Entrust Learning Center > 5 Investing - Real Estate > Think You Dont Have Enough in Your Account for Real Estate Transactions?

Think You Dont Have Enough in Your Account for Real Estate Transactions?

We receive many calls from clients and prospective clients who want to have their money working for them in real estate or real estate related assets but think they dont have enough in the account to really make it work.

Frequently, that’s a big misconception!

There are several investments available to the relatively small account – if you know where to look for your investors.

For the purpose of this article, I define small as less than $25,000.00. Although there are still plenty of areas of the country where this will buy real estate outright, it’s generally not enough in the hottest markets today. There’s still plenty of opportunity in these markets, however, for you to make that money work for you harder than it would on Wall Street.

One good possibility is for you to loan money from your IRA to an investor seeking rehab funds for properties they have purchased. You can loan money at a fixed interest rate or create an equity participation note where you will share the profits when the property sells. In some markets, these returns can be dramatic.

Additionally, you can secure the note with the real estate to be rehabbed providing even more safety for your investment. Another possibility is the use of the Purchase Option on a property. While options generally require a more thorough understanding of the local market you are working in, if used correctly, they can produce a great return on the investment. Here’s how it works – you locate a property that you believe is undervalued in the market. You negotiate with the seller and they accept your option to purchase the property within X number of days at a given price. The option is issued to your IRA and the option consideration fee is paid from it as well.

This option is recorded at the courthouse to secure your position on the property. You then put your marketing skills to work to sell the property at the price you believe is appropriate. When you’ve found a willing buyer, they must pay your IRA the difference between the two selling prices in order to clear title at the courthouse and proceed with a closing on the property. The downside to this is that if you are unable to find a willing buyer within the days specified in the option, it expires and your IRA loses its consideration fee paid to the owner. Like I said, this requires a more thorough understanding of the market you’re working in, but seasoned real estate investors can take advantage of this with great success.

A third possibility is to “buy” a house subject to the existing mortgage. There are numerous classes on this available through your local Real Estate Investors Association, and it’s too complex to cover in detail in this article. However, the concept is that you find a motivated seller looking to quickly exit their property and you take title to the property “subject to” the existing mortgage. Title to the subject property is transferred to the IRA and the IRA holder agrees to pay the existing mortgage from the funds in the IRA.