We understand that real estate investing can be complex and confusing at times because the term “real estate investing” is a broad categorization of everything that falls under that umbrella. We are here to support investors regardless of experience level.
Some different ways to invest in Real Estate
• Wholesaling – This is an investment strategy involves an investor entering into a purchase agreement with a seller to purchase their home. That investor then assigns their interest in the contract to another investor for a financial interest known as an assignment fee.
• Subject-to – This strategy involves an investor obtaining ownership of a property by entering into an agreement with the seller to make the payments to the bank on behalf of the seller. The investor gets the deed, but the debt stays in the owner’s name until the lien is satisfied or until the investor refinances a property into their name.
• Lease with the Option to Buy- This strategy involves an investor agreeing to become a tenant of the homeowner with a condition that allows the investor to sublet the property to a tenant. The investor and the homeowner agree to a price and at any point in time within the lease, the investor has the right to exercise their option to purchase the home.
• Flipping- This strategy involves an investor acquiring a property that is possibly in the need of updates. The investor then updates the property to current market conditions and resells the home. The most common formula for flippers is ARV*70% – Cost of Repairs = MAO. (These terms are defined further down the page.)
• Landlord- This investor strategy involves the investor purchasing single or multifamily homes and renting the unit out to a tenant. There are multiple strategies on how investors execute this investment strategy.
• Private or Hard Money Lender- This is a passive strategy where an investor may loan another investor money and charging interest and points. The money is typically secured as a mortgage on the property and a promissory note signed by the borrower.
These are just a few examples of what can be done in real estate investing. There is always an element of risk involved when it comes to any type of investment strategy. The best way to hedge yourself against any negative experiences is to educate yourself on different real estate investment strategies and then pick the right investment strategy that works for you.
The best time to start investing is now. If you are waiting to time the market or waiting for the conditions to be perfect, then you will never get started. We always suggest educating yourself about different investment strategies and becoming familiar with the vocabulary of being an investor. We also suggest that you find a coach, someone in your local market, that can teach you from their experience. Join local real estate investor groups on Facebook, local meetups for real estate investor associations, or attend a seminar and network with like-minded people. .
• Short Term Rental (STR) – This type of rental has shorter terms for rental agreements ranging from days to months. These types of homes could also be vacation rentals or corporate rentals
• Vacation rentals – These properties are typically advertised on multiple short term rental sites such as VRBO, Home Away (same company as VRBO), AirBnB to name a few.
• Single Family Home (SFH) – This is a single-family dwelling intended for use by a single-family unit.
• Multiple Family Housing (MFH) – This 2+ units in one building. 2-4 units in one building can be financed with conventional financing. 5+ units in a building does not qualify for conventional financing and may require commercial financing
• House-Hacking – This strategy is where an investor purchases a multi-family dwelling and intends to occupy one of the residences as their primary residence. The other units are rented out.
• Novation – A legal instrument used to replace one obligation or party with another in a contract. All parties in the original contract must agree to the changes to execute a novation. Once all parties accept it, the novation nullifies and replaces the previous agreement.
• Assignment – A sales transaction where the original buyer of a property (the “assignor”) allows another buyer (the “assignee”) to take over the buyer’s rights and obligations of the Agreement of Purchase and Sale, before the original buyer closes on the property.
• Double Escrow – This is a strategy where an investor closes on the sale with a homeowner first and then the investor will close on the sale with an end buyer in the same day.
• End Buyer- This is the last buyer in the chain of a transaction.
• Transactional Funding – This is short term funding provided from one investor to another for a certain rate or percentage. This type of funding is used to complete A to B , B to C transactions.
• A to B, B to C – This type of transaction exists because an investor cannot use end buyer (B to C) funds to complete the purchase of a home between the investor and the homeowner (A to B).
• Lease with the option to buy – This strategy allows the investor to have control over a property without ownership. The price is agreed upon with a seller for a period of time. That price is locked in with an option fee paid upfront to secure that price.
• Proof of Funds – This is a statement from an account that shows that there is enough money in an account to cover purchase a property at the agreed upon price.
