There are only three ways to buy Real Estate.
by James Miller
Yes there really are only three ways to buy Real Estate.
When you get started in Real Estate investing it can seem like there are hundreds of buying techniques you need to know. In reality there are only three ways and every other method you think you know is just a variation of these three.
1) You pay the seller cash
2) You get terms from the seller.
3) You and the seller agree on some combination of cash and terms.
You pay the seller cash. It doesn’t have to be your cash, you can borrow if from a bank, a hard money lender or from an individual. You can partner up with someone in either a debt or equity financing position. You can borrow from your 401K.
It doesn’t matter where the cash comes from, it just means that the seller is getting completely paid off at the time of closing.
Cash is one of my least favorite ways to buy, unless I can use an all cash offer to drive the price down through the floor. I am talking 30 cents on the dollar kind of thing.
You buy the property from the seller “subject to” the existing financing, by using a wrap around mortgage, land contract, or rent to own/lease option type purchase, or by having them carrying the whole first mortgage.
Most of these will require some small outlay of money, but in Real Estate terms I consider anything costing you under a few thousand to get into a property “no money”.
Terms means that the seller (or his lender) is not paid off when you take over the property, and that there isn’t any sort of significant down payment being transferred to the seller.
Terms from the seller is one of my favorite ways to buy property.
Combination of Terms and Cash
You pay the seller a portion of the purchase price in cash and they finance the rest for you in some way. It could be that they carry back a first mortgage, a second mortgage, use a land contract, lease option, wrap around or even “subject to”.
This is the most frequent way that I purchase property. Sometimes I decide to catch up a mortgage in order to take over a property “subject to”. Other times the sellers want a down payment to feel comfortable carrying back a first mortgage on the property.
Buying property really is just this simple. Don’t let the details of the multitudes of creative techniques confuse you.
It always comes down to one of these three ways.