Saturday, June 30, 2012

How to Invest Using Creative Property?

Know your exit strategy
When you are doing creative property transactions you need to be aware that sometimes it is better to make just a small amount of money and move a deal on quickly rather than try to put the deal together yourself. In these circumstances you need other people who form part of your team.
I call them property partners. These are people that I can refer business to and I have an arrangement with them that if I send them business, then they pay me a referral fee. For example, a real estate agent, pest and building inspectors or accountants etc.
Before you go into a creative property transaction you need to have a good idea of what your exit strategy will be for that particular transaction. You may or may not have a 100% exit strategy at this point but you need to at least have a rough idea. For example, you have found a person who wants to sell their property. They have already had it with 1 agent and they come across you from your marketing.
You send them to your Property Partner who is a real estate agent in that particular geographic area. You have already agreed with the agent that you will receive $1,000 once that agent sells the property.
So in this case you have a clear exit strategy. It is, once the agent sells the property then you get paid your $1,000 commission on the day that the property settles.
Now let's look at another example where the exit strategy is not so clear. You have found a person who wants to sell their house. But they won't sell unless they get the price that they think the property is worth. The seller has the property on the market because he wants to put some money into a new business venture. He comes to you through your marketing and you send him to your Property Partner who is a real estate agent.
Again you have already agreed that your commission fee will be $1,000 paid on settlement once the property has sold. If the property sells then your exit strategy is clear. But what happens if the property doesn't sell? Does that mean that you don't get your commission? If this situation happened to me and the seller was about to take the property off the market, I would approach the seller and suggest to him that he may be able to keep his property and get the money he needs for his business.
I would suggest to him that he may want to consider refinancing his property. I would then suggest that he calls a mortgage broker that I know who is a good operator. (The mortgage broker would obviously be my Property Partner, who has already agreed to pay me a commission).
The lesson here is to make sure that you are as clear as possible on how you are going to exit the transaction, when will you be paid and how much commission you will get. Also you need to learn when to pass a deal on and when it is worth keeping the deal for yourself.

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