Real Estate Investing FAQ: Terms Deals & Exit Strategies

Terms Deals

1 What is a lease option and how can it benefit me as an investor?

A lease option combines a long-term lease with an option to purchase the property at a predetermined price within the lease term. It allows you to control the property without outright ownership.

- Control and potential appreciation: Control the property and benefit from any future appreciation by locking in a purchase price.
- Subleasing: Generate cash flow by subleasing the property to a tenant buyer at a higher rent.
- Lower upfront investment: Control the property with a smaller initial outlay compared to a traditional purchase.

2 What does “buying subject to existing financing” mean?It means purchasing a property while leaving the seller’s existing mortgage in place. You become the owner, responsible for making mortgage payments, while the seller technically remains the borrower.

- No loan qualification: Acquire property without undergoing the traditional loan application process.
- Leverage existing financing: Utilize the seller’s existing mortgage to finance the purchase, potentially requiring less cash upfront.
- Profit potential: Benefit from appreciation and cash flow while paying down the existing mortgage

3 What is owner-carry financing and why might a seller agree to it?Owner-carry financing is when the seller acts as the lender, financing part or all of the purchase price. The buyer makes payments directly to the seller over an agreed-upon period.

- - Faster sale: Attract buyers who might not qualify for traditional financing, potentially leading to a quicker sale.
  - Steady income stream: Receive regular payments from the buyer, creating a passive income source.
  - Potential tax advantages: Spread out capital gains over time, potentially reducing tax burdens.

4 Can I combine different terms deal acquisition strategies for better results?Yes, combining strategies can maximize profits and minimize risk. For instance, you could buy subject to existing financing and negotiate a lower cash price with the seller, or combine a subject to purchase with owner financing for part of the seller’s equity.

Exit Strategies

What are the key differences between “retailing” a property and “flipping” a deal?
- Retailing: Selling a property on the open market to a buyer who intends to occupy it. This typically involves using a real estate agent or selling “for sale by owner.”
- Flipping: Assigning your purchase contract to another buyer, often an investor, for a quick profit. You don’t actually own the property but profit from the difference between your purchase price and the price you sell the contract for.
What are the advantages and disadvantages of renting out a property?
- Advantages:
- • Cash Flow: Generate monthly income from rental payments.
- • Appreciation: Potential increase in property value over time.
- • Loan Amortization: Gradually pay down the mortgage balance.
- • Tax Benefits: Possible deductions for expenses related to owning a rental property.
- Disadvantages:
- • Maintenance costs: Responsibility for repairs and upkeep.
- • Tenant management: Time and effort required to deal with tenant issues.
- • Vacancy costs: Loss of income and expenses incurred between tenants.
How does a rent-to-own strategy work, and what makes it appealing?A rent-to-own agreement allows a tenant buyer to lease a property with the option to purchase it at a predetermined price within the lease term. They typically pay a non-refundable option fee and a slightly higher rent.
- Benefits for investors: Offers cash flow, potential appreciation, and a tenant with an “owner’s mindset” who takes better care of the property.
- Benefits for tenant buyers: Opportunity to build credit and save for a down payment while locking in a purchase price.
What are the benefits of selling a property with owner financing?
- Reduced competition: Attract a wider pool of buyers who might not qualify for traditional financing.
- Lower expenses: Potentially avoid real estate agent commissions and closing costs.
- Faster sales: Owner financing can lead to quicker sales due to increased buyer interest.
- Fewer lender hassles: Easier for buyers to secure financing, streamlining the closing process.