By James L. Hardcastle
Now that the real estate market has calmed down somewhat, those in the Melbourne area who are in the market for residential property have a greater number of properties available than was the case previously. A real estate investor may hear this and think “rich! I’m rich!” However, if you already count a few properties among your investments, you might need to use some creative financing measures in order to buy up some of these newly available deals.
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.
One good option for creative financing of real estate investments is assuming a loan. This entails simply taking on the loan payments of the current owner. However, for this strategy to work for you, the property in question must have been originally financed with a low interest loan but currently have a high market value.
You should of course only use this financing strategy if the current owner’s mortgage features an interest rate which is lower than the prime interest rate at present. You must also be certain that the loan agreement in question has no “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.
If you sign on to an agreement such as this, you should be certain that you have a “Full Right of Assignment” clause included in the contract. This will allow you to sell this property without any further consent form the current owner of the property. Such agreements also carry the stipulation that the owner must, upon request, sell you the property at a previously agreed upon price at any time before the expiration of the contract. You can cancel this contract at any time, but you will of course lose the premium by doing so as well as any rent you have received to date.
Thinking outside the square like this is key to your success. However, it’s important to tailor your real estate investing strategy to the given situation. This can be done most effectively by using an independent and experienced finance advisor.
About the Author:
Author: James L. Hardcastle can show how to create customised Finance techniques for multiple property investors. Visit “Loans Australia” website for more great information on property investment techniques by independent financial advisors.
Originally posted 2008-07-13 04:05:55.
