So you're thinking of getting into real estate? You want the freedom to invest, the knowledge to do it properly, and the expertise to make grand amounts of money doing it. Well...you've come to the right place! This initial article will serve as "101" for 10 types of real estate investment. In future articles, we will dive deeper into the understanding and application of real estate investment, but understanding the best available options is a paramount start in seeing eventual returns and being successful in the field.
Without further delay, here are the best 10 types of real estate investment.
1. Flipper Investor A flipper investor seeks to efficiently buy undervalued properties and sell them for a profit with a quick turnaround time. Once purchased, the house is repaired and remodeled as fast (but still diligently) as possible before it is then sold to a buyer. Many realtors suggest that the focus of this operation should prioritize speed over all else as the flipper before selling will be held responsible for all of the costs associated with owning the home. To be most successful with this approach, it is imperative that the flipper have a team of renovators that they trust to do a magnificent, timely, and cost-effective job renovating.
2 .Delinquent Property Tax
Delinquent property tax is when a municipality issues a tax lien to a property owner whose payments are past due. The tax lien certificate denotes how much in taxes is owed, along with interest and any penalties. In order to recover the delinquent tax dollars, the municipality may then sell the certificate to private investors, who bill the home owner in exchange for the value stated on the certificate when the balance is paid back. Currently, 28 states allow a municipality to transfer or assign delinquent real estate tax liens to the private sector, according to the National Tax Lien Association. A nonprofit that represents governments, institutional tax lien investors and servicers. Here’s what the process looks like. Investors have to bid for the tax lien in an auction. An auction is held to bid for the certificate of the lien tax and the auction itself varies between municipalities. The National Tax Lien Association recommends that would-be investors should start by familiarizing themselves with the local area. Contact tax officials in your area to inquire how those delinquent taxes are collected. Auctions can be virtual or in person. Sometimes winning bids go to the investor willing to pay the lowest interest rate, in a method known as “bidding down the interest rate.” The municipality establishes a maximum rate, and the bidder offering the lowest interest rate beneath that maximum wins the auction. However, it is important to Keep in mind, that as interest rates fall, so do profits. Other times winning bids go to those who pay the highest cash amount, or premium, above the lien amount. The winning bidder pays the balance and handles foreclosure proceedings After a winning bid is made, the investor must pay the tax bill in its entirety. This includes delinquent debt, interest, and penalties. After the balance owed is submitted, the investor must wait until the property owners pay back their entire balance — unless they don’t. This can take time, as most homeowners have a “redemption period” — generally one to three years — before they’re required to pay the taxes plus interest in full. Investors should be sure to understand that if the homeowner doesn’t return the tax debt, the tax lien investor is the one responsible for kickstarting the foreclosure process, which would allow the investor to assume ownership of the property. Not only do auctions vary by municipality but the laws regarding the process related to the lien tax change as well. For example, in Illinois, within four months of purchasing a lien, you’re required to notify the property owners that you possess the lien and can foreclose if they don’t repay, says Joanne Musa, a tax lien investment consultant and founder of TaxLienLady.com. After which, another letter must be sent before the end of the redemption period.
3 . Buy and Hold Buy and hold real estate is a long-term investment in which an individual purchases a property and allows the return on investment to grow over time. While the owner will not sell the property for quite some time, they may choose to rent the property to tenants in order to turn a profit or pay for the mortgage, while the appreciation of the house continues to rise. The keys to a buy and hold strategy are to select the best possible location, conduct thorough market research, and make sure that the monthly expenses do not exceed the revenue of renting the place to others while the value of the property rises. On the other hand, often times it can take up to 5 years or more to fully understand the value and attributes of a property, and how the market responds to different impacts both positive and negative. 4. Buy and Lease unfurnished or Lease furnished (thats me) Many real estate agents consider this approach to be the key to their long-term success. Buying luxury properties in itself stand as a smart move for realtors because of the possibility of a much higher ROI (return on investment) based on the property's appreciation in the long term. However, by not selling and instead leasing the property, an agent stands to recoup their investment and continue to make a profit for as long as they own the property. The continued appreciation of the property will allow the agent to increase the rent price appropriately over time, and continue to see ROI without many of the downsides that are possibilities with other approaches. In maximizing the desire for someone to lease the property, agents furnish the place to the proper standard until the property exudes luxury inside and out.
5 .REIT REIT or Real Estate Investment Trusts are companies that own or finance homes that stably produce income while allowing people to invest in their company portfolios through the stock market. Because REIT's are required to pay out 90% of their profits to investors, one can expect consistent and stable returns over time. According to the REIT webpage: "REITs historically have delivered competitive total returns, based on high, steady dividend income and long-term capital appreciation. Their comparatively low correlation with other assets also makes them an excellent portfolio diversifier that can help reduce overall portfolio risk and increase returns. These are the characteristics of REIT-based real estate investment." 6. BRRRR BRRRR which stands for: Buy, Rehab, Rent, Refinance, and Repeat, is a long-term approach to sustaining real estate success through buying undervalued or "distressed" properties and flipping them for value. The property, once purchased is rehabilitated by the owner, furnished, and repaired into a like-new stunning property. After the repairs, the owner rents their property to tenants in order to turn a profit in the short term and cover expenses necessary for the property's upkeep, as well as save for future investments. This is where refinancing comes into play, as the owner will convert their equity into cash through the property which is used to buy another property and repeat the process again. Greater amounts of money that can be refinanced will result in better deals and higher long-term payouts.
7. Multi -Units This includes apartments, commercial real estate and 2 to 4 units. Multi-unit real estate create strong cash flow monthly where a single family house when it is empty you lose 100 % of your cash-flow. The best areas to invest are near universities, big cities, and large corporate companies. Multi-Units have property appreciation, allows you to build equity and has tax benefits like depreciation
8 .Wholesaling A wholesale strategy is not for the faint of heart (then again, neither is real estate in general), because it requires salesmanship, vast knowledge of property values and specific housing markets, as well as finding the opportunities for one's self. In wholesaling, a buyer will find a property seller and strike a deal with regards to pricing and other necessary terms of the agreement. Once a deal is struck, the wholesaler must find a buyer for the property who is willing to purchase according to the terms of the agreement. Finally, the house is sold, the wholesaler earns their finders/assignment fee, and the sellers get their money.
9. Live in and Flip As the name indicates, live in and flip is an investment in which the buyer lives in the house they are fixing up until it is resold or refinanced. While this strategy may seem somewhat counter-intuitive to a flipper, there are several distinct advantages of pursuing this method. Firstly, because the buyer (who has become the owner) also lives on the property, will receive a very low percentage down payment required in comparison with taking out a property loan which can result in the requirement of putting down 20% or more of the payment right away. Furthermore, living in a live in and flip property gives the flipper the opportunity to avoid capital gain taxes from the eventual sale of the property. Finally, the flipper may move on whatever timeline best suits them. There is no impending rush to sell the property such as there is with a regular flipper.