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SHOW NOTES FOR EPISODE 464: WHAT IS THE BEST REAL ESTATE INVESTING STRATEGY FOR OLDER INVESTORS?
Real Estate Investing is a great way to generate cash flow, create wealth and build a legacy in your retirements years. But how do you start? There are many types of real estate investing strategies. In today’s podcast, Bill looks at some of the more popular strategies and how those strategies may work for people 50 years of age and older.
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What is the Best Real Estate Investing Strategy for Older Investors?
If you’re new at real estate investing, listen to this podcast: 006: How to Get Started in Real Estate Investing
A ton of valuable info today!!! Links and resources like crazy!!!
As a general rule, the earlier in life you invest, the more opportunity you’ll give yourself to grow wealth. That applies whether you’re buying stocks, bonds, or real estate. But if you’re wondering whether there’s a cutoff age for the latter, the good news is, there isn’t. You can actually invest in real estate at any stage of life. But your approach might differ if you’re older.
Investing in real estate at a later age – it’s a matter of time!
Does your age matter with real estate investing? No, the only factor is TIME! How much time you want to spend on your investments and how long it will take you to reach your investment goal.
The other major factor is money – how much do you have to invest? This helps determine what you can invest in.
Investment Fund Sources
- Your retirement nest egg
- Could be in IRA, 401-K
- Could be already in other investments
- HELOC
- Borrow against equity in your home
- No Money Down Strategies
- Seller financing
- OPM – other people’s money
When we talk about investing in real estate, there are several avenues to take. There are many options and variations on each option. You can take an active role or a passive role:
-
ACTIVE
- Rental Property – Buy an income property and collect monthly rent from it
- Fix ‘n Flip – Flip a house and sell it at a profit once it’s renovated
- Wholesaling – Match motivated seller with buyer
- Buy ‘n Hold – Buy property likely to appreciate in value over time and sell it
- Raw Land Flipping – Find cheap land and sell for a profit
- AirBNB/Short Term Rentals
- Commercial Real Estate – Office buildings, retail, NNN, Big Box, Strip Malls, Dollar Stores
- Self Storage
- Deeds & Liens – You buy these at a discount and collect the payments. If they default, you own the property
- Hard Money Lender – You become the bank. You loan to investors and collect the payments with interest. If they default, you own the property.
-
PASSIVE
- REITs – Load up on real estate investment trusts (REITs)
- Crowd Funding – Invest in real estate online for as little as $10 a share
- Syndications – Find sponsors and invest in their projects (apartments, new construction, mobile home parks, self-storage, and commercial as an LP or Limited Partner.
All of these are feasible at any age, so let’s explore each one. And let’s also assume you’re older — old enough to be retired, in fact.
Buying an income property
Becoming a landlord can be a full-time job, but if you no longer have a job, you might have the time to buy an income property and oversee it, deal with tenant issues, and collect rent. On the other hand, you might want to enjoy your retirement without putting in all that work, or you may not be in the right physical shape to do maintenance on an income property. And when you buy a rental property, you run the risk of vacancies or tenants who don’t pay, both of which could result in cash flow problems. You’ll therefore need to weigh the pros and cons before buying a home to rent out.
- Single Family Homes – This is the most common rental property. People are most comfortable with this strategy because they have likely purchased a house or two in their lifetime. They know how to do it.
- Turn-Key Properties – already rehabbed, tenants in place, property management in place
- BRRRR (Buy, rehab, refinance, rent-out, repeat)
- Multifamily – Duplexes through apartment buildings and mobile home parks. The smaller properties are like buying houses. Apartments are different and require more work
- House Hack – Can be done with single family but a lot less privacy
- Commercial – Retail, office buildings
- Other Rental Property Options
- Parking lots
- Raw land rental (RV storage)
- Billboards
- Considerations with income property:
- Becoming a landlord (dealing with tenants, toilets and trash – maintenance and repairs)
- Self-manage or hire property manager
- PROS & CONS
- Advantages: One of the easier ways to get started, and good long-term return-on-investment.
