Are you a new real estate investor looking for creative real estate investment strategies? Or an experienced real estate investor looking to earn a higher return on investment using top trending real estate investment strategies? We got you covered!
Explore below the top real estate investment strategies in the US housing market 2018. From our list below, you will find an investment strategy to suit your goals, whether you are looking for short or long-term real estate investment strategies. And if you are investing in real estate with no money, well, we have just the right investment strategy for you. Read to learn more.
Real Estate Investment Strategies: Rent-to-Own
A rent-to-own or lease agreement is a creative real estate investing strategy that has become one of the most common strategies out there. When you buy a rent-to-own investment property, you agree to rent the property for a predetermined period of time. Before the lease expires, you get to purchase the property. When you rent-to-own a property, you pay a one-time option money and the monthly rent. Note that 25% of rent paid goes toward the final price. If you decide for some reason to breach the contract, you lose the 25% of property price paid out as part of the monthly income. Long-term planning can be difficult, so make sure to determine your long-term plans to avoid giving up on a rent-to-own property and incurring losses.
Pros: This investment strategy makes a great alternative for real estate investors that do not qualify for a mortgage. Not all real estate investors have a good enough credit score nor the cash available for a down payment, and, thus, do not qualify for a mortgage. In a rent-to-own investment strategy, you do not have to worry about a mortgage. You handle all payments directly with the owner.
Cons: If for some reason, you do not end up buying the house, you lose all the money paid that would have otherwise gone towards the final purchase price. Moreover, in a rent-to-own investment, you have less control over the property, which could be a bad thing if you are trying to make renovations, per se.
Real Estate Investment Strategies: Fix-and-Flip Properties
Fix-and-flip or flipping refers to buying an investment property with the intent of selling it for a quick profit rather than holding on to it for long-term appreciation. In a fix-and-flip deal, a real estate investor buys a property for low, usually, a distressed property, renovates it, and sells it for higher. When you are investing in fix-and-flip properties, we advise that you target properties that are in a rapidly appreciating market. We also encourage that you do not purchase properties that need major renovations as they can get costly and budget draining. Very old and distressed properties might leave you incurring more losses than gains.
Pros: You get to make a quick profit if the property does not require major renovations. You also get to accumulate experience as you work to fix the property. And finally, you get to expand your real estate network as you work with realtors, contractors, building inspectors, and many other associated parties. Keep their contact information, they will come in handy in your next investments.
Cons: If expenses are not well accounted for, you will lose money as opposed to making a profit. Make sure to thoroughly enumerate all expenses associated with the property. Also, note that renovations increase your property taxes. Finally, so to speak, there’s a lot of stress, time, and effort involved in the fix-and-flip investment strategy.
Make sure to thoroughly evaluate a property before you invest in a fix-and-flip investment vehicle. Find the cash on cash return expected from the investment and assess other metrics such as capitalization rate and return on investment to determine the profitability of such an investment. Or, try Mashvisor’s investment property calculator; it can do the calculations for you in a single click. To start out your 14-day free trial with Mashvisor, click here.
Real Estate Investment Strategies: Owner Financing
Also called seller financing, or a land contract, owner financing is one of the most common real estate investment strategies. Similar to rent-to-own, owner financing allows you to opt out of using banks for financing. Instead, they allow you to directly deal with financing with the landlord or seller. Instead of getting a loan from a bank, the buyer borrows money from the owner to pay off the property. A promissory note is executed between a seller and a buyer providing interest rate, repayment schedule, and consequences of default.
Similar but yet different from rent-to-own properties because in an owner financing, you actually close on the property as you sign the paperwork. In a rent-to-own, you sign a lease contract to purchase the property when the lease expires. However, you are not obligated to buy the property at the end of the lease.
Pros: Makes a good option for buyers who do not qualify for a mortgage, while offering a flexible down payment. Owner financing ensures fast closing as you won’t have to wait for a bank loan officer, underwriter, and legal department to process and approve an application for a mortgage. This is good for both buyers and sellers hastening the deal.
Cons: The seller will have a risk of buyer default. Make sure to agree to default compensation terms.
Real Estate Investment Strategies: Passive Investments- Real Estate Investment Trust (REIT)
The last of the real estate investment strategies on our list are REITs. Real Estate Investment Trusts were created in 1960 by Congress to give people an incentive to benefit from investing in income-producing real estate. REITs act as an investment property financing tool; they are companies that own, operate, and/or finance income-producing real estate. REITs operate similarly to mutual funds as they allow for investors to acquire ownership in real estate investments that receive income. They allow real estate investors to invest, own, or finance properties the same way stakeholders invest in other industries through the purchase of stock, per se. Just like stocks, stakeholders of REITs earn a share of the rental income produced from a real estate investment. What makes this method more attractive is the fact that you do not have to go out and buy or finance property.
Pros: REITs provide both ongoing dividend income as well as long-term capital gains. REITs are, moreover, more liquid than other types of real estate investments such as owning a rental property. When you want to sell out, you just simply sell your shares. You won’t have to go through the hassle of auctioning your investment property. To also note, when you invest in REITs, you do not get involved in any of the costs and hassles associated with real estate investing.
Cons: Share prices can drop when property prices fall. Additionally, REITs tend to be highly leveraged investment vehicles which poses a higher risk of failure to repay the debt. To survive through exigencies, select a REIT that has lower leverage.
To Sum Up
Creative real estate investing, whether investing in REITs, fix-and-flip properties, or owner financing has grown more popular with the years. As opposed to traditional real estate investing, creative real estate investing enables people to invest in real estate with little money. Ever wondered how to start a business with no money? Try the aforementioned real estate investment strategies and expect profit immediately. For more information about creative real estate investing or traditional real estate investing, visit Mashvisor. At Mashvisor, we take pride in providing the most accurate information and real estate market analysis to our clients and audience.