The most clear risk when it comes to real estate investing is the instant risk of losing your investment. This risk can be a colossal hit depending on how big your investment was to start with but is not the most horrid thing that can happen during the run of a real estate investment gone wrong. While I am certainly not trying to talk you out of investing in real estate all together it is a good idea to have a realistic view of the risks and the viable rewards.

If you are flipping houses as your real estate investment there is the potential to loose a little more as you can become injured during the length of your work. The unfortunate truth is that many who are attempting to get into the business of flipping houses have neither acceptable insurance coverage (this is true of themselves and the property in general and others that may be helping on the property), the money, nor the time that a major injury could require.

Another risk familiar to real estate investing is the fact that things happen. Market trends go down, companies close down leaving towns and the local real estate market in chaos, incidents happen during the course of the work, natural disasters happen, and buyers change their minds and pull out at the last second. Each of these things can have devastating consequences and are near always events that are completely out of your control as a real estate investor.

If that was not enough many investors fail to have an adequete inspection and find out when it is really too late that there are serious structural problems and other things wrong with the property. These things cost money to repair and take from profits, occasionally resulting in a loss. The thing is that once you find out something is wrong with the property you are honor bound to either tell the problem to potential buyers or repair the problems before you sell the house. In the situation of a flip, many big problems will undo the work that you have already be done. If this doesn’t remind you of the significance of a thorough inspection I have no idea exactly what will but inspections are ideal for many reasons and can save you a lot of time and money if you have one done ahead of time.

Do not let the risks of real estate investing stop you from trying to make a profit from it. They are spelled out here to remind you that prudence and caution are wise when investing in real estate not to talk you out of this conceivably lucrative area of investing. If you are curious in real estate investing there is no reason on earth you should not take the time and make the effort to learn more about its potential.

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Enter the Lease-Back or Rent-Back Agreement

The particulars of this strategy vary from state to state, but in the strong seller’s market we’re experiencing, buyers will often agree to let the seller stay in the home for a period of time as long as rent is paid. In a competitive situation, the buyer willing to do this will often have the winning bid even though there is another offer as high as his.

The agreement covering the situation states the length of time the seller will remain. It can be done with a specific date named or wording that allows the seller to remain up to a specific date with the possibility of her moving sooner. The amount can be a fixed figure paid out of the proceeds of settlement or a monthly amount, or a daily amount. It is usually, but not always, tied to the amount of the mortgage payment under the buyer’s new loan. Sometimes there is a deposit against damage, sometimes not. There is usually a clause saying the seller will hold the buyer harmless for any damage to himself or his property which occurs after the sale is consummated and before the seller moves.

The attorney who draws up your contract offer can create such an agreement. If you’re using online forms, you should be able to find one for this situation. If you’re working with a real estate broker, he or she can handle it for you.

An Example

I’ve recently seen a very pleasant example of this idea in action. An elderly widow contracted to have a one level condo unit built in a new community which provides all exterior maintenance. She had had hip replacement surgery and wanted to get away from the drawbacks of the home in which she’d reared her children. The home was large, had stairs and was located on a large, partially wooded lot with many mature perennials and shrubs. Both the home and garden were beautiful, but high maintenance.

Her contract to purchase required a series of deposits and a firm indication as to her source of funds well before settlement on her new condo. The widow put her home on the market. A young couple with two sons was very anxious to buy it. The situation was competitive. They made the widow an offer. She countered their original offer. She did not raise their offer price, which was slightly below her asking price. She did not believe the young couple would qualify for a larger loan. Instead, she did something rather creative.

The widow countered with a proposal that she “rent back” for a period of “up to” a certain date (a date beyond her scheduled competition date on the condo) in exchange for a modest flat sum to be paid to the buyer at settlement. The total rent back period was less than two months. The flat fee was less than the amount of the new mortgage payment for the buyers. However, since they made no payment on their new mortgage the first month, it wasn’t too far out of line. The couple really wanted the home, so they accepted the counter offer.

Another win, win situation was created. The widow only had to move one time and the young couple got a house they probably wouldn’t have in a straight bidding war. If you find yourself in a situation similar to either the widow or the young couple, perhaps you can work out a similar solution.

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