This is a follow up article to a similar posting I made for Realtors. How can Realtors put cash in their pocket today?
One of the questions I get asked more and more frequently in this economy is "How can I generate immediate income from real estate?" Being an established real estate broker, I get this question from my Realtors®, from newbie investors, and even from seasoned investors. While the Central Florida real estate market seems to be in a constant state of flux, there are some definite things that are working. Fortunately, I happen to be in a unique position to deal with many different people from all types of situations. Many are struggling but more people than you think are earning 6-figure incomes right now. These techniques will not necessarily put money in your pocket instantly, but if done properly can generate real money within 30 to 60 days.
1. Wholesaling. In simple terms, wholesaling is nothing more than signing a purchase contract to buy a property super cheap and then selling the property for a little bit higher than what you paid. The spread between what you paid and what you sold it for minus any expenses is your profit. Some newbie investors think you can simply refer leads or buyers to other investors and charge a referral fee or bird dog fee for doing this, but if you do not have a legal interest in the property then you probably need an active real estate license to do this. (Refer to Chapter 475, Florida Statutes for more details.) Often times you can tie up a For Sale By Owner (FSBO) property with a purchase contract using little to no money and a decent inspection period. With bank owned a/k/a real estate owned (REO) properties, you will need $1000+ deposit and a very short inspection period. In 2010, I personally wholesaled 11 properties in Central Florida. About half of those were REOs and the other half were FSBOs. My spreads ranged from a low of $1,500 to a high of $17,000 and pretty much all the deals were 30 to 60 days from contract to closing.
2. Options. A cousin of wholesaling is using options. Options require the buyer/optionee to put up non-refundable money in order to tie up the property for a certain time period. At the end of the time period, the buyer/optionee has the option to either buy the property or walk away. During the time period that the property is being optioned, the buyer/optionee can shop the property around for a higher amount. Options are used frequently in vacant land and commercial deals in order to allow a developer to assemble adjacent properties and do other due diligence with minimal risk. Florida law (F.S. 475.43) requires the money to be "substantial consideration" in order to make the option valid. What substantial consideration means is not defined, but I am thinking that $100 to tie up a $100,000 home on a 1-year option is probably not substantial.
3. Buy subject to. In short, buying a property "subject to" an existing mortgage is simply finding a seller who is willing to deed a property over to you but instead of paying off their mortgage, you keep making their payment for them. Many times, you can get these deeds for little to no money out of your own pocket. Then you have a few options. (A) You can sell the property to someone else subject to the same mortgage. (B) You can sell the property on a lease option/lease purchase. (C) You can rent out the property. (D) Or if there is enough equity for it to appraise, you could sell the property and have the existing mortgage paid off. There are some specific state laws regarding foreclosure rescue (F.S. 501.1377) and equity skimming (F.S. 697.08) as well as federal laws that must be abided by, but typically you will be in compliance as long as the loan is not in default and the mortgage payments keep getting made. Often times you can find your buyer or renter before you even close on the deal.
4. Partner opportunities. If you need help with finding buyers, sellers, or properties, join a local investment club. Many club members will be more than happy to help you do this. And many of the local wholesalers and real estate agents have properties and have cash buyers on hand. You just have to ask around.
5. Foreclosure related activities. Just about anything you can think of related to foreclosures, short sales, and REO properties can generate income. From doing trash outs, cleanups, lock changes, mowing lawns, winterization, short sale mitigation, door knocking, taking photos, and on and on. Be creative. You just need to figure out a way to get paid for providing these services. There are thousands of foreclosure properties in Central Florida and many more that are coming down the pike for years to come.
There is simply not enough room in this article to go into great detail about these transactions. With all transactions, there are pros and cons to be weighed and risks involved. However by attending investment club meetings and seminars, buying educational courses, or simply going on the internet and reading you can gain a vast knowledge of the in's and out's of these sort of deals. All of these opportunities should be reviewed by your legal advisor before proceeding. Additionally depending on the specifics of what you are doing, you may need a professional license in order to comply with the law. One of my jobs at Sand Dollar Realty Group is to mentor new investors and new Realtors. So if I can help, please contact me.