Continued from…
Property Investment Strategies [Part 1-2]
Type 6 - Crowdfunding
Real estate crowdfunding platforms give investors access to various high-yielding assets previously only available to the wealthy.
While investors benefit from the convenience of acquiring assets, this sort of real estate investment comes with a high level of risk.
Accredited investors or those with a high net worth are often excluded from crowdfunding platforms. Non-accredited investors can also invest on some platforms.
Non-traded REITs, or those not traded on a stock market, are the most common real estate investments made through real estate crowdfunding platforms. Regarding non-traded REITs, your money could be locked up for years with no means to get it out when you need it.
Start your development journey by following my secret Property Development Process.
You are missing out if you haven’t yet subscribed to our YouTube channel.
Type 7 - Triple net property
Triple net property is a net lease in which the tenant pays some or all operating, repair, and maintenance costs. Property Investors like triple net properties because tenants pay for most operational costs and maintenance.
Triple net properties are marketed to investors who want to escape day-to-day management.
These investments may seem like real estate investments, but they’re an investment in the net cash flow (after debt service) from a lease to a credit tenant and are promoted depending on the cap rate.
Type 8 - Foreclosure
The term “foreclosure” refers to the process through which a lender takes possession of a property where a loan is in default.
Determine your state’s foreclosure process before pursuing foreclosures. Check with your lender, real estate agent, attorney, or title business rep. Your state is one of two:
In a deed-of-trust state - A third party or trustee retains the property title. If loan payments aren’t made or are in default, the trustee can take back the property. Without court action, the deed of trust states can foreclose in 60 to 120 days. It is a non-judicial foreclosure process.
The mortgage state - It has no trustee or third party. When a mortgage defaults for non-payment or other breaches, the holder must seek legal remedies, including judicial foreclosure, which can take longer than a non-judicial foreclosure.
A typical foreclosure has four steps and four purchase possibilities.
Pre-foreclosure
Pre-foreclosure is before the lender submits the Notice of Default, which starts the legal foreclosure process. Before the actual foreclosure begins, you can locate properties where the owner is behind on mortgage payments or breaking other loan terms. Finding defaulting owners is crucial.
Notice of default
First, a Notice of Default is filed. If the owner wasn’t concerned when he started missing loan payments, the Notice of Default should be a real wake-up call.
An owner who receives a Notice of Default may be motivated to sell since they know the lender has started repossession proceedings. Not many owners facing foreclosure know that late fines, penalties, and legal fees degrade their finances.
Foreclosure sale
The foreclosure process differs from state to state. It depends on whether the loan is secured by a mortgage or a deed of trust.
Redemption period
Some states allow the borrower to redeem the property after the sale during a redemption period. They can pay the amount owing, including the loan balance, late charges, legal expenses imposed by the lender, and all sale costs.
It is time to negotiate the borrower’s deed. The buyer gets the borrower’s redemption rights and can redeem the property if successful.
Type 9 - Short sales
Some of the best properties aren’t exposed to the general market, where competition might drive the price. They also know that the best deals can be made with motivated sellers, and there’s no stronger motivation than the prospect of foreclosure and credit disaster.
A short sale is when you acquire a property from the owner, and the lender accepts less than the loan total as full payment.
Benefits of the seller
With the rise of subprime and zero-down-payment loans in the mid-2000s and the decrease in property values, many owners had negative equity in their homes in the late 2000s.
They couldn’t sell the properties since the selling proceeds wouldn’t cover the loan sum (a situation known as being upside down).
Some owners had other financial issues and few savings, so they were unlikely to continue paying debt service payments on the upside-down home. This owner should consider a short sale.
The current owner or seller earns no cash from a short sale, although it can help him minimize credit harm (because he will likely want to be a homeowner someday).
Who could be a better tenant than the existing owner? The current owner may not own the property, but he can still reside there. Staying in the house reduces the stigma of foreclosure. A tenant can help you secure a property loan.
Short sale vs other properties
Buying foreclosures or REOs can be difficult for investors. With foreclosures, the public auction is announced and known to all real estate investors, but there is minimal information and rarely an opportunity to undertake sufficient due diligence. Buyers can’t often inspect the property inside. Foreclosures are often surprising.
The best homes at foreclosure auctions attract other buyers willing to spend more if they can make a profit later. You must also have 10% of the purchase price in cash and get a loan for the balance within 30 days.
With a short sale, you can negotiate for a sale that gives you more time to locate financing. A short sale avoids the complexities of a borrower’s redemption in a judicial foreclosure.
Quick Tip
Find pre-foreclosure homes and strike a contract to buy them from the owner before he loses it and damages his credit.
These situations became more common when borrowers took out loans equal to (or higher than) the property’s entire value. The aggregate debt of some borrowers exceeded the property’s value.
