The Right and Wrong Way to Buy Real Estate

If you are wondering what the right and wrong way to buy real estate, then you are asking yourself a very important question. You might just be starting your career as a real estate investor or you might not have done a deal yet. Whichever your situation might be, it’s going to be important to learn how to buy real estate. 

There are three rules to real estate investing. If you follow this, you will save yourself a lot of headaches.

Three golden rules of real estate investing

1. Don’t write big checks
2. Use someone else’s credit so you don’t jeopardize your own
3. Only make promises you can keep

Keeping these rules in mind, I firmly believe that there are right and wrong ways to invest in real estate. The wrong way assumes you take all of the risk and use your own money. The right way is risk-free to you, without needing your own cash or credit.

Buying Real Estate the Wrong Way

You might be asking yourself, how can there be a wrong way to buy real estate? It’s not necessarily wrong, but there are ways to buy real estate that opens you up to more liability. This increases your risks and limits your potential. Some ways of buying real estate the wrong way would be by using your own money and credit.  

• Making large down payments
• Using your credit to qualify for a bank loan
• Taking on the risk of a large loan all by yourself
• Not having the ability to have multiple loans due to debt to income ratio
• Interest rates for loans are higher for investors

Buying Real Estate the Right Way

What if you could use other people’s money to invest? This is what I consider the “right” way to invest in real estate.

One strategy is by leveraging the existing financing on the property. Utilizing this strategy allows you to get deals without taking on risk.

Here is a great story of the right way to invest by one of my coaching students:

My student met a seller who was almost in foreclosure. They were having trouble affording the payments on their home. Luckily for my student, the homeowner saw an advertisement and reached out to my student for help. Fortunately, the home was only a few years old and in beautiful condition.

After some research, we calculated the Fair Market Value of the home was $190K, and the seller’s first loan balance was $180K. It wouldn’t have made sense as an investor to pay that amount. In their first meeting, the student was able to educate the seller on the high costs of selling and the amount of cash they would need to bring to the table.

After learning what would happen if they sold their home, the seller decided to deed the house to my student, leaving the current loan in place. Allowing my student to get full ownership rights. The fun doesn’t stop there. The buyer also paid my student the money they would have had to bring to the table if they had sold the house. Essentially, paying my student to buy the house.

Subject-to Method – The Right Way to Invest

The student used what I call the subject-to method. Do you know why the seller agreed to this? Simple, they wanted out. The seller wanted the peace-of-mind and the ability to walk away from the financial strain. By using my subject-to method, the student was able to help the seller out of a very tough situation. This helped the seller avoid damage to their credit.

After reading this blog, you now know what the right and wrong way to buy real estate. I offer you to learn more about becoming a real estate investor by downloading my Unlimited Funding Kit.