Top Strategies For Real Estate Investors [Part 2]

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Caroline Soriano
May 19, 2023
9 minutes, 6 seconds
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In the first part, we talked about different real estate techniques for investors, including live-in-flip, real estate flipping, house hacking, and investing in Single-Family Rental (SFR) homes. 

Now, we're going to learn more strategies to help aspiring and current investors like you!

1. Wholesaling In Real Estate

Serving as a middleman between a home buyer and a home seller, real estate wholesaling involves either charging a fee for the service or keeping the difference between what the seller receives and what the buyer pays. 

This frequently entails "driving for dollars," or scouring communities for properties the investor believes they may profit from. Investors may also employ MLS listings and direct mail marketing campaigns or they may just keep an eye out for For Sale By Owner (FSBO) signs. 

2. REITs Are Trusts That Invest In Real Estate

Real estate investors can invest without actually owning any real estate by using REITs, or real estate investment trusts, which function as mutual funds. Investors purchase REIT shares in a manner akin to purchasing stock or mutual fund shares, and the trust pays dividends to its stockholders.

To allow citizens to engage in large-scale, income-producing real estate, Congress formed REITs in 1960.

All dividends given to shareholders by REITs are deductible from their taxable corporate income. According to the Securities and Exchange Commission's Office of Investor Education and Advocacy, the majority of REITs do not pay corporate tax since they distribute at least 100% of their taxable revenue to shareholders. 

In general, REITs are thought to be a wise investment. The 40-year compounded annual return on REITs, as measured by the FTSE NAREIT Equity REIT Index, is 9.44 percent.

Groups that invest in Real Estate Investment Groups (REIGs) are associations of private investors who pool their resources and expertise to make real estate investments utilizing a variety of techniques. Contrary to a REIT, a real estate investment group is not a taxable corporation with a board of directors subject to stringent regulations. For instance, REITs must have at least 100 investors by the end of their first year, and no more than five people may possess at least 50% of a REIT. 

In contrast, private agreements rather than governmental rules control real estate investment organizations. The structures, membership fees, and levels of engagement for REIGs are all flexible. Investors who want to have an interest in actual real estate may want to consider joining a real estate investment group. 

3. Purchasing Tax Liens On Real Estate

Purchasing certificates of property tax liens is an indirect method of real estate investing. When a property owner doesn't pay their property taxes, the municipality where the home is located will file a tax lien, which is a legal claim on the property. It serves as a formal claim to the assets for the owed sum. 

These don't resemble mortgage liens, which grant a lender the right to the property until the borrower repays the loan.

A certificate stating the amount owed and the interest rate that the lien owner will receive is issued by the municipality when a tax lien is placed on a piece of real estate. Following that, the certificates are auctioned off to investors; at the moment, 28 states permit the auction of these certificates. Property tax arrears amounting to over $21 billion annually, according to the National Tax Lien Association, making it a substantial area for investment. 

When a bidder wins the auction, they pay the outstanding taxes and acquire the right to either foreclose on the property or receive their money back when the homeowner makes up the unpaid taxes. The homeowner has a set period to make the payment or risk foreclosure. The lien holder recovers their investment plus interest if the homeowner makes good on their payment. 

real estate investor sssigning contract and paying cash

4. Buy, Rehab, Rent, Refinance, Repeat

Another real estate technique for investors is called BRRR or Buy, Rehab, Rent, Refinance, Repeat.

The plan involves purchasing a house, ideally below market value, rehabilitating it, renting it out to pay the mortgage, obtaining a cash-out refinance, and then using the profit to start the process over again. 

This is not a method for beginners; rather, it is for seasoned investors because it includes finding amazing discounts on houses that need some renovation but are still profitable investments. 

Since the investor will be paying the mortgage while the renovation is taking place, it is crucial to understand the costs and length of the repairs that will make the rental property appealing to residents. It's crucial to increase the property's curb appeal because kitchens and bathrooms often have the highest return on investment. 

The next stage is to find trustworthy tenants to rent the property to for a rate that at least covers the mortgage payments until the investor can refinance. Before refinancing, banks typically need a "seasoning" time, and a cash-out refinance needs a particular amount of equity. Additionally, lenders rarely refinance an empty home, so the investor will need to have a strong credit score—typically 620 or higher—to qualify. 

The investor continues the process by locating another contract. It is not a passive investing approach, even though it has the potential to be profitable. A network of lenders or the capacity to take out a home equity line of credit (HELOC) may be necessary for the investor since it may be challenging to obtain a typical mortgage on a distressed property. 

5. Rental Debt Snowballing

This is a method for paying off debt on several rental properties so that you own them free and clear. It can also be used for real estate investing. Financial expert Dave Ramsey popularized it as a method of paying off personal debt.

The strategy includes: 

  • using low-interest loans to purchase several rental properties 
  • combining any job savings with any rental property revenues
  • using all available funds to make an early payment on the rental property with the lowest amount until all loans are repaid
  • repeating the process and concentrating on the loan with the lowest balance

The mortgage on the rental property with the lowest balance must get the largest monthly payment feasible using all available resources, including savings from a day job and all rental revenue. The investor will continue to earn the same amount of money when that is paid off, but there will be one less mortgage to pay off. The snowball grows larger with each mortgage that is paid off since the investor has more money to pay off the subsequent mortgage. Finding quality rental properties at competitive mortgage rates and practicing disciplined saving for the years necessary to carry out the plan are requirements of the strategy.

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