Type 10 - Lease Options
A lease option is an excellent method to invest in property, keep ownership of a home and eventually buy it without putting down a large sum of money as a down payment.
A lease option is a contract that combines two different types of contracts into one.
A lease option requires the owner to sell but not the renter to buy. Until the tenant exercises the option, it’s a unilateral contract. The option price (buying price) is a crucial issue with lease options.
This amount can be a fixed price based on current market value, but it’s often a future projected value based on predicted appreciation with set exercise time constraints.
In a market where the seller forecasts 5% annual appreciation, a home worth $200,000 today might be offered as a lease option with a $210,000 option price that can be exercised at any point in the next 12 months.
A prudent buyer doesn’t exercise the option if it’s more than the property’s value. When there are few buyers and sellers are eager to sell, lease solutions are easier to find.
Lease options are most prevalent with single-family homes and condos, but any property can employ them. In almost all locations of the country, lease option demand exceeds supply.
Lease options aren’t simply a terrific way for investors to invest in a property; they also help first-time buyers ease into home ownership. Real estate lease choices are in high demand; thus, they’re rarely publicised.
You may need to run your ad. You can also respond to “home for rent” adverts. A small ad often produces a significant reaction when selling a property with a lease option.
Type 11 - Probate sales
Death creates better real estate buying possibilities than taxes. Every day, someone in your region dies and leaves behind unneeded real estate.
Executors of the estate (or the public administrator if the owner dies without a trust or will) sell these properties at probate sales.
Before a probate sale is consummated, there are waiting periods and judicial approval. Also, overbidding is common. A potential buyer can use the overbid process to appeal straight to the court to outbid you and purchase the property for more than the existing offer.
The right to overbid generally requires a 5-per cent higher offer. Be prepared to raise your bid if this happens. Don’t overpay in a bidding war. Before bidding, set a limit.
Type 12 - Real estate auctions
Builders and investors sometimes use real estate auctions to sell excess inventory at below-market prices. Don’t mix these auctions with foreclosure auctions.
These are public auctions that may also sell antiques or collectibles.
In strong real estate markets, even new home builders use private auctions to sell their properties in low-demand locations.
Individuals, governments, and auction firms use this strategy to sell real estate. Local yellow pages often list auctioneers. Like any auction, the purpose is to push up the sales price by generating interest and competition. The seller may set a minimum or reserve price to prevent selling too cheaply.
Newspapers, radio, TV, and the Internet promote these real estate auctions with attractive prices. They claim to have various properties and offer attractive deals, such as 10 acres of land for $5,000. Who knows how remote the property is?
Note:
Too many individuals fight for the rare, excellent property at auctions, so property investors rarely benefit.
Plus, reserve or minimum pricing is so near to the property’s market worth that the buyer pays retail while thinking he’s buying wholesale. Check these auctions for good opportunities.
Follow the due diligence method for selecting property in auctions. Owing diligence isn’t often achievable due to a lack of time or information from the auctioneer.
For example, a professional Phase I environmental study is the greatest strategy to minimize the property’s environmental concerns. You probably can’t afford one for every auction property you like. This is one example of the perils of buying property without due diligence, so don’t rush. Real estate is a mistake-proof investment. No surprises!
Type 13 - Tax Lien Certificate Sales
The county liens property owners who don’t pay their property taxes on time.
A lien is a legal claim or charges against real or personal property to satisfy a debt or duty, with the right to take the property if the debt isn’t paid
The county sells the property in a tax lien certificate auction to pay delinquent property taxes, fines, and fees.
Municipalities don’t want to foreclose or wait for payment since they need the money now to pay government bills, so they auction off tax lien certificates to investors. Some property owners will always be unable to pay their property taxes, making tax lien certificates a good investment strategy in real estate.
When you buy a real estate tax lien, you pay the government for delinquent taxes and buy the right to collect them from the property owner.
Over 90% of tax lien certificates are redeemed within 24 months. Tax lien certificates have a nearly 100% redemption rate in owner-occupied residences.
You may have to give legal notices and foreclose on the underlying real estate to get your return on investment, so only buy tax lien certificates for properties you’re willing to possess.
Tax lien certificates aren’t available in all states, and you can’t regulate redemption. Real estate investors who do well with tax lien certificate sales buy many liens to spread out payoffs.
Also, they read the fine print of government rules and regulations regarding these sales because the restrictions vary from state to state and county to county within a state.
Ask your county tax collector if real estate tax lien certificates are a good investment in your area.
Type 14 - Limited Partnerships
A real estate limited partnership is a property investment strategy in which general partners manage the property and incur unlimited liability. In contrast, limited partners don’t participate in management choices and have limited liability for losses.
A limited partnership can help real estate investors minimise their day-to-day engagement and liabilities. Limited partners lack autonomy, making limited partnerships passive investors.
