A successful investor is one who realizes the importance of having a regular supply of motivated sellers in order to forge deals to their advantage. Good marketing and communicating skills, experience, the ability to identify an opportunity to make a quick profit, and technical knowledge are necessary ingredients of a successful investor. 

A creative investor will seize any opportunity and convert it into a win-win situation, at least as far as he is concerned. There is a common real estate investing myth that a large amount of capital is required to procure a property. Creative investors have devised so many strategies that have made it possible for the investors to become masters of millions by actually using very little if not any capital at all. Investing with little or no money down is one such strategy. 

Lease Options

Lease options are very rewarding investments if you have the required knowledge and experience as well as a good attorney to make sure all agreements are in your favor. In a lease option, an investor agrees to option the property with intent to buy it at some predetermined date. There are usually two agreements, one for a lease of the property and another an option agreement where the seller agrees to sell the property; however, the option-holder can refuse to purchase the property if he chooses to. This is another technique, which involves no money down or no down payments. The investor agrees to pay a monthly rent as well as a non-refundable option fee. Most of the time, a part of the monthly rent is deducted from the purchase price. This kind of a deal is ideal, as the investor can do a flip and make a substantial profit without actually investing much.

Let us say Andy lease options a property valued at $145,000 but it has minor repairs so he negotiates the rate to $130,000. Andy has a rehabber who is willing to pay $140,000; he flips the option instead of the property, thereby avoiding capital gains. He has made a quick profit of $10,000.

There is Martha, who came across a beautiful property in excellent condition valued at $450,000. She optioned the house at $445,000 and found an investor who paid her $460,000 for the house, which was located in a hot area where prices were rising quickly.

Caution is necessary when you opt to use a lease option, as you will have to ensure that the seller has no debts or liens pending. If the property has no equity, an option may be a foolish thing to do because before you exercise the option, other creditors may foreclose. A lease option is best if the seller has a lot of equity, is a reliable person with no bad debt history, and agrees to a short option period such as one year. Ensure that your option is protected by recording, escrowing the deed, and recording the mortgage. Make sure there are no anti-sub leasing clauses. 

Subject To

Investors get the deed of a property subject to the existing mortgage, which they will take over. Subject to deals are best suited in the event that the seller is in distress. 

Let us take the case of Dwayne, who owned a property valued at $300,000 with a loan of $290,000 due. Investors interested in the property will be foolish to option it as the lender may foreclose it at any time. This is when a subject to strategy comes in effect. The investor gets Dwayne to sign a subject to agreement and get the deed in her name. The investor will contact the lender and negotiate a settlement price of, say, $250,000, as it will save her extra expenses, such as the foreclosure procedure, and then reselling the property or using the services of a realtor. In effect, a short sale is done, effectively using a subject to deed. There are some cases when the seller pays the investor to buy the deed.

Another instance where a subject to strategy is recommended is when the seller has a few debts in his name, which makes it a risky venture to try a lease option.

It is thus recommended that investors carefully check to ensure that the seller has no hidden debts, that the title deeds are in his name, and that there are no liens. If the motivated seller has no equity, is in distress such as bad debts or need money as they are out of a job or in the middle of an expensive divorce. Be prudent and analyze the situation carefully doing due diligence and taking preventive measures to protect your interest in the property. Lease option or subject to deeds can be very rewarding if used in the right situation.

 

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