Real estate investing is becoming more popular as people are trying to secure more ways at obtaining passive or residual income.
But there are so MANY DIFFERENT WAYS to participate in real estate investing. As a new investor, these numerous choices can be very overwhelming. Some, mistakenly, feel that you have to become a realtor or get a real estate license in order to participate in real estate investing. This couldn't be further from the truth. So, let's go over some real estate investing strategies, and hopefully one or more of these strategies will give you a better idea of how to make money in real estate investing.
Wholesaling - Wholesaling is the business of finding good deals on investment properties and then reselling them quickly for a small mark up. Most beginners start here because the risk is minimal. It is also known as bird-dogging. Essentially you hunt down deals for other more experienced investors. You get paid by selling those deals to them. Being able to work your numbers and market is key. You never use your own money.
Fix-and-Flip - This strategy is the business of finding properties that need work, doing the repairs, and reselling them at top price for a profit. If you’ve ever watched the flipping shows on HGTV, this is what they do! Here you would have to know how to assess the value of the property and the rehab costs.
House Hacking - Living in a home that also produces income, like in a duplex, triplex, fourplex, or house with extra rentable space like a basement, guest house, or spare bedrooms. By renting out part of your residence, you can reduce your total housing costs.
Live-In Flip - A strategy where you buy and move into a home, fix it up, and wait two years or more to resell it for a profit. If you follow the IRS rules, you pay NO tax on the profit up to $250,000 for an individual or $500,000 for a couple filing jointly.
Short-Term Buy and Hold Rentals - This strategy involves buying and holding rental properties for relatively short periods of time – perhaps 1 to 5 years. Often the purpose of this strategy is to force property appreciation (aka add value) by remodeling, raising the rent, decreasing expenses, or all of those.
Long-Term Buy and Hold Rentals - This is the strategy of owning real estate with the intention of keeping it for the long haul. The benefits of this slow and steady (and very successful) strategy include rental income, tax shelter from depreciation expenses, amortization of loans, and price appreciation.
Lease Options - This is basically a rent to own deal between the owner and tenant. A portion of rent goes into an escrow account towards the purchase of the home for the down payment. The price of the home is set until lease term. This is one of my fav's because it's a win-win for both parties.
Tenant - Tenant has the ability to fix credit, stabilize income sources,
and shop for mortgages during the lease term while saving toward the down payment preventing PMI. Should they change their minds, there is no negative reporting on their
credit report for foreclosure or eviction.
Landlord - Landlord collects passive income, isn't responsible for
repairs and maintenance, and has the portion of
charging slightly higher rent for the sake of establishing an escrow account for the renter. If the tenant-buyer
changes their mind, landlord loses no money because they were collecting rent as income. If higher rent was charged, there is an option to refund the escrow back to the tenant. This would depend on how the contract is written.
Hard money lending is the strategy of making short-term loans to real estate investors who buy rentals or fix-and-flip properties. Usually, the loans involve high-interest rates, points (i.e. upfront fees), and lower loan to value ratios.
Discounted note investing - creating or buying notes (i.e. real estate debt) at a discount to the note’s full value. Because of this margin of safety, you can create large returns and reduce your risk. This involves buying notes (typically those that are delinquent) from other owner financing sellers or from banks. This is a much more advanced strategy, so it is recommend studying it carefully before jumping in.
Syndication - is essentially pooling your money with other investors to buy real estate or make loans. It’s a way to invest in any of the other strategies mentioned above without having to put the deals together yourself. You invest your money with syndicators or general partners who find and manage deals for you (and they receive a fee).
REITs - Real estate investment trusts (i.e. REITs) are very similar to a mutual fund. But instead of allowing you to own a piece of many stocks or bonds, these REITs allow you to own a piece of many commercial, income-producing properties.
These are just some of the ways you can invest in real estate. Other considerations include property development, Mobile Home cashflow strategies, social housing, commercial real estate, and subleasing. There are just a plethora of options.
But one thing is for sure, you would want to do your research before you start and consider having a mentor to consult with to minimize legal liability and loss.
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