Real Estate Arbitrage

Topics: Highest Bidder Sales, Master Leasing, Options, Wholesaling

Arbitrage is defined as is the practice of taking advantage of a price difference between two or more markets: striking a combination of matching deals that capitalize upon the imbalance, the profit being the difference between the market prices.  Arbitrage is he simultaneous purchase and sale of an asset in order to profit from a difference in the price.

Some good examples of real estate arbitrage are wholesale flips, options, rehabs, and master leasing.

With a wholesale flip, you get a contract on an old run down property then sell it to a rehabber for more than your contract price.  The seller gets their house sold.  The rehabber gets another property to fix up them sell at a profit (more arbitrage), and you make a profit too.  The title company makes a profit closing the deal.  The construction workers make a profit fixing up the house.  Everyone wins!

With options, you control a property at a below market price then either sell quickly using a Highest Bidder Sale to make a fast profit.  This technique is ideal for properties in any condition.  Or you can also hold the option long term to let the property hopefully appreciate then sell for more than your option strike price.

When you buy a house below market, then add value by rehabbing it, you can sell for a profit.  This is another form or real estate arbitrage.

With master leasing, you lease a property from an owner at a below market rent then sublease to a tenant for more than your underlying lease.  Your profit is the spread between the two leases.

In Panama, I got two master leases this week.  You can read about them in the Community Forum. YES, Master Leases work anywhere.

The objective with any real estate arbitrage should be to reduce your risks and liability.  

You can do that with wholesale flips, options and master leases because you do not actually buy the house or spend any money fixing it up.

You can reduce your risks and liability with a wholesale flip by setting including aa contingency clause in your purchase contract which allows you time to market the property to rehabbers but also releases you from the obligation to close if you don’t find a buyer within a certain time frame (usually 2-4 weeks).

You can reduce your risks and liability with options by putting up as little option consideration as possible.  An option consideration is like earnest money and you usually don’t get that back if you do not close on the option.

You can reduce your risks and liability with master leases by only paying the owner a certain percentage of the lease when you actually collect rent from your subtenant.  If the house is vacant, you don’t owe the owner any payment.  This technique will usually reduce your cash flow, but when you are starting out it is a safer way to go.

With wholesale flips, options and master leases you do not actually buy the house, get a loan, or hire any contractors to fix up the house so that’s another way you can reduce your risk and liability.

It takes very little cash to get started with any of these real estate arbitrage techniques.

With today’s shaky economy, it is a good idea to focus your real estate business on real estate arbitrage techniques which will reduce your risks and liability.

There are many ways to profit from arbitrage.


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