If you want to make money in real estate, there are two ideas that you need to disabuse yourself of – that you need to own a real estate investment property and that you need a lot of money to profit from real estate. Both of these ideas are myths that will get in the way of your succeeding in the highly lucrative real estate market; if you find the right deal, you can make a killing. Here is why these ideas are false:
Real estate investors trade in contracts, not properties. In other words, they find a property that they’re interested in, take out an option contract with the owner to buy it and then turn around and sell it to retailers. This transaction is called an ‘assignment of contract’ and the only money you’ll usually need to shell out is a small amount of earnest money. This brings us to the second point, which is –
You can do zero down investing or investing where you front only a small amount of money, if you strike the right agreement. For example, you take out a lease option with a home seller, in exchange for a monthly option fee. The lease option gives you the right to purchase the property at some future time under the terms defined in the option contract. When you find a buyer for your option contract, you pay the seller the option fee. Note that you’ve never actually owned the real estate investment property, although the option contract effectively gives you control over it. Once the buyer exercises his option, the seller gets the money for his property plus his mortgage payments have been paid for a few months while you have earned a profit from the sale.
Another popular zero down technique used to buy property is called ‘subject to’ as in ‘subject to the existing financing’. Under this agreement, the seller signs over the deed of his property to you, in exchange for which you pay his existing mortgage. Using this technique is essential if you are acquiring property from a financially distressed homeowner, since his financial problems may result in you losing control of the property. If you hold the deed, this couldn’t happen.
However, even when you practice zero down investing, you should still have some cash in reserve as a contingency fund in case the deal goes wrong. For example, the option buyer may back out at the last minute; in this case, you’ll need cash to continue paying the homeowner the monthly option fee until you can find a new buyer.
The point of all this is that anyone can succeed in investing in real estate investment property if they are willing to educate themselves and work at it. You don’t even need good credit, since, as demonstrated above, there are many creative financing techniques you can use to acquire real estate. And real estate is one of the safest investments. You don’t need even to know everything; once you know the basics then you can go out and begin to make money. Learning is a continuous process after all.