In a limited partnership, the general partner manages and sells the property. Upon disposition, many limited partnerships give the general partner 10 to 25% of the appreciation upfront before distributing the rest to the limited partners based on their ownership percentage.
This equity kicker for the general partner usually includes brokerage fees upon acquisition and disposition and market-rate or higher property management and asset management costs.
Some limited partnerships in real estate are nothing more than a pure profit play for the general partner, who gets their money upfront, while the limited partners are held captive and can only hope for their capital and appreciation in the future.
Type 15 - Buy and hold investment strategy
The buy and hold investment strategy is one of the most popular property investment strategies. The idea behind this strategy is to purchase a property and then hold onto it for a long period of time, usually 10 years or more.
This strategy can be a good way to generate income from rent and also enjoy any capital growth that may occur over the long term.
One of the main advantages of the buy and hold strategy is that it can be relatively low risk, especially if you purchase a property in an area with strong rental demand. It can also be a good option if you are looking for a property that will provide you with a regular income stream.
However, there are some drawbacks to this strategy. For example, if property prices in your area fall, you may find yourself stuck with a property that is worth less than what you paid for it.
Additionally, if you need to sell the property before the end of your investment period, you may not make as much money as you hoped.
Type 16 - BRRRR investment strategy
The BRRRR investment strategy is a popular property investment strategy that can be used to purchase property with little or no money down.
The acronym BRRRR stands for “buy, renovate, rent, refinance, repeat” and this strategy can be a great way to build up a property portfolio quickly.
The advantage of the BRRRR strategy is that it allows you to purchase property below market value and then add value through renovations. This can lead to big profits when you eventually sell the property or refinance your loan.
There are some risks associated with this strategy. For example, if you over-renovate the property you may not make your money back, or if property prices in your area fall you may find it difficult to refinance your loan.
Things to consider before selecting the real estate investment type
It is critical to consider the pros and cons of each real estate investment type. Before you commit to any specific real estate investment type, you must consider the following points -
Budget - Budget is, without a doubt, the essential aspect of any investment decision! You must first determine which properties you can afford and then decide which are most likely to yield a profit. If you can buy a house in a terrible part of town or an industrial unit in a lovely part of town, the industrial unit should be the apparent winner.
Management of the property - Any property will need to be managed, whether for yearly upkeep and insurance or for looking after renters and finding new ones regularly.
If you plan to operate the property, be sure you understand the time and financial obligations it will impose on you. Various property types will have different requirements, which could influence your decision.
Location - The cliché “location, location, location” is still accurate and remains the most crucial aspect of property development.
For example, Residential property assessments are heavily influenced by proximity to amenities, green space, attractive views, and the neighbourhood’s standing.
On the other hand, Commercial property valuations are heavily influenced by proximity to marketplaces, warehouses, transportation hubs, freeways, and tax-free zones.
Shortlisting a potential site becomes easy by following a complete site acquisition process.
Finance and profit opportunities - Before choosing a property type, you should have researched the many types of financing available, selected the one that best meets your needs, and made preliminary preparations.
It means you’ll be aware of your budget and any additional stipulations that may apply; this is crucial in selecting a property you can afford!
Working hard and working smart are two different things.
To ensure proper calculation of each property development project, you should take a smart move.
Why juggle with numbers when you can make accurate calculations with Property Development Feasibility Suite. Won’t trust my words? Take a 14-day FREE Trial.
I am sure this advanced software will never disappoint you.
Rental Market - It’s crucial to examine whether the region you’re buying in has many renters or many property owners. Owner-occupied properties, whether commercial properties or residential properties are less forgiving of landlords. They’re also likely to be in an area of town where most renters can’t afford to live, which will severely limit your potential tenants and, as a result, your revenue.
Keep your eye on Property Market Cycle and hit profits in your projects.
Current Market Analysis - As soon as you decide to invest in real estate, you should begin learning everything about the industry and real estate markets. It is also an excellent time to start networking and developing a list of connections who can help you in the future, whether with money or advice.
How To Build Cash Flow In Real Estate?
Building cash flows is a process for properties that aren’t cash flow positive when you buy them, but you can boost their yield or earning capacity.
Some strategies to increase a property’s income are:
- Change and renovate a property to make it more rentable. It could involve a decorative makeover or an extension, garage, or carport.
- You may offer additional services such as high-speed internet, cable TV, and pool or landscape upkeep. You can negotiate these services at a cheaper cost for a long-term contract, and a premium can be added to the rental.
- When you buy a house, the rentals are sometimes not up to date, and an increase is overdue.
- Sometimes a good clean-up is all it takes to boost rental income.
- You can use a property on a large block of land (especially a corner block or a block with two street frontages) for rentable storage space, such as sheds or vehicle storage.
- Offering a property room-by-room, with a shared bathroom, laundry, etc., can boost your income and provides you with profit on your property investment.
