Wondering how to use real estate to create cash? Here's some NEW ideas I bet haven't occurred to you (yet). The concepts I'm sharing with you are far from exhaustive, but rather a new way to think about generating fast cash from your real estate investments.
If you already own real estate as your primary residence, there are several ways to get fairly fast cash from it. The first option would be to apply for a HELOC (home equity line of credit) with your favorite bank.
However, with rental and/or investment properties you can get creative. It's best if they are rented out, because other investors like to buy rentals that are in good condition, and have a tenant history. Learn more about turnkey rentals here.
I was looking for some cash to pay off a note that was coming due soon, and I reached out to my long term tenant and offered to sell them the property on a lease-purchase plan. They have told me how much they love living there, and here's an opportunity for them to make it their very own.
A lease-purchase, sometimes called a lease option, or rent-to-own, simply means that you agree to lease the property to the tenant for a set time (2 years is most common) and at the end of that time they have the option to execute the purchase agreement and cash you out at the agreed upon price.It's kinda like selling them a coupon to buy the house they already live in.
I like to get at least 5% as an option fee right up front, and that gets credited to the tenant/buyer when they complete the purchase of the house.
One of my favorite author-investor is from the great state of Texas, Mitch Stephen, offers excellent step-by-step advice in his book,My Life & 1000 Houses: The Art of Owner Financing
If your tenant pays $750 per month in rent, the property is most likely worth about $75,000. Then he bumps that up by 10%, which he takes as the option payment.
So then, when you enter into the lease option purchase, the tenant (using this example) would pay you the 10% as a right to the option to purchase the house ($7,500) upfront.
The tenant would continue to pay the normal rent of $750 and when the agreed upon time to purchase the property, say 2 years from now, comes along, they would find their own financing and cash you out of the agreed upon sales price -- or you could owner finance them. Owner financing is a lesson for another day, let's talk more about how to use real estate to create cash right now.
Owning real estate free and clear, or with at least some equity opens up the idea of creating a note on the property. Once you create the note it can then be sold to an investor, using your real estate to create cash. I learned all about buying, selling and creating notes at my local REIA group. It's an eye opener, for sure.
If you haven't attended a REIA (Real Estate Investor's Association) meeting, it's a great place to start meeting others who share your interests on how to use real estate to create cash and beyond.
Many of us don't like to touch our passive income investments, and can generate cash by wholesaling real estate to other investors. It's fun, and you'll be helping others along the way. Read more about how to wholesale real estate here.