A Passive Approach to Real Estate Investing

If you have been interested in the great returns that real estate has to offer, but have been reluctant to start the long, hard journey of acquiring the expertise of finding great deals, negotiating with sellers, structuring financing on properties that make sense, overseeing fix up and maintenance, finding and qualifying tenants or buyers and everything else that goes into being a professional real estate investor, then I’ve got some great news. The great news is that as real estate professionals develop their skills at buying amazing deals and turning them into rental properties or selling them with terms to maximize their profit and cater to a changing market, they often quickly outgrow their personal capital for funding deals.

This presents a great opportunity for investors that are looking to take advantage of our real estate market, but in a much more passive way. Here’s one way to do it.

Skilled real estate professionals can negotiate to buy properties that are 25 to 30% or more below current fair market value even when you factor in the cost to repair the properties to get them into top selling condition. These investors are often willing to pay high, fixed rates of returns for private lenders that are willing to loan the money that allows them to purchase these properties. That’s a huge opportunity for many investors who are looking for a return that is fixed and well secured by actual real estate they can see and touch if they wanted to.

Let’s look at an example. A real estate professional that you know and trust finds a great property that is worth $200,000 fixed up. The property will need about $20,000 in repairs to get 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 they get a traditional loan from a bank and buy the property from the investor.

The investor can purchase this property for $120,000. Combined with the $20,000 that is needed to repair the property, they are looking to borrow $140,000 from a private lender to purchase the property and fund the repairs. Remember the property is worth $200,000, so you, as the private lender, would be lending $140,000 against an asset that is worth $200,000. That works out to be 70% loan to value. Which means there is a $60,000 cushion of equity in that property. The investor is willing to pay a healthy fixed rate of return to you as the private lender on that property of let’s say 9%. When the property sells the investor makes a healthy profit between what he owes to you and what he is selling the property for (minus costs of course).

With this type of setup, you as the 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 do the deal and make a nice profit when it sells. The buyer wins because they have found a flexible seller that allows them to get into a house with creative terms while they are waiting for their bank loan. It truly is a win-win-win situation.

A Passive Approach to Real Estate Investing