After Tax Cash Flow Of A Sale Real Estate Beginning Real Estate Investing – "Subject To…" Investing

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Beginning Real Estate Investing – "Subject To…" Investing

This is another in an ongoing series of articles on getting started with real estate investing. Today, we’ll cover the basics of “subject to…” investing. Those new to real estate investing have many questions about “subject to…” investing, and this article should answer many of your basic questions.

First of all, it is important for those who are starting to invest in real estate to know what the “subject…” investment is. “Subject to…” means you purchase the property “subject to…” existing financing in the seller’s name.

Say you get a call from a motivated salesperson. He tells you that he must sell his house immediately. He also says he owes about $100,000 on his mortgage, with payments of about $900 per month including principal, interest and taxes. Even if you just started investing in real estate, you know that his house has an estimated market value of about $130,000.

You go to his house. It doesn’t matter if you are just starting out in real estate investing. After all, he needs to sell now. You tell him that you will take over his mortgage and continue to do so until the house is sold. You don’t know how long it will take, but the mortgage will remain in his name until you sell it.

He asks if you can give him some cash to move. Even a beginner in real estate investing can negotiate a deal like this. After going back and forth a couple of times, you both agree on $3,000, which you will pay him the day he moves out.

Now, what do you have? A house with an estimated value of $130,000 would cost you about $103,000 and a monthly payment of $900. Since you’re just getting started in real estate investing, there’s something you need to do right away… market for a renter buyer.

So, you put an ad in your local paper and put up some signs in Mr. Seller’s neighborhood: “Lease to Own – Bruised Credit OK.” Your phone starts ringing and you find a young couple with a good job and good income who ran into financial trouble a year or two ago. You explain to them that even though you are new to real estate investing, you feel you can help them.

You offer them to rent the house with a 12-month option to buy it. Their monthly lease payments to you will be $1,200 and their purchase price will be $135,000. They will also pay you a non-refundable option fee of $5,000. It doesn’t matter if you’re just getting started in real estate investing—you can definitely see what you’ve just accomplished.

You have a monthly positive cash flow of $300 – the difference between the $900 you pay and the $1,200 the young couple gives you. You also currently have $2,000 cash in your pocket—the difference between the $3,000 cash you paid the seller and the $5,000 cash the young couple paid you. When the young couple exercises their option to buy, you’ll also pocket $32,000 – your purchase price of $103,000 and them paying you $135,000. Not bad for someone new to real estate investing!

We’ve barely scratched the surface of “before…” investments, but I think you get the idea. I have more great ideas for you Start investing in real estate.

Now, offer more!

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