In today’s shaky economy and crazy real estate market, you can set yourself free financially by investing in real estate with low-risk creative real estate strategies.
“Creative” real estate investing techniques have been around for a long, long time. When it’s easy to get cheap bank financing, they may not be as popular or necessary. But when times get tough, knowing how to invest in real estate without needing a bank is the key to your investing success.
Today, bank financing for real estate has dried up. It’s tough to get even if you have great credit. So now we really need to get creative about putting real estate deals together.
It’s Sort of Like 1980 – Different Time, Same Problem
Why is today like 1980? Because it was almost impossible to get bank financing then too. If you don’t remember those times, let me share a little history.
1980 Real Estate Investor says, “Get cool and get creative!”
In January of 1978, the Prime Rate started the year at 8% and ended the year at 11.75%. The high mark during 1979 was 15.75%. In 1980, Prime went through the roof to 21.5%, the all-time record high.
Consider this. A $100,000 30-year fixed mortgage at 6% has a monthly payment of $600. At 21.5% the payment is $1,795. Big difference.
During this period, the banks had lots of money to loan, but the exorbitant interest rates made it impossible to get bank financing. No one could qualify. And even if someone could qualify, who would want a loan at 20%?
The market was difficult, to say the least.
It’s also almost impossible to get bank financing today. While the reasons are different, the effect is the same. Without access to bank financing, it’s just tougher to buy and sell real estate.
Creative Financing Comes to the Rescue
Knowing how to use creative real estate investing strategies puts you far above the crowd and gives you a super-edge over your competition. You have more options and flexibility so, when the competition runs out of cash, you can keep going and going and going…
“There are no problems,only opportunities.”
Creative financing also lowers your risk because you do not need to use your own cash or credit. And low risk, no money down real estate deals are the key to the Mint.
Two strategies that are ideal for today’s market are “Subject To” and “Lease Options.” You buy the property by getting the deed and taking title “subject to” the existing mortgage, and you “sell” using a lease option.
Buy “Subject to” the Existing Mortgage
When you buy “subject to” you do not need bank financing because you are leaving the seller’s existing mortgage in place. The terms of the note that were initially created with the lender stay the same, including the name on the loan.
You are not assuming the loan. Rather, you agree to make the payments, and the mortgage stays in the seller’s name. You own the home, the seller owns the loan.
As a result, you do not have any legal liability for the mortgage. If there is a foreclosure on the property, it will not show up on your credit; it will show up on the seller’s credit because the mortgage is still in his name. So it’s imperative for you to be absolutely above ground and honorable in all your dealings.
This can be one of the fastest, easiest, and safest ways to close a good deal.
“Sell” on a Lease Option
When bank financing is tight, lease options are a great way to “sell” the property without giving up control.
A real estate “option” is the right to buy a property at a specific price within a specified period of time. Even though you have the right to buy, you do not have an obligation to buy the property if you chose not to exercise your option. A lease option couples a real estate “option” with a “lease” on the property.
With a lease option, a tenant is placed in a position to ultimately own the property they are renting. The tenant makes a non-refundable deposit (called “option consideration”) for the right to ultimately buy the home. The lease option tenant also makes monthly rental payments and handles minor maintenance.
You make a profit from the option consideration at the start, positive cash flow every month, then a lump sum when your lease option tenant buys the property.
If the buyer cannot exercise the option to buy in the specified time, you still keep the option consideration and monthly payments, and then find another lease-option tenant.
These are just two real estate investing strategies that work well, especially when no bank financing is available.
What do you think? Leave your comments in the box below…
I absolutely love this site, I am a new investor and have found the perfect investment property, motivated sellers, motivated buyers, however bad credit is involved but there is a huge trust fund that buyers want to utilize. Please advise.
Michelle,
You can re-post your specific questions on the Main Discussion Forum:
https://www.creonline.com/real-estate-investing-forum.html
You might get some helpful feedback.
Jeanne
Hi Michelle,
If the buyers want to use a huge trust fund to buy, why do you think bad credit is an issue?
You may want to post this question, with a little more detail, on our Real Estate Investing Forum.
JP
Good job making it appear easy.
Thanks a lot – your answer solved all my problems after several days struggling
Hello all. I agree with you – 100% +. Thank you for the information. Alice.
I’m glad you enjoyed the info!
JP
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That’s not just the best aswner. It’s the bestest answer!
hello there and thank you for your info – I’ve definitely picked up something new from right here….Well I am adding this RSS to my email and can look out for a lot more of your respective exciting content. Make sure you update this again soon..
