If you’ve been interested in the great returns real estate has to offer, but have been reluctant to start the long and arduous journey of gaining the experience needed to find great deals, negotiate with sellers, structure financing on properties that make sense, overseeing fixtures and maintenance, finding and qualifying tenants or buyers, and everything else that goes into being a professional real estate investor, then I’ve got good news. The good news is that as real estate professionals develop their skills to buy amazing deals and turn them into rental properties or sell them on terms to maximize their profits and cater to a changing market, they often quickly outgrow their personal capital to finance. agreements.
This presents a great opportunity for investors looking to take advantage of our real estate market, but in a much more passive way. This is one way to do it.
Qualified real estate professionals can negotiate to purchase properties that are 25% to 30% or more below the current fair market value, even when factoring in the cost of repairing the properties to bring them up to par. better sales conditions. These investors are often willing to pay high, fixed rates of return for private lenders who are willing to lend the money to purchase these properties. That’s a great opportunity for many investors looking for a well-secured, fixed return on real estate that they can see and touch if they so choose.
Let’s see an example. A real estate professional you know and trust finds a great property worth $200,000 fixed up. The property will need about $20,000 in repairs to bring it into a condition where the real estate investor can offer it to a tenant-buyer who will rent it for a year or two before taking out a traditional loan from a bank and buying the property. property of the investor
The investor can purchase this property for $120,000. Combined with the $20,000 needed to repair the property, they are seeking a $140,000 loan from a private lender to purchase the property and finance the repairs. Remember that the property is worth $200,000, so you, as a private lender, would be lending $140,000 against an asset worth $200,000. That works out to be 70% loan-to-value. Which means there is a $60,000 equity cushion on that property. The investor is willing to pay you, as the private lender, a healthy fixed rate of return on that property, say 9%. When the property is sold, the investor makes a nice profit between what they owe you and what they are selling the property for (minus costs, of course).
With this type of setup, you as a private investor win with a great return on your money well secured by the full value of the property. The investor wins because he can make the deal and make a nice profit when he sells. The buyer wins because they have found a flexible seller who allows them to get into a house on creative terms while they wait for their bank loan. It really is a win-win-win situation.
