People have been asking for an episode on all the different ways to invest in real estate. Here is a breakdown of many different ways including flipping, wholesaling, syndications, buy and holds, REITs, and more.
Hope this helps!
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Transcription
Below is a transcription of the podcast. This transcription was taken from Otter.ai so it might not be completely accurate:
This is the digital nomad quest podcast with Sharon Tseung. teaching people how to build passive income, become financially free and design the best lives. Hey guys, it’s Sharon from digital nomad quest and today we’re gonna go over nine ways to invest in real estate.
So first off, we have buy and hold real estate investing, that’s going to be kind of the obvious one where you purchase a rental property, the tenants are paying you a monthly rental income, and that income is going to make up for your expenses like your mortgage, your insurance, your property taxes, possible vacancies and repairs and will also allow you to cashflow and that’s if you do it correctly. Okay. So you want to make sure when you are purchasing rental properties, you are researching your target market, you are connecting with the right team of an agent, a property manager, possibly a contractor if you need it, a lender that’s going to give you good rates going to give you a good pre approval letter that you can start using to make offers on properties. And you’re also going to want to make sure you analyze the numbers okay, it’s really important to analyze the numbers. If you guys want that property analysis calculator, you can check it out in the link below. And if you guys are interested in purchasing your first out of state rental property, we have 23 units right now if you guys are interested in that make sure to check out remote Raoul riches in the link in my bio, I love buying hold real estate investing because the more you grow a portfolio of real estate investments, the more cash flow you get. But also the more appreciation you get when you have a solid portfolio in appreciating markets, you can make a lot of money just from the appreciation alone. For example, with my first rental property I bought in 2013, bought at $240,000. Currently, it’s worth $640,000. Okay, so as you can see, when I sell it, I’m going to make a good profit. But I’m going to keep that property and I’m going to keep cash flowing from it. And it’s probably going to appreciate even more and more Imagine holding on to a bunch of these rental properties that’s going to keep appreciating and keep giving you cash flow, which will allow you to retire earlier if you want to. It’ll give you that stability, and it’ll give you that cash flow to make up with your daily expenses. Now number two, we have the bur strategy, the bur strategy is buy rehab rent refinance, repeat, basically allow you to build that round portfolio, and it’s going to allow you to scale quicker, the idea is you’re going to buy kind of a distressed property or something that needs fixing. And then you’re going to rehab it, which forces appreciation, for example, I bought a $23,000 home, I put in about $33,000 worth of renovations. And now that property is worth probably around $100,000, whereas I only put in 56 to $57,000 all in on that property. So with rehabbing that property, I increase the property value and then I’m going to rent that property out. So it’s going to start cash flowing, you’ll need a six month seasoning period before you do a cash out refinance, which is the next part. Let’s give another example we purchased a moldy house very recently, we purchased it at $120,000. We think what the expenses were doing like mold remediation, you bought a mold protocol, we got the closing costs, we got the repair costs are probably going to be all in at like $200,000. But the after repair value is going to be around $300,000, what we’re going to do is we’re probably going to do a cash out refinance, most mortgage companies are going to allow you to borrow up to 80% of the home’s value. So with that $300,000, we could do it at 80%, which means we’re going to get a loan for $240,000. So with this recent purchase, we’re actually planning to do that Burr strategy, we’re fixing it up or renting it out. And then the plan is to do a cash out refinance after six months, but that 80% of the home’s value that we can borrow, if the home’s value is $300,000, after fixing it up, we can borrow $240,000 of it, when we borrow that money, we’re actually going to take that cash back out, and we’re putting that money into our pockets. So we put in $200,000. And we’re going to actually take out $240,000 back out and then it’s going to start cash flowing as a rental property. And that money we borrow, we’re paying it back with interest. So it’s gonna be basically a mortgage that we’re making monthly payments on. So that way you guys can see that a burr strategy allows you to scale up quickly. And then that’s the last part of repeat, it allows you to invest that capital you take back out over and over again, while you’re building up that cash flowing rental portfolio. If you want to check out a more full in depth video on the bur strategy, make sure to check it out on my channel. Number three, we have the fix and flip, you’re going to purchase an inexpensive home that needs work most often you’re going to need to find an off market deal, you’re probably going to be sending direct mail to homeowners or you’re going to cold column