- Disadvantages:
- Being a landlord isn’t much fun
- Small profit margin requires:
- Keeping expenses low
- Finding and keeping GREAT long-term tenants
- Increasing rents without losing tenants
- INVESTMENT REQUIRED:
- Minimum – nothing down (seller financing, VA loan, OPM)
- FHA – 3% $3,000 on a $100,000 home
- Normal – 20-25% down
087: Creating Wealth with Single Family Homes
043: Single Family vs. Multifamily Residential Investing
391: Multifamily Investment Strategies for 2020
027: Smiling Investor’s Positive Attitude Yields Big Profits
375: Retirement at 33 Through Creative Multifamily Financing
341: Real Estate Investing in Billboards and Mobile Home Parks – Part 1
343: Real Estate Investing in Billboards and Mobile Home Parks – Part 2
Lease Options or Rent-to-Own
This involves buying a home, fixing it up and putting it on the market as a Lease-to-Own home for buyers who may not qualify to purchase a home on their own. It usually includes a higher-than-market rent , a higher-than-market purchase price and a large non-refundable down payment. The idea is that the person who is leasing/buying the property will treat the home as if they own it. They are responsible for all repair and maintenance of the home for 3-5 years while they work on getting their credit good enough to re-finance and pay-off the owner and take on a bank mortgage. You just collect the rent, keep the deposit and sell it if the tenant can re-finance.
- Advantages: When you buy, then sell on a rent- or lease-to-own arrangement, you get higher rent, large non-refundable deposit upfront and the buyer is usually responsible for maintenance.
- Disadvantages: The bookkeeping is tricky, and most tenants don’t complete the purchase (this can be an advantage too, but it does mean more work for you).
- INVESTMENT REQUIRED: Varies
381: Real Estate Investing With No Start-Up Funds & No Tenants
147: Mobile Flipping, Wholesaling and Lease Options
157: Lease Options and Cracked Houses
House flipping
I’m sure you’ve seen the shows on HD-TV. Many people have success flipping houses, and even if you can’t do the work yourself, you can always outsource it if you’re able to snag a home at a low-enough price and still come out ahead. House flipping is risky because you could wind up over renovating and losing money. You may also have to rely on contractors (if you don’t do the work yourself) Similarly, the longer a flipped house sits on the market, the less likely you are to command top dollar for it — and the more time money you might need stays tied up. Once again, you’ll need to compare the pros and cons.
- Advantages: A large quick return on your investment and it can be more creative work.
- Disadvantages: Higher risk (many unpredictables), work-intensive and you get taxed heavily on the gain.
- INVESTMENT REQUIRED:
- You need to buy the house (depends where you buy)
- Midwest and South – $50-100K
- California – $500-700,000
- If you buy at the courthouse steps, you need to pay in cash, the full amount of the house
- Hard Money lenders can lend up to the full price of the house plus rehab
- You need to buy the house (depends where you buy)
447: How to Flip a House in 7 Days
287: Turnkey Wholesaling and Flipping in Indianapolis
The Ultimate Beginner’s Guide to House Flipping
Wholesaling
This strategy is vert time-intensive. The basic strategy involves finding motivated sellers (foreclosures, divorce, tax liens, etc.), offer to buy their property at a discount (you basically take it under contract – you’re not really buying it), you find a seller (most often a flipper), mark up the price and sell the contract to the investor. The challenge here is finding the motivated seller. It usually involves multiple strategies to find desperate sellers (bandit signs, setting up a website, direct mail, phone or texting prospecting, etc.)
- Advantages: Great way for beginners to get started in real estate investing with no money and can produce cash quickly.
- Disadvantages: Requires a lot of work, you must keep constant deal flow to generate steady cash and you get taxed heavily on the gains.
- INVESTMENT REQUIRED: As low as $100 to file the contract
221: Wholesaling Real Estate with Zero Cash
287: Turnkey Wholesaling and Flipping in Indianapolis
275: Real Estate Day Trading for $100 Per House
Buy and hold – Properties or Raw Land
Buy and hold is a common strategy used with stocks — buy up quality companies and let their stock values increase with time. It’s a good strategy in the real estate world — to a point. If you can afford to buy and maintain a home or a piece of raw land, there’s a good chance its value will naturally appreciate in time. The question is: Do you have that time? And would you be better off with an income property that puts rent money in your pocket along the way?
- Advantages: If you know how to pick properties and markets, this can be very lucrative. Tends to be a big advantage in equity markets like California or New York
- Disadvantages: Hold times could be longer than expected, thus tying up valuable capital that could be generating cash flow or high returns
- Raw Land
- Advantages: It is simpler than most real estate investments, with the possibility of great profits.
