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Beginners Real Estate Investing Guide
Real Estate Investing - Ask
Questions Before Making an Investment
First Time Real Estate
Investor
Real Estate Investing - Planning
Your Investment Strategy
How to Find Real Estate
Investment Properties
Getting a Professional Home
Inspection
Large Profits From Inexpensive
Real Estate Repairs
Real Estate Investing - Costs
and Fees
Real Estate Insurance
and Risk Management
Real Estate Investment Risk
Part 1
Real Estate Investment Risk
Part 2
Getting The Best Return For
Your Investment
Creative Financing
For Real Estate Investors
Real Estate Investment Tax
Considerations
Real Estate Rental Properties
- Great Investment or Nightmare
Real Estate Foreclosures - Great
Deal or Headache
Flipping Real Estate for Profits
Slow Return On Real Estate
Investments
Negotiating for the Best Possible Real Estate
Deals
Real Estate - A Time to Buy and a Time
to Sell
Creating Your Real Estate
Investment Strategy
Investing and Growing
Your Real Estate Portfolio
Commercial Real Estate
Investing
Real Estate Marketing
Understanding Real Estate Law
Do You Need An Real Estate Agent?
What The Real Estate Mortgage
Lender Sees
Do You Have A Career In Real
Estate?
Rural or Urban Real Estate
Investments?
Real Estate Investing on the
Internet
Real Estate Investing
- Property or Paper? |
Real Estate Investing - Introduction
"Subject To" Real Estate Financing
When it comes to real estate investing, there is a new term to learn: Subject
To Financing. Subject To Financing is great, because it allows the buyer
to buy with little or no money down, without a bank loan, and it allows the
seller to get their asking price.
When you invest in real estate, your goal is usually to buy low, and sell
high. The objective is to make a profit from the difference in the buying
and selling price. But in the traditional sense of purchasing real estate,
you are also obligated with all of the paperwork, closing costs, and other
types of fees that come with real estate investing. All of this can not only
cost a great deal of money - it can also take up a great deal of time.
But with Subject To financing, which is creative financing at its best, all
you really need to do is work out an arrangement that the buyer and seller
both agree to. No banks are involved. You don't have to make sure that the
arrangement is agreeable to a mortgage lender. There is no need for title
companies or real estate agents. Sounds great, right?
Subject To financing uses leverage. This leverage is what makes it possible
for the buyer and the seller to both profit nicely. Leverage usually pertains
to how much money is invested, and how much money is profited over a longer
period of time. When you use subject to financing, you are basically investing
a bit of cash.
Here is an example of Subject To financing:
Sally bought her house five years ago, and paid $100,000. Five years later,
she has a balance of $95,000 on her mortage loan. The house, however, is
valued at $160,000. Due to some health problems, which prevented her from
working for a while, Sally has also managed to acquire $20,000 of debt that
has high interest.
To get out from under that high interest on that debt, Sally gets a second
mortgage on her home and pays that debt off. In fact, she even splurges a
little bit, and when it's all said and done, she is left with about $20,000
in cash, but within a years time, that has dwindled as well.
Sally, who can no longer perform her old job, has been given a different
job, within the same company - but it requires her to move across the country.
Obviously, she now needs to purchase another home, in her new state, and
needs to sell the one that she is currently living in.
Sally visits her local real estate agent, and learns some disheartening things.
Since she took out that second mortgage, she has very little equity in the
home, and the real estate agents fees will have to be paid out of Sally's
pocket, not from the equity in the home. Sally, of course, cannot afford
to do this. She hasn't worked in a year, and the money from the second mortgage
is just about gone.
Sally is in a hurry - she has to be at her new job in just three short weeks,
and she has to be able to at least rent a place to live when she gets there.
Sally decides that she will list the house as 'for sale by owner' in her
local paper. Several people call about the house, and most of them want Sally
to accept offers lower than what she can accept. One gentleman calls, and
says that he will offer the asking price, and that he wants to see the house.
Sally sets up a meeting.
The gentleman arrives for the meeting, and he and Sally spend some time talking,
and Sally explains her situation. The gentleman tells Sally that he is a
real estate investor, and his overall objective is to make a profit. The
gentleman starts explaining the Subject to agreement to Sally, and she listens
with interest. Sally gets a little nervous when the man tells her that she
won't be paid for the house for two years, but relaxes a little when she
learns that the gentleman will be taking over the mortgage payments. Sally
is, however, a little confused, so the gentleman explains further, lining
out the various features of a subject to agreement.
Here is what Sally Learns:
1. The home and the mortgage loan remain in her name for 2 years. In 2 years,
the house will be sold, at Sally's original asking price. Sally will also
receive 5% of the profit that is made by the gentleman.
2. An escrow account is put into place, and the gentleman will be paying
into that escrow account. The gentleman will be paying the closing costs,
and he will immediately pay the first two mortgage payments into the escrow
account as well.
3. The property is claimed to the gentleman, and this means that he is now
obligated to make the mortgage payments, into the escrow account. An attorney
will be hired by the parties, and the attorney will hold the deed to the
property for two years, when all conditions of the agreement will be
fulfilled.
Sally realizes that this will be greatly beneficial to her, especially with
the length of time that she has left. She can use the remaining funds that
she has from her second mortgage to rent a home, and her moving expenses
are covered by the company.
Once the deal is agreed to, and signed, Sally moves. The gentleman puts the
house up for rent, and the rent covers his mortgage payments, and acts as
a rental agent. Two years later, the gentleman sells the house. He sold the
house for $200,000. He pays Sally her original $160,000 asking price, and
sends her a personal check for 5% of his $40,000 profit.
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Articles
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Beginners Real Estate Investing Articles
How to Advertise a Rental
Property
How to Build Equity
in any Real Estate Market
How to Find Motivated
Sellers
Developing a Profitable Real
Estate Investing Strategy
Bird Dogging: Getting Started in
Real Estate Investing
Buying Your First Home
Using Lease Options to Purchase Real
Estate
Real Estate Foreclosures
Increase Your Net Worth Through
Real Estate Investing
Interest Only Mortgages
Real Estate Investing
No Money Down Real Estate
Investing
The Power of the Lease Option
Real Estate Investing Tips
Real Estate Investments
Refinancing Your Mortgage
Loan
Paying Your Mortgage
Selling Your House without a
Realtor
"Subject To" Real Estate
Financing
Using Trusts as a Real Estate
Alternative
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