Sunday, September 23, 2012

Wholesale and lease option as exit strategies

When it comes to making a profit from real estate, there are a number of different deals you can pursue. Of course, each of these deals comes with its own advantages and disadvantages. But, if you follow some simple rules, no matter what kind of deal you pursue, chances are you can make a substantial profit.

In a wholesale situation, you create a contract and then assign the contract to another real estate investor who has the cash. With a wholesale deal, you often fund it with a private lender. For the most part, my company does not do many wholesale deals since we have the money to rehabilitate a property. Of course, even with a wholesale deal, you are still going to borrow money for the down payment and the holding cost. The goal is to make at least ,000 on wholesale deals.

With a lease option, you're looking for a down payment from your buyer along with a monthly payment. In essence, you are establishing a 12-month lease-to-own. The potential buyer pays rent monthly for 12 months and he or she has the option to purchase the home at any time during the 12-month agreement.

At the end of the 12 months, if the buyer has not been able to get his or her credit repaired so that financing can be secured, you can decide whether you want to extend the lease option for an additional time period. When you establish lease agreements for a second year term, you would raise the price of the property and the monthly payment in order to safeguard your investment. Of course, your goal is for the individual leasing the house to buy it. You don't want to become a perennial landlord, since you're in the business of buying and selling houses.

At the beginning of the process, the company decides if it wants to focus on land contracts or cash sales. Of course, the methods of advertising used will differ between the two strategies. Also, with a cash sale, you will need to set a time limit for how long you're willing to wait for the buyer to close the deal.

No matter what kind of real estate deal you pursue, you will need to pay close attention to the details. If you don't, you could end up earning less money on a property than you would otherwise.

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