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| Real Estate Tips |
How To Invest In Real Estate
A real estate investment strategy is a map that real estate investors use to accomplish their goals. These strategies may be complicated or as simple as throwing darts at the real estate section of the Sunday paper. Still, they all have one thing in common: they provide real estate investors with a roadmap to achieve their real estate investing goals and objectives. From subject to finance, buy and hold, passive versus active investing, and more, this article will cover the basics of real estate for beginners.
Five Strategies For Beginners
In this article, we will go over these five easy strategies for beginners in real estate investing.
- Subject to finance: Subject to financing is when an investor or purchaser takes rights to the property's title and the seller's mortgage stays in place. This is often a quick and easy way to buy real estate properties.
- Real Estate Investment Groups (REIGs): REIGs or real estate investment groups are groups of real estate investors who come together to pool their real estate investing resources.
- Real Estate Investment Trusts (REITs): Not to be confused with REIGs, a REIT pools real estate from multiple real estate investors and then bundles them into one real estate investment trust.
- Fix and flip: This is a type of active real estate investing strategy where real estate investors buy real estate properties inexpensively, fix them up to get them rentable, and then sell the real estate property for a profit.
- Airbnb short-term rentals: This can be a form of passive real estate investing in which real estate investors purchase real estate properties to rent out on Airbnb.
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| Rent out Airbnb as a real estate investment |
Choosing a real estate investing strategy
All of these can be great options for creating income-generating assets, but how do you choose which one is right for you?
Ask yourself these questions to get you started:
- What is my budget?
- What else am I invested in?
- How much time do I have?
These should help you narrow down your choices. For example, if your goal is to generate income from multiple streams, you should probably not choose a more active real estate approach!
Pros and Cons
We will run you through some real estate tips with our list of pros and cons for the previous 5 options so that you can understand whether or not they align with each of these criteria.
1. Subject to Finance
Pros:
- Avoid fees: With this type of real estate strategy, you can invest by buying a property, but you can avoid the hassles of closing, real estate agents, and all the fees associated.
- Unique long-term financing: Essentially, the buyer can enter a long-term financing agreement without going through loan requirements. This means that you don't have to qualify for traditional mortgages to enter a subject to the financing agreement.
- Lower interest rates: As market interest rates rise, you will have lower interest rates than if you were to enter a new agreement.
Cons:
- Due on Sale Clause: This means that if the mortgage lender finds out the mortgage is being paid by someone other than the person who took out the loan, they might demand a total repayment. Frequently, the clause is never enacted.
2. Real Estate Investment Groups (REIGs)
Pros:
- No need to manage: You can create a passive income-generating asset without managing or fixing up the property.
- Decreased fees: You can save money on things like MLS fees and real estate agents.
- Multiple streams of income: Participants in the REIG receive a passive income stream that allows them to put their focus on other income streams.
Cons:
- Not active: If you want to make a real estate investment and you’d like it to be active, this might not be the best choice for you.
3. Real Estate Investment Trusts (REITs)
Pros:
- No management or maintenance: You can have complete control of your assets while also receiving a passive monthly income.
- Liquidity: You can cash out your REITs whenever you want, which means that you can take the money and use it however you need.
Cons:
- Less control: While you will have a substantial amount of control over the REITs that you own, you don't have complete control. An example is that sometimes REIT funds must be dedicated to particular projects.
- Not active: This is another real estate investment strategy that might not be ideal for you if you want to invest actively.
4. Fix and flip
Pros:
- Active investing: If you want to actively invest and enjoy the process of identifying potential real estate deals and fixer-uppers, this is an excellent option for you. You might consider this option if you have a real passion for real estate!
- Short period returns: This strategy can lead to substantial returns in a short period. If you know what you are doing, you can often turn a profit within a few days of buying the property.
Cons:
- Cannot be passive: If you make a fix and flip real estate investing strategy your goal, you will need to spend a significant amount of time working on the project. In fact, the IRS classifies this as an active investment that is subject to specific tax structures.
5. Airbnb Short Term rentals
Pros:
- You choose how active or passive: While this real estate investment strategy might not be for everyone if you are interested in being active with your real estate investments, this is a great option. You can often manage your Airbnb rental on your own, and if not, then you can easily hire a property manager.
- You might get a tax break: Because of the IRS's regulations on this type of rental investment strategy, you can often qualify for certain deductions and breaks under tax laws.
Cons:
- Requires some form of active management: While you can often hire a property manager, this isn't entirely passive. You will need to work to maintain your Airbnb rental.
- Not the most reliable income stream: While you might get a lot of business for your Airbnb rental, it's not always guaranteed. But, there's no reward without risk!
Conclusion
After running through these 5 investment strategies and our list of real estate tips, you should have a few ideas of where to start! You can also consider talking to a real estate agent and financial advisor to help you through the process. Also, you can look into note investing as another option.