Interested in Real Estate Investing? Try One of These 7 Avenues

Written by Posted On Thursday, 09 November 2017 07:49

A recent study shows that 15% of Americans invest in real estate beyond their own home. The reason appears to be that people think it is too difficult. However, there are many ways to invest that are straightforward and involve little risk. 

If you are considering adding real estate to your portfolio, here are seven avenues to consider:

1. Buy Rental Properties
For an easy way to start real estate investing, you might want to consider buying a rental property. The key to this type of investing is to find the right property. To do this, you need to make sure that your cash flow exceeds your expenses. 

Rental Income – Loss of Income – Repairs – Mortgage Payments – Misc Expenses = Cash Flow • Rental income = Rent per month x 12 • Loss of income = Vacancy and nonpayment = 6% of total annual income • Repairs = 2% of the property value • Mortgage payments = Mortgage + Taxes + Insurance • Miscellaneous Expenses = 0.25% of property value

Always run these numbers when considering a rental property. It's the only way to determine if you are making a good investment choice. I don't typically buy a rental property with a cash flow of under 20% or $20,000. 

2. Flipping
To flip a home, you buy a property at a discount, renovate it so that the value appreciates, and sell it for a profit. The whole process should take two to six months. House flipping can be very lucrative and bring in capital at a faster rate than rentals. Many investors combine rentals and flipping, using their flipping profits to buy long-term rental homes.
When flipping a home, your expenses will include the contract price, broker fees, lawyer fees, holding costs, points, insurance, taxes, title, and the rehab. It is a good idea to add a 10% overage to all rehab estimates because issues often come along during renovations. Depending on where you live your profit margins may vary. My goal is to make at least 20% net profit.

3. Multifamily Homes
Multifamily properties are similar in many ways to rental properties, except that the property has more than one tenant. Done properly, multifamily home investments can be a good choice for early investors because there will always be people needing a place to rent.
A good way to invest in multifamily homes is to live on site. For instance, buy a duplex and live in one half. The rent for the other half will pay the mortgage, allowing you to live rent-free. When the mortgage is paid off, the cash-flow will be substantial.
Real estate investment trusts (REIT) are securities that invest in real estate. They have to pay out 90% of their income to investors as dividends, providing investors with a reliable income. Essentially, you are investing in a share of a real estate portfolio, paying a manager to take care of the buying and selling, and getting a portion in return.
You do not need a lot of capital to invest in a REIT. With as little as $500, you can get started.

5. Wholesaling
Wholesaling, though a form of real estate investing, is significantly different from the methods we've discussed so far. With wholesaling, you will never take ownership of the property. Instead, you'll get a property under contract and then assign the contract to an investor.
The property you find will typically be a distressed property. The investor will use cash, credit lines, or hard money loans to provide funds, which allows the closing to be quick. Most investors will look at the property to rehab and flip.
As a wholesaler, you are simply the middleman. You get paid an assignment fee by putting together a good deal. I typically ask for $5,000 to $10,000 to put together a wholesale deal.

6. Liens and Deeds
Anyone owning real estate must pay their taxes each year. Those that don't pay their taxes are tax delinquent, and tax delinquency can eventually lead to foreclosure. The municipality makes up for the lost tax revenue by selling the house, often at a price that is far below market value. Some states sell tax liens, some sell tax deeds, and others sell both.
For tax liens, the investor can make money one of two ways. The most common way is through interest. If the homeowner repays their back taxes within the redemption period, the investor will make money from accrued interest. If the homeowner does not pay the taxes before the redemption period, the investor can make money by foreclosing on the property.
When it comes to tax deeds, the investor makes money by becoming the owner of the property through a foreclosure auction. Once the investor owns the property, they can rehab and flip or keep the property for rental purposes.

7. Rent a Portion of Your Home 
Online portals like Airbnb, HomeAway, and have made short-term rentals a growing phenomenon. If you have a spare room and live in a big city or near a vacation destination, you can make money renting out the room to those seeking a short-term place to stay. With a little money upfront, some nice sheets and towels, and a membership on a site, you can begin renting out your room right away. 

Even if you aren’t located in a highly sought-after area, you can rent a room long-term. College students, business people, military personnel, and others often need room rentals.
Real estate investing takes work and skill, but it is not impossible.

If you have questions about how to get started, give me a call. I’d love to help.

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John Trautman

John Trautman has spent his entire adult life in real estate. Purchasing his first property at 23, he learned the process of flipping and real estate holding from the ground up. Real estate continue to be his passion while he spent eight years as an account executive and later a vice President for Washington Mutual in the mortgage division. Holding the position of President’s Council and several years of President’s Club, he learned the lending business from the mortgage office perspective and lender perspective. Throughout his life he has also been a small business owner, commercial real estate holder, property designer, and house flipper.

During the downturn, John followed the deal to Detroit, Michigan, where he invested in single family rentals and multi-family dwellings. Once his returns were realized, he moved quickly to Arizona to invest in another distressed market.

His passion for making a deal and real estate has lead him to create a hands-on real estate investment mentoring club called Real Estate Knowledge Institute

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