Finance Roll

When it comes to real estate, the old saying "You need money to make money" is false!

There is a creative financing solution for every real estate situation, especially when it involves residential real estate. You can control such types of property and build income and equity by identifying and applying the appropriate financial solution. Here are some creative ways to purchase residential real estate:

Utilize Your IRA

Sometimes, creative financing is simply recognizing how to use the money right under your nose. Many people have money in a 401K or another type of individual retirement account (IRA). Sadly, most IRAs offer measly returns. Even worse, most people mistakenly assume their IRA funds are untouchable until retirement. The truth is your IRA is one of the most powerful investment tools available today.

The first step in unleashing the power of your IRA is to roll the funds in your current account into a "self-directed" IRA. The process for doing so is as simple as filling out a one page form. Once your self-directed account is established, you can direct your funds into almost any investment vehicle for purchasing real estate. Now, you have more control of the return on your money, and best of all, your profits are tax free.

Assume the Escrow

When purchasing real estate, you can often gain at closing an extra $2,000 to $4,000. This bonus can come from a clause I always include in my purchase contracts: "Buyer to assume all positive escrows." Often, when taxes and insurance are escrowed from a borrower's mortgage payment, the escrow account carries a positive balance. Over the years, that positive balance adds up. If taxes and insurance are escrowed from your real estate mortgage payments, check the balance. You may have extra money just waiting for you.

Pledge Stocks and Bonds

Stocks, bonds and mutual funds can be tempting investments. Unfortunately, such variables as new legislation, changing market factors, and sudden natural disasters make these "investments" unpredictable. Real estate values, on the other hand, take months if not years to fluctuate, so a building or land purchased at a fair price today is virtually guaranteed to become profitable tomorrow. To realize your real estate opportunity, cash in some of your stock market holdings or pledge them for a loan.

Consider Using Chattel

Unlock the potential value of your old car, boat, antiques, art, or furniture. In place of money, consider using chattel in your contract. For instance, you could propose a clause that reads: "Seller agrees to accept a 2003 Ford or a 23' boat with motor as a down payment valued at $X."

Ask for a "Front Porch" Clause

Often, you can find the cash you need from the investment property itself. Given that most properties need repair, ask the seller to make the necessary improvements to the property. (Fixing the front porch, for example.) Later, offer to save the seller the hassle of repairs by simply reducing the purchase price by the repair costs. In your contract, call the reduction your down payment: "Seller acknowledges receipt of consideration in the amount of $10,000 as deposit." That's a true no-money-down deal.

Offer the Seller a Lease-Back

When buying from an owner-occupant, ask the seller about his or her new home search. Sometimes, because a new home has not yet been located or settled on, the seller will want to continue occupying the property for a few months after closing. Thus, a no-money down opportunity is born. In such a situation, the seller will customarily pay rent to the buyer for each month of occupancy. Instead of collecting rent, give the seller a pre-paid lease agreement as your deposit. Have the seller make out a check to you for the cost of the lease, then endorse the check back to the seller.

The seller lease-back technique also works well when purchasing a multi-family property or apartment complex. Offer the seller to lease back one of the units at a deep discount, with the right to sub-let for a profit. Such an arrangement can give the seller the opportunity to make several thousand dollars, which can then be applied to your deposit.

Numerous other ways exist to be creative in financing the purchase of residential property, especially if your goal is investment or resale. You don't need much money to make money in real estate.