For people who are looking to buy or sell property and make a profit, it is important to realize there are a number of ways to invest in real estate. Some of those are outside the traditional model of obtaining a mortgage and then making payments until the obligation is settled. Sometimes referred to as creative real estate investing, these other ways to make money with real estate can work perfectly when traditional methods are not practical or possible.
The Basics for Creative Investing
Before beginning to explore the concept of creative real estate investing, it is important to understand what this term actually refers to. In the broadest sense, it is a collective term that involves any type of financing strategy that is a little outside the traditional method of getting a mortgage and paying it off. These processes are still well within the limits of existing laws and can be used to generate a reasonable amount of profit.
With this approach, there is no lending institution involved. The current owner of the property chooses to structure the sale in a manner that often involves a lump sum payment up front, followed by series of payments that are delivered according to an agreed upon schedule. This type of arrangement can involve a flat fee for providing the financing, or be structured with the application of an agreed-upon rate of interest.
For the seller, this approach makes it possible to generate regular monthly income that eventually results in recouping the original purchase price of the property and beginning to realize a profit from the deal. The buyer benefits because the terms for qualifying for the financing are typically less strict than those used by traditional lenders.
For real estate investors who have gone through some rough financial times in the past and are still rebuilding their credit ratings, this approach makes it possible to secure an asset that they can use to generate income of their own. While the property is making money, part of those proceeds can be used to make the payments to the original owner. In the best case scenario, everyone is making money from the deal, with the exception of those traditional lenders who are left out of the loop entirely.
The Subject To Approach
This form of creating financing is slightly different, because it does include the use of a third party lender. With this scenario, the current owner transfers title to the buyer, but the original financing stays in place. The new buyer agrees to make the remaining payments on the existing financing.
For the buyer, this often means tendering little to no down payment to the seller. The seller benefits by being able to get out from under the financial stress of making payments on a property that he or she no longer wants or needs. Since this process does not involve making any changes to the loan arrangement per se, there is no need to run credit checks and another due diligence. As long as the buyer makes the payments on time, then everyone is happy, and the buyer eventually has a property that is free from any type of encumbrances.
Never assume that traditional methods are the only way to go. It is possible to learn creative ways to make money and use them to achieve the desired goal. Talk with a financial advisor and identify the pros and cons associated with different creative financing methods, then use that information to project possible outcomes. There is a good chance that at least once of them will be the perfect approach.
Attend the next event for FREE
Take advantage of our education loaded events to expand your real estate network and learn everything there is to learn about investing successfully in the current real estate market.