- Disadvantages: It can take a long time, and you have expenses, high risk and no cash flow while you wait.
079: Buy & Hold Investing and Avoiding Shiny Objects
143: From $600,000 in Debt to Real Estate Mogul
389: Profiting from Raw Land Investing
265: Crushin’ it With Raw Land Investing
AirBNB/Vacation Rentals
This is one of the hot areas in real estate today. There are many different strategies:
- Use your own property – an extra room, guest house, RV, converted garage, stick a tepee in your backyard, rent out the kids old treehouse
- Buy a house
- Convert apartments
- Arbitrage – Don’t buy but partner with an owner
- Partner with other AirBNBers
- Use raw land (put something on it – yurt, trailer, RV, tent, tiny house, tool shed)
- PROS & CONS
- Advantages: You generate a lot more cash flow very quickly, with little upfront effort. Many ways to do that don’t require much cash. You can even have a vacation rental without purchasing it.
- Disadvantages: You can get a lot more headaches dealing with multiple tenants, regular expenses, house cleaning and turning it over quickly.
383: From Realtor to Real Estate Investor to AirBNB Mavin
355: How to Make Big Money on AirBNB Without Owning a Single Property
305: Short-Term Rentals in a Changing Economy
Commercial Real Estate
Office buildings, retail, NNN, Big Box, Strip Malls, Dollar Stores
- Advantages: Many different types to choose. Long term triple-net leases mean little management and higher returns.
- Disadvantages: Tough market to break into, complicated to learn and you can lose income on vacant storefronts for a year at a time.
417: Investing in Triple Net (NNN) Commercial Properties – Part 1
419: Investing in Triple Net (NNN) Commercial Properties – Part 2
The Commercial Real Estate Path to Wealth Creation
107: My First Real Estate Investment Was an Office Building
Self Storage
Self Storage
- Advantages: Get higher returns, and better cap rates than apartment buildings. Don’t have the traditional tenant problems that go along with an apartment complex.
- Disadvantages: Need full-time on-site manager. You need fences, security systems that allow and control access, cameras and video systems to watch over the place.
315: Self-Storage Investing Strategies
133: Investing in Self Storage Facilities
Deeds & Liens
Deeds – Hard money lenders, individual investors and community banks can auction-off or sell-off mortgage notes (the notes can be current or in various states of default). People can bid on and purchase these notes and start receiving payments from the borrowers. You would become the bank and can service the loan yourself or hire a third-party servicing company that also deals with late pays. FCI is a company Susan has used that can charge as little as $15 per month or .5-1%, per loan. Can also handle property taxes and hazard insurance remittances
Bob’s company bought a $125,000 second mortgage, loan modified. Paid $60,000. 14% yield. Bought 6 months ago. The borrower hasn’t missed a payment.
The borrower got the loan re-financed and Bob’s company got a check for $125,000. Made $65,000
A Note is a debt owed and a lien is a security instrument that enforces the note. A lien means you can’t buy or sell that property without dealing with the holder of the lien. A note just describes what you owe.
When you buy a note, youbecome the Lien Holder of the note – You become “The Bank” so to speak
- Deeds
- Advantages: Good for investors with bad credit to invest in high end real estate. Can obtain mortgage without qualifying for loan.
- Disadvantages: Large loans with larger degree of risk to investor. Pay more for properties and risk of bankruptcy.
- Liens
- Advantages: Inexpensive way to obtain high equity property. Low maintenance, many properties don’t have a loan on them, and owners don’t want them.
- Disadvantages: You’re going to need a lot of money to get started. Getting clear title can be a challenge.
103: Buying and Selling Notes and Deeds
303: Real Estate Note Investing
321: The Benefits of Being a “Lienlord”
PASSIVE
Buying REITs
Buying REITs (Real Estate Investment Trusts) is probably your least-risky choice. REITs are companies that own or operate income-producing properties. With REITs, you don’t own a physical piece of property, and as such, you don’t assume the many expenses that come with it. Rather, you buy REIT shares as you would stock shares and benefit from the dividends those REITs pay.
