lay out any cash again to buy property. However, what if you buy properties in order to rent them out or are not yet to the point where your real estate investments cannot finance themselves in this fashion?

All real estate investors know that getting the best deal possible is important. The financing which banks offer is often hardly the best deal out there. Banks also tend to have slow moving gears, which is basically money lost in the mind of a real estate investor.

Assuming a loan is one creative financing option employed by many in the real estate investment field. Assuming a loan involves buying property by just taking over the loan payments associated with the property already. For this to work for you though, you have to find properties which have a high market value presently but were financed using a low interest loan. This strategy is currently a good one to employ, since the U.S. mortgage crisis has had the effect of keeping interest rates high.

However, only consider this financing strategy if the interest rate on the current property owner’s existing mortgage is lower than the current prime interest rate and his loan agreement does not contain a “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.

You must make sure that if you enter into such an agreement you have a “Full Right of Assignment” clause in the contract that allows you to sell the property without needing any consent from the current owner. These agreements also come with an obligation placed upon the current owner to sell the property to you at a certain pre-agreed upon price on or before the contract’s expiration date. You have the right to end the contract at any time, but if you do that or fail to act by the expiration date you lose your premium and any rent payments you made up to that point.

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.