As a real estate investor, you have probably heard the term creative real estate investing a lot. But if you are new to the real estate business, you are probably wondering what is it? And whether it is a thing in the real estate investing business.
Not long ago, the real estate investing business was all about the traditional forms. Real estate investors would mostly invest in long-term rentals (traditional rentals) and in buy and holds, which primarily depend on appreciation in the value of the investment property. Moreover, they had to spend lots of effort and time in order to make a little money in return.
However, over the past ten to fifteen years, the concepts of real estate investing have changed. The real estate investing business is not all about traditional investing anymore. Investors have come up with more creative ways to make even more money in real estate that requires fewer efforts.
Related: Traditional versus creative real estate investing: Which way to go?
Now you are wondering what some forms of the creative real estate investing are. Of course, there are so many, and you get to choose what type to engage in. Here we are going to talk about three main strategies. And then we are going to talk about the advantages of creative real estate investing.
Creative real estate investing types
Live and rent
This creative real estate investing strategy is also known as house hacking. What it means is basically you buy an investment property and let in tenants while you live there. You can use this real estate investment strategy especially if you are financing your investment business with a bank loan. You get to live there for free while having tenants, let us say college students, that pay you for rent. Therefore, you are going to use that rent to pay off your loan.
Here is an example to make things easier. Let us say that you buy a three bedroom house and finance it with a bank loan. You have two rooms that are vacant. So, what you do now is list both rooms on a real estate website and find tenants who will rent it. Therefore, you are going to use the rent that they pay you to pay off the loan.
If we put this example in numbers, then suppose that your monthly loan payment is $700, and you charge your tenants $400 each. Then you have $800 on your hands with which you are going to pay the $700 for the bank and have the rest for yourself as a positive cash flow. Then you also get to live for free instead of buying a property and paying the loan with your own money or even renting a place. After you are done with the loan payments, you get to have the place for yourself or make even more positive cash flow as a real estate investor and a landlord.
Fix and flips
Fix and flips are another form of creative real estate investing. With this real estate investment strategy, you buy a property and fix it to then sell it to another investor or even a regular home buyer for more than what you have actually paid. You either repair it or add some improvements to it or even both. But in this way you have forced appreciation. Applying improvements to the property add to it and therefore forces it to appreciate in value immediately.
Related: 6 Things to Know About Real Estate Appreciation
Yet another creative real estate investing strategy is Airbnb rentals. It is about renting out the vacant space you have to short-term visitors. You get to benefit from your own property and make money out of it. This is somehow similar to house hacking. However, you rent out your property for shorter periods. Your tenants are going to be either travelers who are on vacation or business people on short business trips. What they have in common though is that they are looking for cheaper places than hotels.
Airbnb rentals are flexible. In other words, you get to choose. Either you rent out a room that is available in your house, or you could buy a separate investment property and rent it out. All you have to do is list it directly on Airbnb.
The thing about Airbnb is that it provides you with a huge platform for people (guests) who are interested in renting the space you provide. It is a great option for you to make money while at home.
Related: Real Estate Investing 101: Long-term vs Short-term Rentals
Why is creative real estate investing a good option for investors?
Now that you have an idea of what creative real estate investing is, as well as some of its types, let’s talk about the aspects that make it a better option for you, especially, if you are just starting in the real estate investing business.
Requires less capital
As the creative real estate investing business is so diverse, it provides you with strategies that do not require much capital or none at all. There are real estate investment strategies such as house hacking and real estate wholesaling. They do not require much capital from you. That is the main difference between traditional and creative real estate investing in general. In traditional real estate investing, you have to have enough capital to buy the investment property you want or at least have a down payment for it. This does not mean that you should not have any money when investing in the creative real estate business. Having some capital can make a huge difference for you. You might be able to buy a bigger property or a more lucrative one with a better cash flow.
The creative real estate investing business does not get easily affected by the housing market. To break it down, we are going to compare it to traditional real estate investing. Traditional investing is highly dependent on the housing market state. It goes up when the market is depressed and goes down when the market is at its peak. Meanwhile, creative real estate investing is dependent on motivated sellers who are always available. They are created by life circumstances that are not related to the state of the real estate market. These are life circumstances such as divorce, death, and so on. These circumstances are always there since they are a part of our life, which means there are always motivated property sellers available.
When it comes to competition, the creative real estate investing business is a safe option. There isn’t much competition in it and even no competition at all with traditional real estate investors. Creative real estate investors actually benefit from traditional investors by flipping their properties to them.
The real estate investing business is in constant development. There is always new creative real estate investing types that bring huge benefits for investors. It all depends on what you choose to work with. So make sure to get the right education on creative real estate investing before getting into it. Once you have done that, enjoy the great financial benefits it will bring to you.
For more advice on traditional as well as creative real estate investing, read on Mashvisor.