REITs are a great choice for older investors because there’s little legwork involved. Sure, you’ll need to read up on and vet the REITs you buy, similar to how you’d vet a stock before adding it to your portfolio. But you don’t need to put in the same amount of work that comes with being an actual property owner, and you also won’t wait years to collect income from your investment.
- Advantages:
- No Corporate Tax – No matter how profitable a REIT is, it pays zero corporate tax. With most dividend stocks, profits are effectively taxed twice — once on the corporate level, and again on the individual level when they’re paid as dividends.
- High Dividend Yields – Since REITs are required to pay at least 90% of taxable income to shareholders, they tend to have above-average dividend yields. It’s not uncommon for a REIT to have a perfectly safe dividend yield of 5% or more, while the average stock on the S&P 500 yields less than 2%.
- Total Return Potential – REITs have the potential for capital appreciation as the value of their underlying assets grow. Real estate values tend to increase over time and REITs can use several strategies to create additional value.
- Access to Commercial Real Estate – The main reason REITs were created was to allow everyday investors to put their money to work in assets that would otherwise be out of reach. Most people can’t go out and buy a class-A office tower all by themselves. But there are REITs that allow you to do just that.
- Liquidity – Buying and selling real estate properties can take a while. On the other hand, REITs are an extremely liquid investment. You can buy or sell a REIT whenever you want with a click of a button. If you eventually need the money from your REITs, it’s easy to free up your cash.
- Disadvantages:
- Dividend taxation – As pass-through investment vehicles, REITs qualify for the new 20% pass-through deduction that was created as part of the Tax Cuts and Jobs Act. Even so, REIT dividends are typically taxed higher than qualified dividends. This is something to keep in mind if you own your REITs in a standard (taxable) brokerage account.
- Interest rate sensitivity – REITs can be highly sensitive to interest rate fluctuations. The key point is that rising interest rates are bad for REIT stock prices. As a general rule of thumb, when the yields investors can get from risk-free investments like Treasury securities increase, yields from other income-based investments rise accordingly. The 10-year Treasury yield tends to be a good REIT indicator.
- Long-term investments – REITs work best as long-term investments. In addition to interest rate fluctuations, there are too many factors that affect REIT prices over short periods of time. I generally don’t suggest putting any money into REITs that you’re going to need within the next five years. Longer time horizons are even better.
- Property-specific risks – While REITs can add diversification to your portfolio, it’s worth pointing out that most individual REITs are not very diversified. They tend to focus on a specific property type. And each type of commercial property has its own set of risks and drawbacks. For example, hotel REITs are very sensitive to recessions and other economic weakness. If you choose to invest in REITs, it’s smart to choose a few with different levels of economic sensitivity. You could also invest in a REIT ETF or mutual fund that spreads your exposure among different property types.
Syndication Investing
There are individuals and groups of individuals (referred to as GPs or General Partners) who purchase large properties (apartments, mobile home parks, office buildings, Big Box retail, strip malls, etc.) by partnering with a group of investors who are looking for good returns. These investors are called LPs or Limited Partners. This is a great opportunity for people to invest in real estate (a tangible commodity) get great returns (7-12%) without the headache of operating and managing the properties. Not only do they receive good monthly/quarterly dividends but, when the property is sold, they usually get a nice profit bonus amount.
- Advantages: You generally get higher yields than most other available investments. Backed by real estate.
- Disadvantages: Need to carefully vet sponsor. Preferred rate is not guaranteed and depends on the cash flow of the apartment community, but also it is at the discretion of the sponsor.
The Beginner’s Guide to Syndication
301: How to be a Passive Investor in Real Estate Syndications
290: What is a Real Estate Syndication?
225: How to be a Successful Syndication Passive Investor
091: Real Estate Syndication for Dummies
049: The ABCs of Multifamily Syndication
What’s the right move for you?
Real estate investing isn’t an option limited to people of a certain age. You can get in when you’re young or start when you’re older. Either way, the key is to assess your options and see which best align with your risk tolerance and the time commitment you’re willing to make. But know this: Real estate can be a rewarding investment for retirees, and if you missed the boat on it during your working years, it’s never too late to get in on the action.
Well, that’s it for today
DISCLAIMER: Many of the above strategies take knowledge and have a higher degree of risk. You need to do your research and/or work with someone who is experienced to reduce your risk.
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