OK, you’ve read Rich Dad Poor Dad, stumbled upon this podcast or maybe attended a boot camp and you’ve decided that real estate investing is exactly what you want to do. However, the more you dig-in and research, the more confusing it gets. In this podcast, Bill zeros in on 13 of the most popular real estate strategies and the pros and cons of each to help you decide which is best for you!
OK, you’ve read Rich Dad Poor Dad, stumbled upon this podcast or maybe attended a boot camp and you’ve decided that real estate investing is exactly what you want to do. However, the more you dig-in and research, the more confusing it gets. In this podcast, Bill zeros in on 13 of the most popular real estate strategies and the pros and cons of each to help you decide which is best for you!
If you’re thinking about investing in real estate, the sky’s the limit! You don’t need a lot of money (contrary to popular belief), and you can build incredible wealth if you stick it out either. So, we’ll also present those strategies that take little or no money to start. The key is understanding the real estate investment options you have, how they may perform, and what risks you take.
Here are the top 13 real estate strategies for investors and a few others to consider as well.
A fix and flip strategy require you to find undervalued properties, fix them up, and sell them for a profit. You typically turn a property around in 6 months or less, so you can use hard money loans or short-term financing to purchase the property and have the money for renovations.
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A short-term buy and hold means purchasing a property (typically an undervalued property), fixing it up, and renting it out. Your goal is to make a significant profit within 2 – 5 years. You can accomplish this by making renovations, increasing rents, and buying in an area you regularly appreciate.
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Long-term buy-and-hold strategies mean buying a property, renting it out, and keeping it for many years (more than 5). With this strategy, you don’t have to worry about investing in high-rent districts or areas with rapid appreciation. The goal here is slow and steady. It works best in popular areas where the tenants are easy and the rents constant.
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Airbnb rentals are short-term rentals. You can own an investment property, but instead of renting it on long-term leases, you take advantage of short-term tenants. You may be able to charge higher rents since you’re offering a premium service versus a place to live, and you don’t have to deal with tenants around the clock; you are in charge of when people occupy the property.
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If you don’t have the funds to invest in a real estate property separately from your primary residence, combine the two and use house hacking. For example, you buy a primary home with this method, but you buy a 2 – 4 unit property. You live in one unit and rent out the rest, using the funds to cover the mortgage/expenses and possibly earn a profit. Most lenders allow standard financing on a 1 – 4 unit property without charging you higher ‘investment property rates.
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The BRRRR method is the Buy, Renovate, Rent, Refinance, Repeat process. It’s a way to build a portfolio by leveraging the investment made in your original property. Here’s how it works.
You buy an undervalued property either with cash or financing and then renovate it. Once ready, you rent it out and earn monthly cash flow. After six months, you refinance the property taking the equity out of it that you made, and use the equity to buy another property and do the same thing.
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As a real estate wholesaler, you work as the ‘middleman.’ You never own the property. Instead, you do the ‘sleuthing’ finding undervalued properties, put it under contract, and then immediately locate buyers willing to buy the property for more than you put it under warranty. Of course, you keep the difference, which is your profit.
Wholesalers use this strategy when they have an extensive network of investors willing to buy homes but don’t have the time or patience to research as you do.
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If you don’t have the capital to buy another property right now, you can use your residence as a rental in a few years. While you live in your home, you can fix it up, getting it ready for renters. Then, once you build up appreciation, you can refinance the property, taking out some of the equity and use it to buy your primary residence while renting the original property to tenants.
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If you’re interested in investing in properties but don’t have the patience or time to find renters, consider turnkey properties. These properties are ready for renters, and many already have renters with an active lease in them. You buy the property as-is with the tenants and become an instant landlord once you close on the deal.
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The live-in flip offers tax benefits if you do it right. A live-in flip requires you to find a property that’s livable but needs updating/renovations. Then, you fix up the home while you live in it and then sell the property after at least two years. If you wait at least two years AND you live in it for 2 of the last five years, you’ll avoid capital gains taxes on the first $250,000 in profits (single filers) and $500,000 (married filing jointly filers).
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The IRS makes ‘trading up’ easy with the 1031 Like-Kind Exchange rule. With this rule, you can sell an investment property, and if you use the proceeds to invest in another ‘like’ property immediately, you defer the capital gains taxes. Thus, it allows you to invest in something more extensive, possibly make more significant profits and not lose any money to taxes just yet.
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If you don’t want to invest in properties themselves, you can invest in the investors who provide the financing. A hard money lender is a private investor (like yourself) who provides funding for an investor for the short term. They are usually loans for fix and flip properties or short-term Buy and holds. Could come from a self-directed IRA or Solo 401K.
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This involves buying a home, fixing it up (or not) and putting it on the market as a Lease-to-Own/Rent-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’t re-finance.
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Reference:
https://www.geekwire.com/sponsor-post/top-12-real-estate-strategies-investors-know/
http://olddawgsreinetwork.com/best-rei-strategy-older-investors/
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