Ever wondered if there is more than one way to make money in real estate? Well, you’re in luck! If you don’t like the idea of being a landlord or swinging a hammer, there are quite a few different options for investing in real estate. Today I will go over a few:
1. Long-Term Buy and Hold. When people think about investing in real estate, I think this is usually the first thing to come to mind. You buy a building, rent it out, and subtract your monthly overhead (mortgages, expenses, ect) from your rents and then you have your profit. There are many pros and cons to this and it is certainly not a get rich quick strategy. Making money with long term buy and hold can depend on a multitude of factors, including where your property is located, what kind of appreciation you may get in this area, and ofcourse your cash flow (rents minus expenses). Another caveat to add in regards to cash flow, one maintenance or tenant issue could easily wipe out all of your cash flow for 1 or even many months. These are all important things to keep in mind, and even though there is risk involved (with all investing strategies), if done right, you could see cash flow benefits, appreciation, and tax advantages.
2. Fix and Flip Projects. This is a particularly “sexy” avenue to real estate investing that has been largely glorified by television and Hollywood. We’ve all seen the home renovation shows and the wonderful before & afters. People get drawn to these because of the often attractive spread between what you buy the property for, renovations, and an increased list price. The thing is, this is a very challenging area to pursue in today’s market, for starters, because it tends to be very hard to find distressed property at the right price. This would be the first hurdle to get through. The next hurdle would be accurate and conservative calculations to make sure you come out on top at the end of the project, this is a difficult task for newbies. Next, you have to make sure you can find a reliable contractor and get the work done on time. If you’re borrowing money for this project, the longer you own it the more you will pay. There can in fact be big upsides to this when done right, but make no mistake, this is one of the riskiest RE strategies.
3. Next is BRRR, which stands for buy, rehab, rent, refinance. Similar to a flip, minus the selling part at the end. You are still looking for a property in distress to put some sweat equity into, but instead of turning around in selling it once the value is elevated, you are simply doing what’s called a “cash out refinance” allowing you to take back out the money you put into the deal, if done right. The beauty of it is you get to keep a property at the end. Again, this is all dependent on the project being done correctly, and this is certainly not a beginning strategy.
4. Another popular investing strategy is Short term rentals. These would be what you see often on airbnb or Vrbo. Properties are typically rented at 30 days or less and the host provides furniture, amenities, and utilities. This strategy effectively puts you in the hospitality business, so the standard is high. Consequently, the upside can be high since you can charge more than a typical rental. Be wary however, of incoming legislation and regulations on short term rentals already prevalent in many large metropolitan cities. There is also usually a higher tax charged on this type of investment.
5. Last but not least is a personal favorite of mine. Mid-term rentals. This is, as the name would indicate, a happy medium between long term and short term rentals. Hosts still provide furniture, utilities, and amenities, but guests usually stay 30-90 days. This reduced turn-over time provides for less wear and tear on the property and less time spent looking for your next guest. Additionally, where I live in Massachusetts, mid-term rentals are still taxed the same as long term rentals, as long as the stay is more than 30 days. This decreases some of your overhead costs. MTRs are very popular amongst traveling professionals but they can be ideal for anyone looking for a few months stay with minimal work involved (furnishing, ect).
As you can see, there are many profitable and sound strategies in real estate, and we haven’t even scraped the surface as there are still many more. This is why I love real estate, because there are so many different things you can do and ways to unleash your creative inner self. At the end of the day, you have to choose what suits you and your lifestyle best.
Thanks for reading!