door knock, you’re basically going to try to find motivated sellers who are going to sell these properties off market. That way you’re going to find deals on distressed properties where the seller really needs to get rid of their property, you might be able to find someone that MLS though. So there are different ways to get creative and find deals. So you’re going to find these properties, fix them up and then sell them for more than what you paid for. This method comes with a lot more risk. To me it’s more like a business idea versus an investment. It’s a lot more work. It’s going to be riskier and you’re not waiting for appreciation or cash flow, you’re simply selling it for more with force appreciation. This method is also costly. Usually you’re not going to be able to do a conventional loan because most sellers are going to want cash up front or they’re going to take a hard money loan because that way you can process the money faster, especially if you’re competing with other bidders and all cash offer is going to be more appealing to the seller because you don’t know if the buyers financing is going to work out with them. additional loan and they might back out with the hard money loan, it’s based on the property not the person, they’re proving a borrower based off the value of the property being purchased. However, the
rates are going to be very high. Usually it’s 8% or more, and they’re going to have short repayment periods, like a few years. So the idea is you’re going to want to flip it really quickly. You don’t want to have really expensive holding costs, and then you’re going to make profit quickly. If you’re interested in a hard money loan, make sure to contact Sean because he’s actually a hard money lender at conventions. I’ll put his information down below and you can probably hook you up number four is wholesaling. So what is wholesaling? They’re going to contract the home with the buyer at a higher price than what they contracted with the seller and then they’re going to keep that profit. So there you can see the wholesaler is not doing any renovations. They’re not taking on any other risks. They’re just finding the deal, and they’re finding someone else to buy that deal. This is basically one of the ways to get into the real estate with $0. I feel like a lot of people ask me this question, this is a good way to start out because you can sell a contract for home and actually get five figure profits, sometimes even six figure profits, it really depends on the deal. The area, you can make a lot, but it’s definitely a grind. You need to find the deals and you need to find people who are willing to pay money for the deals. Let me give you an example. Maybe there’s a homeowner who has a home, it’s really messed up. He wants to sell it, but he doesn’t think he’s going to get a good price on it because it’s really in need of repairs. Now you enter the wholesaler who agrees to put that house under contract for $100,000. Now that wholesaler finds an eager buyer who’s down to pay $120,000 He assigns that contract to the investor who basically has now a profitable fixer upper project. So you’re basically sending that to a flipper who wants to fix and flip the house. Now the wholesaler gets $20,000 without ever owning the home. Now number five is house hacking. So I covered house hacking before. So if you guys don’t know what it is, make sure to check out that video, I basically explained it and give you different strategies on how to approach it. So house hacking is basically this real estate investment strategy where you purchase a home that has multiple units or multiple rooms, and you’re living in part of the property while you’re renting out the rest of it, that rental income is going to make up for a lot of your expenses. So for example, my fiance used to live in this property with roommates, they would run out each room and pay them X amount and it would cover his mortgage and expenses with the right house hack. You can even profit on top of it. And then once you move out, that becomes a cash flowing rental property for you. Some people have even lived in a living room put up a divider rented out the rest of the rooms on Airbnb, there’s so many different ways to do it. If you live in a multi family property, maybe it’s four units, you can have more privacy, you would have your own living space, but you would share the walls with some other tenants as well. Some people literally go from house hack to house hack, and then they build their wealth quickly that way, imagine you purchase a house hack with an FHA loan, which is 3.5% down then you got tenants or roommates that are making up for expenses, possibly allowing you to profit and then after a year or so you’ve already been living at this place where you’re living basically rent free, you move out and then you go buy another property and you do a house hack there. This other property you’ve already purchased is already cash flowing for you, you move in another tenant after you leave so you’re cash flowing a lot on this property. And you keep doing that process until you have a good portfolio of house Hacks is a great way to start building wealth quicker. Number six is Airbnb and short term rentals with Airbnb, you can actually make a ton of money. I’ve seen people make multiple five figures a month with just a few properties because they’ve identified solid properties. They’ve created experiences with those properties. And they’re in markets that are more touristy, a lot of