Newbies In Real Estate Investing

[WendyPatton]

I suggest you start with options and lease options.  They are virtually risk free and require little out of pocket capital, and will generate fast cash upon assigning them.

Sorry to sound so vague but could you elaborate a little more in what your talking about?

Lease options are a great strategy to gain control of a property with little or no money out of pocket. Essentially you have homeowner who needs to sell. You can offer to purchase their home on a lease option. This is basically a rent to own. The price you are going to purchase the house for is set up front as well as a monthly rental amount and an amount that will be credited towards the purchase price every month. As an investor, you can then find a tenant buyer (renter that is going to pay option money and live in the house) that is going to pay a higher price for the house and also cover your option fees to homeowner. A simplified example of this would be like so:

Prop A FMV 150000                (price the house is worth now)
Purchase price 140000             (price you agree to buy it for)
rents 1000/mo                         (rent agreed to)
rent credit 250/mo                  (amount going toward the purchase price)
3 year term                             (length of contract)
1500 option fee                      (amount paid for the right to buy the house)

You then find a tenant buyer who wants to buy this house and it looks like this:

Prop A FMV 150000
Option Premium 7500                 (cost of you offering a option)
Purchase price 157500               (17500 profit 157500-140000)
Rent 1150/month                         (2700 profit 1150-1000=150x18)
rent credit 100/mo                      (2700 profit 250-100=150x18)
18 mo term                                 (in case the first TB doesnt exercise)
4500 option fee                          (covers your option and pays you 3k up front)

The total profit of this deal would be $22900

This of course doesn't take into account any transfer taxes or fees but this is just an example to show how a sandwich lease option works.

[cacoca]

greetings everyone, I am from so cal and have no experience or knowlege in real estate and work full time in retail with a minimal college backround.  I was introduced to the idea of Assignment of Contract buy an organization.  How would I go about making money using an assignment of contract.  Should i join an investment club first?  Keep in mind my real estate vocabulary is at the level of a 9th grader.  I dont even know what equity means in term of real estate.  Thanks.

[WendyPatton]

Home equity is the market value of a homeowner's unencumbered interest in their real property—that is, the difference between the home's fair market value and the outstanding balance of all liens on the property. The property's equity increases as the debtor makes payments against the mortgage balance, and/or as the property value appreciates. In economics, home equity is sometimes called real property value.

Technically, home equity has a zero rate of return and is not liquid. Home equity management refers to the process of using equity extraction via loans—at favorable, and often tax-favored, interest rates—to invest otherwise illiquid equity in a target that offers higher returns.

Essentially if the house is worth $200,000 and they owe the bank $150000 then there is $50,000 in equity.

Welcome to the board

[MichaelQuarles]

Hello Wendy...

Is it okay if I disagree just a little... on "Essentially if the house is worth $200,000 and they owe the bank $150000 then there is $50,000 in equity."

I always look at worth a little differently than what an appraiser would appraise a property for.  I break it down into two groups, money value and worth value and I am not certain in either case your example would have 50k in equity.

It would be nice if this business were that straight forward

[cacoca]

Home equity is the market value of a homeowner's unencumbered interest in their real property—that is, the difference between the home's fair market value and the outstanding balance of all liens on the property. The property's equity increases as the debtor makes payments against the mortgage balance, and/or as the property value appreciates. In economics, home equity is sometimes called real property value.

Technically, home equity has a zero rate of return and is not liquid. Home equity management refers to the process of using equity extraction via loans—at favorable, and often tax-favored, interest rates—to invest otherwise illiquid equity in a target that offers higher returns.

Essentially if the house is worth $200,000 and they owe the bank $150000 then there is $50,000 in equity.

Welcome to the board

Thanks wendy although some of what you said was confusing but what about assignment of contracts?  should I start out using them like the enlighntened wealth institute said i should? what do you reccommend someone like me should start at?  Also what do you think about rich dad poor dad stuff should i ignore it?