Archive for lease option

The Five Profit Centers on the Strait Path

Jun 17 | by | Cash Flow, Discount Equity, Down Payment, Interest Rates, lease option
No Comments

MONEY%20TREE The Five Profit Centers on the Strait Path

The interesting thing about Strait Path real estate is that even though profitability is one of six factors considered for every deal, the Strait Path system is still far more profitable than other forms of investing. In other words, the Strait Path system is still the best even when profitability is an investor’s sole or primary focus.

This is because the system offers five profit centers, wher

eas others offer only one or two. The five profit centers include 1) discount equity, 2) cash flow, 3) down payment, 4) appreciation, and 5) tax benefits.

1. Discount Equity Discount equity is the difference between the market value and the purchase price of a home. Our finding system helps us secure properties with 15 percent equity or more. Depending upon the size of the home and its discount purchase price, you may make more on one purchase than you make all year in your current job. For example, if a home is worth $275,000 and you can purchase it at a 15 percent discount for $233,750, you’ll make $41,250 on the purchase alone.

2. Cash Flow Cash flow is the monthly amount you receive from your tenants less your monthly mortgage payment. In short, it’s the difference between your mortgage payment and what your tenant pays you each month.

$200/mo cash flow

3. Down Payment The technical term for this is “option consideration,” which is a fee paid by tenants to secure their opportunity to purchase the home within a specified period of time. This is nonrefundable, and we receive on average $5,000 down per house.

$5,000 down payment

4. Appreciation Appreciation is the rise in value of a property over time due to increased demand. What’s notable about Strait Path real estate is that we don’t rely on appreciation to turn a profit, though we do account for it when it occurs.

10% additional profit

5. Tax Benefits Tax law allows homeowners to deduct mortgage interest from their taxes. This is a huge advantage in Strait Path real estate, since the goal is to purchase as many homes as possible

With a fixer-upper, investors receive the first profit center and, if they’re lucky, the fourth. But they have no cash flow, they do not get a down payment, and capital gains taxes often wipe out any earnings. With rentals, investors enjoy tax benefits and sometimes benefit from property appreciation. They receive no down payment, however, and they’re lucky if they get a good deal up front and receive a positive cash flow. Once again, the Strait Path system offers investors all five income streams.

Service to Tenants and the community

Jun 2 | by | lease option, Real Estate, Strait Path Real Estate
No Comments

ServiceSign Service to Tenants and the community

The best part of Compassionate Financing is that it provides tenants huge benefits that they cannot get in any other way.

While it frees you from having to repair toilets, it gives tenants the opportunity to make improvements and feel as if they’re really creating a home environment, which is difficult for renters to achieve. Tenants have the feeling of control and ownership while they are buying time to improve their credit.

They can build equity much faster than they can with conventional financing. They can acquire seasoned loans since they are living in the home before purchasing it. They can take advantage of the opportunity of home owner- ship with a relatively small amount of money.

And with our system, it’s almost a guarantee that they will, in fact, be able to purchase the home. Furthermore, we encourage investors to give tenants an equity bonus when they purchase the home.

You’ll find all the details on the Compassionate Financing system in chapter seven.

Keys to compassionate financing

  • By giving tenants the opportunity to purchase a home, you relieve yourself of the burden of property maintenance, decrease your risk, and increase your profits.
  • You eliminate the predatory nature of lease options, as well as the risk of lost appreciation by using better contracts than standard contracts.
  • You help tenants purchase homes. It serves them better and makes you more profit in the long run.
  • Compassionate Financing gives tenants substantial benefits, such as the ability to make home improvements, time to improve their credit, and the opportunity to build equity. In exchange for these benefits, they are willing to pay more up front, as well as on a monthly basis.
  • Once you’ve gone through the four-phase Strait Path process (plan, find, purchase, serve) with one home, things really start to get exciting, since your success builds exponentially. The more properties you buy, the more you’re able to buy. One home can easily become many over time. Once you purchase a home at a discount and it generates profits, you can leverage those profits and the accumulated equity to purchase another property, and another and another. This is what we refer to as “achieving critical mass,” which is detailed in chapter eight.

Taking advantage of alternative financing

May 21 | by | Discount Equity, Down Payment, lease option, Some food for thought
No Comments

If you don’t have the money to invest directly in real estate at this time, you can still make a ton of money by taking advantage of some programs out there that are not being widely publicized.

Let me give you one example:

My brother just bought a large house from Fannie Mae. It’s on a corner lot in a good area, and includes a studio that can be rented separately. At the peak of the market, it sold for $335,000. The county currently has it appraised at $181,000. My brother bought it for $80,000 cash. It’s an amazing deal. The rental value is $1,750 a month, or $21,000 a year. It will produce about $5,000 in free cash flow a year.

