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.
Of course, if you are a fixer-upper "flipper" with two or more properties already owned, you may already understand how to finance all of your future acquisitions with part of the proceeds from the sale of your currently owned properties, so that after your first property or two you never need to lay out any new cash or get financing again. But what if you are a real estate investor who buys properties to rent them out, or you have not reached the point in your flipping business where you can finance everything with sales proceeds?
As a real estate investor you understand that you need to get the best possible deal on the purchase, and traditional financing through banks doesn't always provide that. Plus, they can be plodding and you haven't got the time for that.
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.
Before signing any such agreement, be sure that you are covered by a "Full Right of Assignment" clause. This clause permits you to sell the property without any consent needed on the part of the current owner. These agreements also stipulate that the current owner must sell the property to you at any time before the expiry if the contract if you decide to purchase it. This purchase will be at a price previously agreed upon. This contact can be canceled at any time you choose, though you will lose any rent you have collected so far, as well as the premium paid at the beginning of the contract period.
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.
Of course, if you are a fixer-upper "flipper" with two or more properties already owned, you may already understand how to finance all of your future acquisitions with part of the proceeds from the sale of your currently owned properties, so that after your first property or two you never need to lay out any new cash or get financing again. But what if you are a real estate investor who buys properties to rent them out, or you have not reached the point in your flipping business where you can finance everything with sales proceeds?
As a real estate investor you understand that you need to get the best possible deal on the purchase, and traditional financing through banks doesn't always provide that. Plus, they can be plodding and you haven't got the time for that.
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.
Before signing any such agreement, be sure that you are covered by a "Full Right of Assignment" clause. This clause permits you to sell the property without any consent needed on the part of the current owner. These agreements also stipulate that the current owner must sell the property to you at any time before the expiry if the contract if you decide to purchase it. This purchase will be at a price previously agreed upon. This contact can be canceled at any time you choose, though you will lose any rent you have collected so far, as well as the premium paid at the beginning of the contract period.
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 Solutions for multiple property investors. Visit "Loans Australia" website for more excellent advice on property investment solutions by independent financial advisors.
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