This is awesome and useful information not found elsewhere!
Thank you. A friend just mentioned Subject-To sales to sales so I looked into how to put them together.
Elizabeth Weintraub suggests combining them with lease option and/or land contracts if the sales price is higher than the mortgage. Since the seller could be foreclosed on if you don’t make bank payments, you also have to have a way the seller knows the payments to the bank are being made.
Elizabeth also points out that in time of low interest rates (like now) the bank often does not call the loan invoking the due on sale if it finds out about the Subject-To sale but prefers to keep the higher interest rate of the old loan.
Hi Jeffrey,
We have a lot more info on “Subject To” on the main site. Use the drop-down box to find it in How-To Articles, Success Stories, and Money-Making Ideas.
Check it out…
JP
Very valid, pithy, sccunict, and on point. WD.
A good many valuables you’ve given me.
There are no words to desrcbie how bodacious this is.
I’m not sure I grasp what in it for the seller with the “subject to” purchase. The loan stays in their name, so they keep the liability, while I just tell them I’m going to start paying for it?
Plus the fact that the loan stays in their name, wouldn’t that eliminate their slim possibility of getting another loan for the new house they’re going to live in?
Sorry if I’m being dense, new to all this and just trying to understand.
Thanks!
Hi Valerie,
The seller is “motivated” and just wants to get rid of the house. That’s what’s in it for the seller. You set up an account where you make the payment to the servicing company and they make the mortgage payment, so the seller is protected on that issue. Also, as long as payments are being made on time, that should not affect the seller’s credit.
Hope this helps.
JP
Hi Valerie,
Your questions are great! Many people who are just starting out will have those, so thx for asking them!
As JP stated, the seller gets rid of the payments and gets the house sold. That’s a huge benefit for a seller in a situation where he can not longer afford to make the payments, or have to move and is unable to make double payments, etc. There are many many reasons why people would sell their house this way.
From my own experience, I’ve bought a lot of houses this way from even sellers who were not terribly motivated – some were attorneys and MBAs. Without writing a whole new post, let’s just say it… there are plenty of candidates (sellers).
As far as their credit – if you stop making payments their credit gets ruined, but with the proper knowledge this will not be hard for you to avoid.
Seller verifying that payments were made – I just have them call the 800# and verify. They do for a few mo. and then they know it’s going to be ok.
Another loan – yes, seller can get another loan. All they need to do is prove that someone else is making payments, so you’ll give them copy of cancelled checks.
Due-on-Sale violation – not a problem bec lenders have too many houses to worry about anyway, plus there are ways to do it to minimize that issue anyway. Plus w proper disclosures it’s a no risk to you.
My advice – invest little bit of money into Get Started with Subject To course and all will be clear. Plus the documents in the course are worth $1,000!
Best,
Marko
Thank you very much for answering my questions so explicitly! It makes a lot more sense now.
One clarification though. So does that mean the seller loses their original down payment on their existing mortgage I take over? That’s usually a lot of money! So they must really be upside down on their house for not trying a little harder to sell it, right?
Thanks again!
Valerie
Stellar work there eveyrone. I’ll keep on reading.
If I communicated I could thank you enough for this, I’d be lying.
I think the idea of purchasing a property “subject to” is great in theory but, my experience has been very, very few sellers are willing to take that risk. Don’t get me wrong there may be sellers out there that will agree to a “subject to” if they are desperate to sell but, finding them is like finding a needle in a haystack.
Hi Dave,
Every creative RE deal requires motivated sellers, to give you discount on price or terms (seller carry back notes, or sub2, options, etc.). And it requires knowledge and a skill.
I have to strongly disagree with you on “needle in a haystack” because I’ve done it many many times (well over 100) and most of the times the sellers were not desperate (motivated but not desperate). I purchased houses sub2 even from attorneys!
Many of my “beginner” students are doing it as well, but it is a skill like everything else – if you just ask the seller for it, then the answer will most likely be no. However, if you follow the negotiation system and agree on the price, move out date, closing date, etc. BEFORE talking about “loan staying in their name” then your chances are a lot higher… there are more points than I can list here, but it is not that hard at all.
Keep in mind one more thing which makes this a very valuable method and a lot easier to do than most of the other techniques… you do NOT need a huge discount BECAUSE you have an option of selling it on owner financing and passing that sub2 financing to your buyer. This gives you higher resale price and avoids a lot of selling cost – so if you buy at 80% you will still make a lot of money.
Anyway… it’s all about having this particular skill, which is in my opinion the most powerful method for investing in RE, hands down.
Best,
Marko
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JP
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