Two Ways to Invest in Property When You Don't Have a Ton of $$ to Start Out With

by Dan Jensen
Relocation Services Director - Equity Northwest Properties Group
Investing in Real Estate is a dream for some, a practical activity for others, and the path taken by so many people over years and years of our Country's history to amass significant financial holdings and net worth!

Okay, so RE is a sound path to building your financial empire, but what if you don't have a ton of dough to start with? Is it still possible to invest in real estate?

Short answer is 'Yes Indeed'.

Example/Tool Number One - Option

You see a house you like that's for sale or may be soon... someone you happened to be talking with who said they need to sell their house in the foreseeable future but aren't quite ready at this point. Maybe next year after the kids finish the school year. You express interest in the "possibility" of buying their house and ask if they might consider selling you an Option to Purchase the home - say $500 for the option right to buy the home at a price you both think is "fair".

The Option can be good for any length of time, but let's say this one is good for one year. As time moves along, the value of similar homes increases just a bit, 5% in this case, and the agreed upon price you and the owner set is now a few thousand dollars less than "Fair Mkt Value" for the home. You run an ad in Craigslist offering to sell your Option for $2500 and whoever buys your Option owns the lower price for the house that you negotiated. Whether they exercise the option and buy the house or not, you've made a little extra that allows you to do 2 or 3 similar options and roll up the totals over time to "bankroll" your other RE investment strategies that do require a bit a coin to complete.

Example/Tool Number Two - Lease Purchase

You do your research and find a couple of houses that haven't sold for several weeks. One of the owners just lowered the price on their house to try to attract a buyer, and the other one is running ads that have words like "Urgent", "Hurry", "Must Sell NOW", and the like, telling you they really need to get out from under their mortgage.

You make a couple of calls and ask if they will consider you taking over their payments IMMEDIATELY and put together a Lease Purchase for 3-6 years. The IMMEDIATE relief from their next mortgage payment is enough to persuade one of the owners to accept your Lease Purchase proposal, you write it up with a "Fair" price for their home stipulated, and run a different ad on CL this time...

You're looking for a buyer-tenant for the house. You've made the first mortgage payment ($1600 or so) to your home owner, which buys you a month to find a suitable and interested buyer/tenant for the home.  Your Buyer/Tenant wants to own a home, but they can't get a mortgage for whatever reason, so your Lease Purchase offer makes home ownership possible for them as they repair their credit, season their time at their job, or whatever the case may be.

In short, your are providing them with the opportunity to own a home, something they deeply want, and in doing so, they are not only fulfilling the terms of your Lease Purchase agreement with your seller, but your new Agreement with your Buyer/Tenant is sweetened a bit and will yield money down and a little monthly cash flow for you as well. Well constructed and negotiated, there's likely another bit of cash for you on the back end of the deal when your Buyer/Tenant buys the house!

Not a bad deal throughout!

The details are key here, and too many to try to summarize here, but this Tool allows you to create 1.) cash in hand on the front end, 2.) cash flow throughout the agreement term, and 3.) profit spread on the back end when your Buyer/Tenant executes the purchase of the home.

In both examples above, you have never "OWNED" either home, but you negotiated "CONTROL"  OF both homes that results in PROFIT FOR YOU!

As small pieces of profit begin to add up, AND WITH SMALL amounts invested by you, it opens the door to additional Investment Tools that benefit from having more of a financial capability. We'll cover a couple of those ADDITIONAL TOOLS in our next post here.

In the mean time, get ready for a great Independence Day week ahead of us and thanks for checking out our blog!

The Back to School Lull and Home Affordability

by Rod Sager

All the kiddies are on the bus and off to school. Much to their chagrin but leaving mom and dad with a happy grin. This is a hectic time in the lives of families as the summer transitions to fall. I am noticing here in the local market a bit of a lull in activity. I believe we will see a slow down as is typical for September, but should still beat last year's ninth month figures. As the month comes to a close it is likely to pick up a bit.

Autumn can be a great time to sell or buy a home. The air is crisp and clean, colors begin to shift to golden hues of red and orange. It is just a wonderful time of year. If you are listing a home it is wise to keep the leaves clear of the walkways. Wet leaves are hazardous and may keep some people from looking at the home thoroughly. Keep the rain gutters clear of debris as well. Overflowing gutters are easy to fix but leave a negative impression on buyers. Here is a link to a great article on selling your home in the fall. One thing you will find in the article is a tip on keeping the home as bright as possible. Here in the Washington we have the double whammy as the year labors on. First, we get allot of cloud cover which makes homes darker inside during the day. Second we are well above 45 degrees of latitude and that means a low hanging sun for an even darker dark day. The bottom line is bright sells!

Source, Regional Multiple Listing Service

For buyers the time may be right now. As the activity slows down just a touch, the manic multiple offer scenarios will be a little less frequent. Rates are stable, for now, but the end of this year marks the end of several key federal programs that could create a dilemma for entry level buyers. Of course prices have been edging up as well, so buyers that wait will likely pay more. The home affordability index peaked in early 2012 and now is beginning to tighten up. The chart shows the index based on an NAR model. The value is the percentage of the mortgage on a median priced home that the median family income can support. As of June this year it was 167%. That means a family earning the median income in this area can afford 167% of the mortgage of the median priced home. This is still very affordable and frankly means that even families well below the median income can qualify for home at or near the median. Home affordability is more important than price since price is relative. If a house is $50,000 that is a low price, but if a buyer only qualifies for $45,000 than it is relatively expensive and out of reach. Keeping the affordability index at 100% or more is healthy for the market. we have a healthy market right now, so buyers should jump in and sellers should get ready to move.

Rent or Own?

Census information shows some interesting differences in housing that is available for renters vs. that which is available for sale. Overall the most interesting statistic is the median age of an owner at 54 versus the median for a renter at 39. I believe the age gap to be attributed primarily between two key factors. Younger people earn less money on average and tend to be more mobile. Mobility lends itself to rent rather than own. But if money is driving a younger person away from home ownership, this market is an ideal opportunity to own sooner rather than later. With home prices on the rise but still low and rates remaining at the historical bottom of the range, money is not the issue.

I have found that my buyers over the last two years have in fact been on average younger than ever. I would imagine that the next iteration of this bi-annual government report will show a closer gap between owners and renters as young people seem to jumping at the opportunity to buy that this market has provided.

From the Oregonian, Portland, OR:

"Rent or buy? A recent housing survey shows that the stock of Portland-area rental homes offers a very different sent of amenities and conditions than metro owner-occupied homes.

Many of the differences are likely explained by demographics. Homeowners have a median household income of $70,000, while renters' median household income is $34,164. Renters also skew younger: the median age for the head householder among renters is 39, compared with 54 for homeowners.

The American Housing Survey, conducted by the Census Bureau and the Department of Housing and Urban Development every two years, features metro-area numbers are released on a rotating basis. Portland's haven't been since 2002.

The Census Bureau surveyed 3,885 Portland-area householders, or about one in every 240 housing units. These numbers reflect data collected in 2011.

-- Elliot Njus"