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Now that the real estate market is back in balance, home buyers in the Melbourne area have a significantly bigger pool of properties that they can choose from. This sounds like gold to the ears of a real estate investor, but for those investors who own multiple properties already they may need to check out some creative financing methods to snap up the hot properties.

If your strategy is to fix up and flip, then you may well already have a good idea of how to finance your future purchases with the proceeds from the sale of properties you now own - after your first few purchases, you might never need to lay out any cash again to buy property. However, what if you buy properties in order to rent them out or are not yet to the point where your real estate investments cannot finance themselves in this fashion?

As a real estate investor you understand that you need to get the best possible deal on the purchase, and traditional financing through banks doesn’t always provide that. Plus, they can be plodding and you haven’t got the time for that.

One good option for creative financing of real estate investments is assuming a loan. This entails simply taking on the loan payments of the current owner. However, for this strategy to work for you, the property in question must have been originally financed with a low interest loan but currently have a high market value.

However, only consider this financing strategy if the interest rate on the current property owner’s existing mortgage is lower than the current prime interest rate and his loan agreement does not contain a “due on sale” clause.

Another great creative financing strategy option for investors is the lease option. This can save an investor a great deal of money. A lease option, simply put, is like a futures option in the stock market. Think of it as a “rent-to-own” arrangement, but with a deadline. You pay only a very small amount up front to the current owner - this is not refundable, much like an options premium on the stock market. You have then bought the right to rent out the property as well as the right to sell the property on or before the expiration date of your contract.

If you sign on to an agreement such as this, you should be certain that you have a “Full Right of Assignment” clause included in the contract. This will allow you to sell this property without any further consent form the current owner of the property. Such agreements also carry the stipulation that the owner must, upon request, sell you the property at a previously agreed upon price at any time before the expiration of the contract. You can cancel this contract at any time, but you will of course lose the premium by doing so as well as any rent you have received to date.

By thinking outside of the box, you can do very well in real estate investment. It is important to keep in mind your current situation, whatever that is and plan accordingly. An experienced financial advisor can help you to tailor your strategy for your particular strategy.

Tags: Business