"The definition of insanity is doing the same thing over and over again
and expecting different results"
-- Albert Einstein
Hopefully you've read my previous article, No Money Down Real Estate Financing. In that article, we discussed the Lease Purchase Option technique of acquiring property with little or no money down.
On the premise that you have read the article, there are a few guidelines that should always be followed when making a lease/option agreement.
1. Never agree to lease/option any property unless you can negotiate a long enough term to make it worth your while. (a good term would be five years)
2. Make sure the future option price allows you enough room to make a profit.
3. Only option properties that are in a good neighborhood. That way, there's always a potential for steady increase in property value.
4. Choose properties that are in good condition and can be easily maintained.
One well known, but seldom shared fact is this: You do not need to buy real estate, to make money. What you need, as an Investor, is to control it. The Lease Purchase Option, remains one of the best techniques used to control real estate for profit.
If you have not yet read the article, but would like to do so before continuing, you can find it at the Brooks Global Financial Network.
Many people, looking to make money in real estate, become agents. These agents help facilitate a sale by finding a willing buyer for a willing seller. When the deal closes, that agent earns a commission of about 6% to 10% of the sales price. Although many agents make a very good living, there are a few things they must endure in doing so.
1. There is strong competition among agents.
2. Successful agents must work long, hard hours. Most are "on call"
nights and weekends.
3. Real estate agents are required to take continuing education classes and
follow strict guidelines set forth by city and state agencies.
There are much better ways for an entrepreneur to make a living.
The "flipper" accomplishes the same task as does the real estate agent, but without all of the hassle. Essentially, the flipper buys real estate with the intention of immediate resale for profit. As a flipper, you will buy property at substantially less than "retail". Then, simply resell at a higher price. (Note: If you locate property that is truly wholesale able, you need to buy it. Otherwise be creative in your offers by using options. Always record your option contract in the local municipal office).
There are three different types of flipper investors. Based upon their experience they are either:
1. The Scout
2. The Dealer
3. The Retailer
The Scouts main objective is gathering information. They find potential deals and then sell that information to potential investors. Many creative financing newbies choose to scout because it does not take any money or prior knowledge to find distressed properties.
The Scout finds a property for sale, gathers the necessary information, and then provides this information to the investor for a fee. That fee will vary depending on property cost and profit potential. A Scout can expect to make anywhere from
$500.00 to $1500.00 every time their information leads to a purchase by an investor.
The Dealer, similar to the scout, also locates deals for other investors. They will locate a bargain property and sign a purchase contract with the owner. That gives them the option of closing on the property and selling it outright, or selling their contract to another investor. The Dealer provides more than just information; they actually control properties with binding purchase contracts. Since the dealer controls the property with a contract, they have greater profit potential than the Scout.
On a full time basis, a Dealer can make well over $20,000.00 a month without ever fixing a property or dealing with a tenant. The Dealer lives the life of a true entrepreneur. They can work as much or as little as they like, with no boss, no employees and the freedom to do as they please.
The Retailer buys properties from a Dealer or with the assistance of a real estate agent or Scout. The Retailer's main objective is to fix up the property so they can sell it for full retail price. The Retailer puts up the most money, has the greatest risk and stands to make the largest profit. The only downside being that it may take the Retailer months to realize their profit, whereas the Scout or Dealer will make their money in a matter of days or weeks.
There have been hundreds of no money down books written. Some of the techniques are interesting, and most of the time they work. The typical inexperienced creative financer will, however, take about five times as long as the technically trained creative financer, to purchase real estate. A technically trained creative financer is a facilitator, who negotiates a beneficial deal for all parties involved.
In my next article we will discuss some of the realities of Foreclosures. Realistically
speaking, foreclosure investing is very different from what people have been led to believe through late night infomercials and the hundreds of books written
on the subject.
Until then, I wish you much success.