people go to them, they’re looking for a place to stay for a few nights. It’s definitely an exciting investment strategy and allows you to build up your portfolio as well. So the idea is you’re putting up your property on Airbnb, it could be by room, or it could be the entire place. And what you’re going to do is you’re looking for a market that has a lot of traffic, a lot of people visiting maybe tourists, and then it can cashflow a lot despite expenses, you’re going to have to have a cleaning crew, you’re going to have to possibly remotely manage it. You could have remote locks and stuff like that where you can manage the combination lock numbers, you would also need to check the city regulations, you want to make sure you’re allowed to host Airbnbs at the target market you wish to invest in. For example, we looked at a few different markets and they don’t even allow air Mimi’s you have to live in that property in order to Airbnb it out. So some of the places we’ve looked into we can’t even do Airbnb there. So you want to make sure you’re checking your city regulations. And then another good tip is you want to create a wow factor for the Airbnb. So if you can find Instagram or spots in the place, for example, my friend has butterfly wings on one of the walls and that creates an Instagram moment, which allows you to boost the nightly price for your property and allows you to make more profits as well. Okay, number seven is buying commercial property with buying commercial properties. It might be office space, industrial use retail, or can be a multifamily rental. So a lot of people do this after investing in smaller residential properties. They’re like, oh, I want to scale up even further. So some people go in the path of purchasing large apartment complexes of like 30 units or more. Some people I know have purchased and their tenant is like Bank of America. So they’re buying these commercial buildings. So the pros about commercial investing the lending is based on the property which can make it easier in that sense, but also it can be harder because they don’t just give out commercial loans that easily they usually look for people who’ve already had that experience, so you might want to partner with someone who already has that experience. Another pro is usually tenants might sign for a longer lease so it can feel safer in that way. But it also depends on how business is for example, when COVID hit it really impacted the tenants abilities to pay it actually shut down a lot of businesses during that time so that’s something to consider as well. So another advantage is tents are usually going to pay for the common area maintenance and they’re going to pay a portion of the property taxes usually so as a landlord, you get paid something called a triple net and then the tenants absorb the variable costs. Number seven are syndications with syndications. You’re essentially pooling money with other investors to buy real estate or make loans. So if you’re investing in syndications, you don’t actually have to go out and find the deals yourself. You’re essentially trusting the general partners also knows the operators to find the deals for you to put together deals and all that stuff, you’re essentially going to be the limited partner who’s putting in money the pro here is it’s going to be less work however, it may mean less return with syndications, you’re usually investing in a single property in a single market, you’re gonna know exactly where it is, how many units it has, and what the business plan is and what syndications you are together with other limited partners, you’re going to invest all your money together, and you’re going to own the entity, usually an LLC that owns the asset so you’re going to have direct ownership in that way and with syndications, you’re usually going to get a preferred annual return if they pay you out. And then you might get a percentage after you sell the property, you would be kind of owning shares of the property versus owning the entire property itself. So it’s basically like crowdfunding and one of the online platforms that is really popular, called Fundrise allows you to essentially do this where you can put in as little as $500. and own a little bit of real estate fund rise investors basically can own real estate in a more low cost way than ever was previously possible. You can literally invest with as little as $500 and I might do something like invest 500 bucks in Fundrise and show you guys the progress. So lastly, we’re gonna talk about REITs REITs are real estate investment trusts REITs are publicly traded so you can easily purchase shares on the stock market when you’re investing in REITs. It’s like buying shares in a company you’re not actually owning the asset itself you own shares in the company that owns the asset you also don’t get any say in like what apartments the REITs purchases, but it could essentially allow you to diversify your investment portfolio. It also lets you get in at a low price with syndications you probably have higher minimums, whereas with REITs you can invest with a small amount of money and it’s gonna be way more liquid because you can buy and sell on the stock exchange. Now I hope you guys enjoyed this episode on nine different investment strategies for real estate.
So I hope you guys enjoyed this episode. Please make sure to rate review and subscribe. It really helps our podcast grow. And thanks again. I’ll see you guys in the next one.Transcribed by https://otter.ai
