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From Real Estate Investing 101 to Cutting Edge Techniques

By Brian Kline | September 13, 2013

Many will say otherwise but there are still many ways of profiting big in today’s real estate market. It can be done using real estate investing 101 techniques or using new techniques specially intended to exploit today's market.

Real Estate Investing 101 Methods in Today’s Market

Rehabbing houses is a real estate investing 101 technique that works well in today’s market. The secret you need to know is there are still tons of REO properties that banks need to unload. True, Fannie and Freddie's REO inventory is down 10% from a year ago but between the two of them, they still have 183,381 REO units. These properties need anything from major repairs to a little sprucing up.

Photo Courtesy of Fotolia

Photo Courtesy of Fotolia

The banks know they have to sell well below market price , if they are ever going to clear these properties off the books. The best real estate investing strategy is finding REO properties for less than 65% of market value after repairs. For a $100,000 retail value house this means buying for $65,000. Of course, the trick is finding the properties needing the least expensive repairs. One of the basics of real estate investing is you need to have plenty of profit margin in the deal to make the risk worth taking.

An important part of this real estate investing technique is rehabbing in the right neighborhoods. This is where many beginning investors go wrong. They mistakenly think the place to begin is with run down houses in a bad neighborhood because deeply discounted house are easier to find there. However, today’s market still offers real estate investors great opportunities in middle class neighborhoods. These are the easiest rehabs to sell and banks have tons of them on the books.

A Real Estate Investing Technique Unique to Today's Market

Back flipping residential houses is an advanced technique specifically suited to today’s marketplace where many owners find their homes worth less than the mortgage. This is an advanced way of doing a short sale. These are not foreclosures. This is a win-win-win for you as the investor, for underwater homeowners, and for the banks that don't want any more foreclosures.

This is a residential back flip. The goal is keeping the owner in the house but erasing the underwater mortgage. It can be done two ways. One is convincing the bank to reduce the outstanding mortgage to today's market value. You put together the equivalent of a short sale package and negotiate a fee to be paid by the homeowner.

Option two is bringing in private money to buy out the bank for the current market value or less. The reason banks do this is because it removes a liability from the books, brings in cash, and reduces the bank's exposure to a future potential foreclosure.

It doesn’t work for everyone but in many cases the bank will sell the note to bring in much needed cash. With the right arrangement, the owner stays in the house with a lower new mortgage with no damage to his or her credit. You need to have a private money source. Typically, you make money in one of two ways. Either a flat fee from the private money proceeds or as a middleman, you charge the borrower a slightly higher interest rate than you pay your private money source.


Author bio: Brian Kline has been investing in real estate for more than 30 years and writing about real estate investing for seven years. He also draws upon 25 plus years of business experience including 12 years as a manager at Boeing Aircraft Company. Brian currently lives at Lake Cushman, Washington. A vacation destination, a few short miles from a national forest in the Olympic Mountains with the Pacific Ocean a couple of miles in the opposite direction.

Brian Kline has been investing in real estate for more than 30 years and writing about real estate investing for seven years with articles listed on Yahoo Finance, Benzinga, and uRBN. Brian is a regular contributor at Realty Biz News
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