As I said, my brother bought this property for cash — but it could have been done with just 10% down through Fannie Mae’s HomePath program. That means an $8,000 down payment would have gotten you in. If you then sold the property for just half its former peak value in a few years, you’d be selling it for $167,500. That would be a capital gain of $87,500. More than a 1,000% return!

And that ignores the $5K a year in free cash flow or the few thousand you’d pick up in amortization (the reduction of a loan balance over time) — money you could have applied to closing costs and initial repairs.

Taking advantage of the now

May 20 | by | Discount Equity, Interest Rates, lease option, Mortgages, Real Estate
No Comments

Here’s what’s happening in our market and why real estate makes sense.

An excerpt from Michael Masterson’s Journal:

Taking advantage of real estate prices that are as low as they’ve been in 20 or 30 years

It is impossible (and foolish) to try to predict the bottom (or top) of this (or any) market. But, by any measure, we have just gone through one of the biggest real estate recessions in the history of the United States.

In South Florida, for example, you can find properties for less than half of what they were selling for at the peak of the market. More important, you can buy these properties with 20% down and start enjoying positive cash flow from month one. (Four and five years ago, you couldn’t get positive cash flow out of rental units with 50% down.) So today’s prices make sense from a businessman’s perspective.

My real estate partner Peter and I have been buying homes in the $120,000 to $130,000 range (after closing costs and renovations). We are getting monthly rents of $1,300 to $1,600 on these. I am financing our deals at 4% (which is good for me). At that rate, we are making about 6% to 8% on our money, not counting appreciation.

My brother is buying up residential properties and apartment complexes in lively downtown areas, beach areas, and areas targeted for “stimulus money” renovation. He is buying at such deep cash flow prices that he is able to pay his investors (including me) minimum guaranteed yields of 7.5% plus equity participation. Because of this, he has raised a considerable amount of money in the last few months, and he is using the money to do some very impressive deals.

He just bought a 14-unit building across the street from the beach for $725,000! Think of that. Each beach-view, one-bedroom unit cost him only about $50,000 — and this apartment complex could be worth several million in the not-too-distant future. He also now controls three properties in the heart of a rapidly growing downtown, zoned commercial and residential. And even though they’re in a prime spot, he is generating yields of over 8%.

Whether with Peter, through my brother, or by myself, I will continue to invest in real estate so long as prices are low. If they go down further, I’ll buy more aggressively. I have no risk of losing money, because all the properties I’m investing in are making money on a monthly basis. Even if rents drop, I won’t be losing money. The 4% to 8% yield I’m enjoying will cover me even if rents go down another 25%, which is highly unlikely.

I get immediate income from these deals. Instead of getting 0% on my cash, I’m getting a minimum of 7.5% fully secured guaranteed yields by loaning it to my brother, and additional yield from the “after-debt” cash flow.

But the real opportunity is in the appreciation potential. As I said, I fully expect to make an extra $10 million in appreciation in the next five to 10 years as inflation pushes up real estate prices. I might make as much as $30 million, but I’m trying to be conservative.

There are some who say that real estate prices won’t inflate with the rest of the economy, but I think they will. Here’s why. Buildings are built with core commodities… lumber, copper, aluminum, concrete, steel. Labor is another big expense. You can’t have inflation without a rise in those costs.

Plus, as my brother points out, properties in many areas are selling for less than replacement value. In some cases, even if you got the land for free, you couldn’t build these homes for what you can buy them for today. That’s even after taking depreciation into account.

Last but not least, in many instances, it’s already far cheaper to buy than it is to rent. Eventually, this will turn the tide toward buying. It’s just a matter of time.

So that’s my first inflation-beating recommendation: Start buying undervalued, quality rental properties now. Don’t wait for the market to bottom. Just find properties that will give you a net cash flow of at least 4% to 9% after all expenses (including property taxes, maintenance, fees, etc.).

The Lease Option: Benefits For Homeowners And Renters Alike

May 17 | by | In the news, lease option
No Comments

From the press department of REIC, special contributors, Kris Krohn and Kevin Clayson

A lot of people have asked me lately if this economy is good for lease options. I believe the economy has created a perfect opportunity for investors to utilize a lease option strategy, and likewise created a bridge to homeownership for families struggling under the weight of bad credit, job loss, and tight lending guidelines across the board.

Homeowners are finding that a lease option can help keep them from slipping into foreclosure, and even turn a scary situation on their primary residence into an opportunity to become a real estate investor.

