The non-traditional methods used to buy and sell property are often termed as creative real estate investing. When the normal traditional methods are not an option, getting creative can sometimes be the only way to seal a deal.
There are a number of different practices applied when it comes to creative real estate investing. I'll review four of them here to help you get started.
Seller Financing
In certain situations where a buyer is not able to qualify for a bank loan, the seller may offer financing to the buyer. The way this usually works is the owner will typically lend a portion of the equity to the buyer and the owner then receives monthly payments on the property. The terms may vary depending on the circumstances; it could be principle-only
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Normally this is over a short period of time like one year, but with the decline in home sales recently, some homeowners have become more flexible with lease option terms, sometimes stretching it out to two years. At the time of the agreement, the buyer agrees to pay an additional amount called an "option fee." This fee is typically forfeited should the sale not go through within the pre-determined time.
There are some lease purchase options that make it mandatory for a buyer to buy the property within the term of the option. The price of the property is determined at the time of the agreement and this is the amount the buyer must pay regardless of the value at the same of the sale.
Short-Sale or Pre-Foreclosure
There are other creative real estate investing techniques, such doing a short sale when the mortgage has been defaulted. When a property owner fails to make their mortgage payment and they go into default, there are a number of steps the lender must take in order to foreclose on the property. Since this typically can take months, the property owner may try to sell the home with the condition that the bank accepts less than what is owed on the