• Earnest Money Deposit – A consideration in a contract that is held by a 3rd party in escrow until completion of the contingencies in the contract. The earnest money is deducted from the final cash to close.
• Owner’s Policy – An owner’s policy protects a buyer’s ownership interest in real estate if a past title or ownership issue comes up after the purchase.
• Lender’s Policy – A lender’s policy protects the lender in the event a past title or ownership problem arises after the real estate transaction. If the sale is cash, there is no lender’s policy.
• Title Commitment – A title commitment is the document by which a title insurer discloses to all parties connected with a particular real estate transaction all the liens, defects, and burdens and obligations that affect the subject property.
• Lien – A encumbrance on a property that will need to be satisfied at or prior to closing in order transfer a warranty deed.
• Quit Claim Deed – releases a person’s interest in a property without stating the nature of the person’s interest or rights, and with no warranties of that person’s interest or rights in the property. A quitclaim deed neither states nor guarantees that the person relinquishing their claim to the property had valid ownership, but it does prevent that person (the grantor) from later claiming they have an interest in the property.
• Probate Sale – A court-supervised legal process that may be required after someone dies. Probate gives a surviving family member authority to gather the deceased person’s assets, pay debts and taxes, and eventually transfer assets to the people who inherit them.
• Letter of Authority – Is a legal document that is signed by the Register of the Probate Court in the County where your loved one was living at the time of their death. It designates the person who will be the Personal Representative of your loved one’s Estate.
• A trust – Is a legal entity that allows property to be passed from the person who created the trust (the grantor) to the person they want to pass their property to (the beneficiary).
• A trustee – Oversees the trust and manages the assets in the trust on behalf of the beneficiary, according to the grantor’s instructions.
• ARV – After Repaired Value
• MAO – Maximum Allowable Offer
• BRRRR – Buy, Renovate, Rent, Refinance, Repeat
• Triple- Net Lease – is a lease agreement on a property whereby the tenant or lessee promises to pay all the expenses of the property, including real estate taxes, building insurance, and maintenance. These expenses are in addition to the cost of rent and utilities. In contrast, in standard commercial lease agreements, some or all of these payments are typically the responsibility of the landlord.
• Cash on Cash Return – is a rate of return often used in real estate transactions that calculates the cash income earned on the cash invested in a property. Put simply, cash-on-cash return measures the annual return the investor made on the property in relation to the amount of mortgage paid during the same year.
• NOI – Net Operating Income
• Cap Rate – is the rate of return on a real estate investment property based on the income that the property is expected to generate.
• Cap Rate Formula – Is the annual NOI divided by the market value of the property. For example, a property worth $10 million generating $500,000 of NOI would have a cap rate of 5%.
• 1031 Exchange – You can sell a property held for business or investment purposes and swap it for a new one that you purchase for the same purpose, allowing you to defer capital gains tax on the sale. Funds must be held by a qualified third party.
• Depreciation – the process used to deduct the costs of buying and improving a rental property. Rather than taking one large deduction in the year you buy (or improve) the property, depreciation distributes the deduction across the useful life of the property.
• Appreciation – relates to a house or investment property increasing in value over a period of time. A raised value of a property can lead to the owner making a profit upon selling it or earning more income through monthly rent from their tenants. Increasing home value also leads to more equity in the home.
• Short term capital gains – Gains you make from selling assets you’ve held for a year or less are called short-term capital gains, and they generally are taxed at the same rate as your ordinary income, anywhere from 10% to 37%.
• Long term capital gains – a tax on profits from the sale of an asset held for more than a year (also known as a long term investment). The long-term capital gains tax rate is 0%, 15% or 20% depending on your taxable income and filing status. They are generally lower than short-term capital gains tax rates.
At Peak Title, we focus on developing relationships with investors across the country. We would like to be a resource for you to find an off-market property, a cash buyer, a hard money lender to get funding for your deal, arranging transactional funding, or just to close a retail sale for you. We want to remove some of the worries that you may have when it comes to executing your investment strategies.
Contact us to make your next closing your easiest closing