When a typical non-real estate investor considers investing in real estate, they generally have a defined set of techniques that are considered investing. This usually involves first searching for the property and then working to secure financing from lenders.
To secure this financing, the investor typically has to invest some of their own money to make the down payment. This was a more traditional way of making investments. There are a few slightly different techniques that move a bit outside of these limits to make a large amount of profit or allow investors to go ahead without using their own money.
A technique in real estate investing that some investors often start with is called bird watching. This is not actually investing, as the investor here is not putting any of their own time or money into the deal. Here the bird dog will get the usual part of it by referring the deals to other interested investors. The bird dog will get the share of it once the deal is done.
In another type of technique, financing from the seller is used to buy the house. Here the seller becomes the lender of this deal. When the deal is finalized, the seller typically loans the home’s equity to the buyer, and then the two of you sit down together to finalize the payment details. Payment terms can generally range from principal only, interest only, or any combination of these two.
Yet another technique that makes the most of seller financing is one in which it allows the buyer to assume responsibility for the currently outstanding seller loan. It can be accomplished in two ways: First, the lender will allow the buyer to simply take over the seller’s loan (also called assumption). The buyer’s credits must be approved before the bank will transfer the loan to you.
In the second method, the buyer takes responsibility for the seller’s loan which is called ‘subject to’. Here the buyer simply buys the real estate without establishing any contact with the lender. This can sometimes involve risk as some banks also include an acceleration clause in the contract that allows them to request that the entire loan given by them be repaid in full when ownership of the property is transferred.
Flipping is another popular real estate investment technique that involves buying properties that are priced low. After purchase, the property is quickly resold at market value, sometimes after necessary repairs or renovations to add value.
While some people may opt for traditional financing to invest in real estate, for a savvy investor, looking for newer and more profitable techniques, such as those discussed above, would mean more profit for him.