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Real Estate Options that are FAST & PROFITABLE All the Time

August 9th, 2007 by rosie · 2 Comments

Real estate isn’t as hard or intimidating as it might seem. A few months ago, I wrote a post about us putting our house up for sale and doing it FSBO (for sale by owner). This is a follow-up post about some things we learned along the way and some important changes we made that netted us more money and enabled us to sell quickly in this slow market.

We sold a home three years ago. All we did was put a sign out in the yard and we sold it ourselves for more than our asking price – in 13 days! We were ecstatic and we vowed never to use a realtor to sell a home because of how easy it was and how much money we saved. Well, things did not go like for us this time around.

First, it’s a totally different market- a stagnant market in fact. (Just ask anyone in the real estate industry and they’ll tell you.) Second, unlike our first house, which was in a high-traffic area, this current property did not get the benefit of vast free exposure. And lastly, due to the current market conditions, our home was competing with hundreds of other homes, many of which are underpriced due to foreclosures or pre-foreclosures.

So how did we sell our home in only 38 days for 6.2% more than our asking price? Easy. We sold it though something called a lease purchase option. We also considered contract for deed and even owner financing. Why not a more traditional method? Because those options usually guarantee a quick sale and more money. Here’s what these other methods entail…

1. Lease-purchase. In summary, a lease purchase agreement is a rent-to-own situation. The terms are completely flexible. In many cases, the buyer puts 3%-5% down (most of it credited towards the purchase price) and then leases the property for a certain amount of time (24 months being the most typical). The buyer also usually pays a premium over the rent amount which is credited towards the purchase price of the property. During this time, the buyer is building equity and repairing his/her credit so they can close and get a better interest rate. If the buyer fails to meet his/her agreement criteria, then they forfeit any and all monies paid to you and the right to buy the house and you have to start all over. You don’t really lose any money either way. The cons are that you don’t cash out right away, and you are taking on some risk because during the lease time, you are basically a landlord; and the buyer might back out and you will have to start over. The benefits are that you will sell faster because most sellers do not offer this option and there are plenty of buyers who can only buy a home through these means; you will also usually get more money because of the law of supply and demand and because not all of the down payment/deposit is credited towards the purchase price of the house; you also keep the tax benefits as long as you legally own the property. Because buyers are putting more money than just rent into the house, this usually is a great guarantee that they are serious about buying the property and will not be problem tenants.

The benefits to the buyer are that they are able to buy a house in spite of credit issues; they are also building equity. And they lock in the price of the home, so even if home values go up, they have a signed contract with the sales price already finalized.

A lease option is almost the same as a lease purchase, except that they have the option of buying or not buying at the end of the lease period. However, in choosing not to buy they still forfeit any amount paid above the rent payments. Many would argue that it’s really the same thing, the only difference being the wording.

2. A Contract for Deed is basically a form of short-term seller financing. The seller and the buyer agree to a certain sales price and the buyer is allowed to make payments. The seller gives the deed (and title) to the buyer only once the contract has been fulfilled and the property paid for completely. The term is usually 3-5 years, with a large balloon payment at the end. This type of option makes a fast sell likely. Again, the buyer is one who might not qualify for a conventional mortgage due to credit issues and/or not enough money for a down payment. This is a favorite among real estate investors due to their ease of use, extreme flexibility, and fast executions.

3. Owner Financing sounds more confusing than it really is. But it is a bit more involved than the previous real estate agreements. In this type of sale, the owner acts as the bank and the terms are totally dependent on various factors. The seller may finance the total purchase price, or just some of it. All the terms are negotiable, such as the interest rate, the due date, etc. There are many reasons why a seller would want to offer financing, such as facilitating a quick sale, the house property may need repairs, the buyers may not otherwise qualify for a loan, and more. Again, this type of creative real estate sales agreement usually means a fast sale and more money gained. If you decide to owner finance, you will need the services of an escrow/title company and should definitely be very familiar with the entire process, including taxes.

Thinking outside the box when it comes to real estate is not something most people will do. There were a few who scoffed at us when we decided to offer a lease purchase option. But we got what we wanted: a quick sale and the most money possible. So if you want to sell quickly and still make money no matter what the market does, you should look into creative real estate solutions. They work!

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    Tags: Advice & Inspiration · Business How-To's · DIY Life

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    Trackback by manage your money
    2007-08-25 10:55:37

    manage your money…

    I just came upon this website via the blogging baby website. Interesting post. This could have easily been written by me (with just a change or two). Funny to read another story that is so similar to my own….

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    Comment by Lambros Estate
    2009-01-30 08:15:51

    Great post. Most people assume that all real estate investments are profitable but it’s true that the options you mentioned are more secure and safe for investors. If I were to invest my money in real estate, I would consider the options listed by you.

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