If lease options are set up correctly, the investor saves thousands of dollars in vacancies, repairs, and eventual selling costs while enjoying a positive monthly cash flow from day one. In addition, investors do not have to take care of property management and maintenance, and they are giving families that have been hit hard by the global crisis a chance to achieve home ownership.

The question remains: how many families are out there looking for lease options? A common misconception is that only a small group of individuals are interested in a lease option program. I believe investors underestimate how many families could benefit from a lease option. The hundreds of families I have helped enter a rent-to-own program typically fall into one of three categories:

1. A family with great credit and a good job that can qualify to finance a home today. They are interested in building more equity than the banks will allow, and do so by spending thousands less on a down payment through a lease option. These families may already be homeowners, but are looking to move. They have discovered that in order to move into a new home without selling their existing home, they must have a minimum of 30% equity in their existing home. The only way many of these very qualified candidates can now purchase a home is through a lease option. In many instances, they spend less money and build more equity, but still enjoy the benefits of homeownership.

2. A family that purchased a house they should not have qualified for, but loose lending practices and dangerous ARM loans allowed them to buy the home. Many of these families found that as their ARM’s reset, they could not afford the new mortgage payment. Perhaps they defaulted on a payment or two, perhaps they sold the home as a short sale, or perhaps they slipped all the way into foreclosure. They still have a good, stable income, but the new mortgage was out of reach, and their credit has taken a hit. They can no longer qualify for conventional financing, but they are not willing to go back to renting, because they are used to the benefits of homeownership. These families are great candidates for a lease option because they want to be in a home and they can afford the payments.

3. Renters who are looking to become homeowners are the top candidates for lease options. With millions of Americans renting, and many looking for an opportunity to be homeowners, investors can find great tenants to enter a lease option. Renters may not be able to qualify for a traditional loan, or perhaps they need to work on their credit score or save money to purchase a home. A lease options provides a slow, safe path to homeownership.

Now, if someone asks you if lease options are a good idea, either for investors or potential homeowners, you can offer a positive response. Lease options do not have to be predatory; they can be beneficial to everyone involved in the transaction. The current economy is the perfect time for the lease option.

Meet The Team: Josh Nuttall

Apr 21 | by | Discount Equity, lease option, Meet the team
No Comments

I am very new to the REIC team. In fact, until three weeks ago, I had only heard the name REIC once or twice on the radio and had a vague idea that they did something with real estate. Having some previous interest in real estate investing, and investing in general, I was intrigued. But I, like many others, have had experiences in real estate that turned me off to the idea of ever “investing” in real estate.

My paradigm of real estate investing had been soured by bad experiences with real estate agents, an economy in the dumps, an almost complete lack of time (because I have had to work so much to keep the bills paid), and the word “landlord.” I know for a fact that I would never make a good landlord. And I have no desire to find out otherwise.

I began looking into REIC when their Human Resource Department contacted me regarding a position I had applied for. The interview process started with a phone interview, and being the good interviewee that I am, I looked at their web site for more information about the company and what they are about. Five hours later I had to take a break and begin processing all of the information I had just taken in. I began to ask myself if this was just another scam. Can such huge returns happen in a down real estate market? During a phone interview, I asked for more information about the company. One of the questions I asked was about the growth of the company over the past year. The number I was told was astounding: over 300 percent. And this growth was experienced during a down economy. So I continued with the interview process and became successful at becoming one of the newest REIC employees.

All of this took place about two weeks ago. Based on my experiences with the people of REIC, I am confident that REIC will be around for a very long time and will help people make a lot of money in real estate—including me.

~Josh Nuttall

Housing Cents: When A Lease Option Makes Sense

Apr 19 | by | lease option
No Comments

This is a recent article written by biggerpockets.com. You can read the full story here.

Nationwide housing prices continue their downward march, though at a slowing rate. Foreclosures were down nationally in January 2010 , but still claimed a staggering 474,000 properties. Nevada was number one on the list with 1 in 76 property owners losing their homes.

The “blame game” has reached a fever pitch as politicians, bankers, and individuals each take pot shots at each other to assign responsibility. There is certainly enough fault to go around. However, individual consumers’ lack of knowledge on housing, interest rates, contracts, and financial markets must claim part of the responsibility.

Consider a surprising trend – the average high school student thinks he/she will make $145K a year in the work force. On the other hand, only 34 percent of teens understand credit card fees and the bankruptcy rate among 18 to 24 year olds has increased by 96% over the last ten years.

Read the rest of the story here.

FeedburnerFacebookYouTubeitunes