- Changing the room design of a residential home might double your weekly revenue.
Equity Vs Cash Flow Strategy In Real Estate Investment
Equity strategy
The Equity Strategy aims to achieve financial independence by eliminating debt and developing home equity.
Equity is your home’s value, less its cost.
Equity = Assets - Liabilities
Most homeowners today waste equity. Saving creates wealth, and spending causes debt.
Before building riches, decide if you’ll keep it. Will you cash out your $100,000 home equity for a new car? Millions of people use home equity loans to buy clothes, vacations, and cars. For riches, keep what you earn. Please don’t waste it like others.
Taking money from a wealth-building equity position to invest in a depreciable asset is terrible.
Depreciable assets include cars and other items that sell for less than they cost.
No real estate property does that (typically).
The Equity Strategy enhances wealth by increasing your home equity and lowering your mortgage.
Quick Tip
Diversifying is critical if you focus on real estate as a wealth-building strategy. Maintain a diverse portfolio of investments to diversify your risk. Having a diverse portfolio reduces the danger of one rental market segment becoming soft.
How to build equity?
Equity-building steps
- Choose between saving and spending.
- Set short- and long-term goals.
- Decide if long-term goals trump instant enjoyment.
- Read and apply the strategies discussed above.
- Write down your goal-achieving plan.
- Don’t deviate.
- Accumulate real estate wealth!
Cash flow strategy
Building wealth and earning money are two separate things. Positioning yourself to develop wealth while producing enough income to meet your needs is nice to achieve both.
Building rental properties below market value allow you to get a below-market mortgage. You can skim the monthly difference to make money. $1200 rent on a $1000 mortgage leaves $200 to “skim.” You must save some for upkeep and vacancy, but the rest is income. Buying multiple properties increases income and skimmed money. It can replace a full-time salary or provide extra revenue.
As a landlord, your tenant reduces your mortgage each month. Your debt and equity decrease each year with no effort.
If money is tight, selling rental properties may be enticing. Selling one could help you maintain others, buy another, or pay expenses.
You’re not a “builder” if you rent a new home for a few years. You don’t have to provide service as an owner, unlike builders.
Instead of selling, cash out some equity in a good-skim rental property. I don’t like cashing out equity, but it’s better than selling a house for cash flow. If your rental’s mortgage payment is less than the rental revenue, you can refinance and cash out the equity.
The new mortgage payment will be larger but perhaps below rent. Keeping the property lets you develop equity while paying off the mortgage.
Which Real Estate Investment Is Most Suitable For You?
The optimal real estate investment type depends on your circumstances, objectives, market location, and preferred investing style. While many accredited investors prefer a more apparent answer, deciding on the best investment property is subjective.
Choosing the perfect property type refers to assessing the benefits and drawbacks of each option. Still, investors should consider a few crucial considerations as they search for the optimal choice. It is where the need for expert consultation comes. Don’t worry; you can contact me any time and ask your queries.
Before starting any development projects, I suggest joining my Real Estate Mentoring Program For Property Developers. Many of my students have entirely transformed their careers by joining this program. You could be the next!
I will guide you on everything, from JV agreements to no-money-down deals. Join the waiting list and open your door to success.
When deciding on the ideal investment property type for you, remember that many investors have success with various property types. It’s relatively uncommon for investors to start with residential real estate before commercial real estate. There’s no reason why investors can’t succeed in various property types.
Final Words!
With the growing population, the demand for housing and other real estate properties is increasing each day. It is the right time to roll up your sleeves and get the top position in the cut-throat competition of property development.
Here is the list of structured property development courses for beginners, intermediate, and experts or real estate.
To begin with, you can choose the Property Development Starter Pack or the FREE Quick Start Property Development Course.
FAQs
What is the most effective investment strategy?
The most effective property investment strategy really depends on your specific goals and circumstances. Some people do well by flipping properties, while others do better by holding onto them for the long term.
That being said, flipping properties can be a great way to make some quick money if you know what you’re doing. It’s definitely not a get-rich-quick scheme, but if you’re smart about it, you can definitely turn a profit.
The key is to buy low and sell high, and to make sure that you don’t over-leverage yourself.
What is the 1% rule for an investment property?
In property investing, the 1% rule compares the price of an investment property to the gross revenue it will earn.
The 1 per cent rule states that a potential investment’s monthly rent has to be equal to or even less than 1% of the sales price.
How do I generate passive income from real estate?
There a few ways to generate passive income from real estate. The most common way is to buy a property and rent it out. You can also invest in real estate investment trusts (REITs) or mortgage-backed securities (MBS).
However, these options typically come with more risk since you’re not actually owning the property yourself.
If you want to be a little more hands-on, you can also try flipping properties. This involves buying a property that’s in poor condition and fixing it up before reselling it for a profit.
This option can be risky, but it can also be very profitable if done correctly.
