There are many different ways to invest in the real estate market. Some investor’s strategy includes finding depressed homes and brokering sales to other investors, some are looking at buying many homes and becoming a rental tycoon and others are looking to invest in a single, very expensive home and make a huge return on their investment. But one of the simplest formulas is to target a demographic that wants a house but can’t get financed. The process is actually very easy to follow and can help you to amass quite a nice profit over the course of a decade or so.
Paying cash for a house almost always gets you a better price. So you find a reasonably priced house that needs some work and you make an offer. Maybe the owner is asking $75,000 and you offer $65,000 all cash. Chances are you will settle somewhere around $68,000 cash. And if the buyer is not reasonable then you walk away. Never over pay for an investment property, there are too many others out there to choose from.
Next you make a few upgrades or repairs to the house. Paint and flooring are always high return items as are investments in the kitchen or bathrooms. Spending about 5K will make the house look newer and more desirable to buyers. Now your total investment is $73,000 and it might appraise at about $85,000. You market the house at $90,000 and you offer to finance the buyer yourself. Your terms are simple, you ask for 5% down and the monthly payments are 1% of the purchase price. And you can set the interest rate at a bit higher than market knowing that this buyer has no other option to get financing. So the buyer only needs to come up with $5,000 down and the payment of $900 a month. Even with the slightly higher interest rate and the higher purchase price the buyer is very happy because he or she knew that it was impossible to finance any other way. They are now buying a home and you are now getting reimbursed for your investment at a very nice rate of return at nearly 25%.