If you haven’t already, subscribe to our newsletter here to get our articles directly to your inbox and follow us on Twitter, Instagram, and YouTube! In our Educational Series we will be taking a deep dive into different ways to invest your money in hopes that one or multiple of these methods strikes you as interesting and encourages you to invest your money to grow your wealth.
Overview of Real Estate Investing
Let’s be honest here, we could write about real estate investing daily as there are plenty of strategies and options to work in real estate and perfect your craft and there are plenty of websites/blogs that do (like BiggerPockets for example). If you’d like to take a deep dive into these resources, check out BiggerPockets and feel free to reach out to us for additional resources and podcasts. In the meantime, we’ll review some of the points we tried to make throughout this real estate investing series below.
Real Estate Investing Strategies
Buy and Hold Rental Properties
Buying and holding rental properties is exactly as it sounds: purchase a single family home, multifamily complex, or apartment building, and then hold the property and rent out rooms or units to gain cash flow. Earnings can be used to pay down the expenses and/or earn income. The two strategies we broke down were House Hacking and the BRRRR Method.
House hacking involves purchasing a property and living in it while renting out other units or bedrooms to try to cover the expenses (or cash flow, if possible). This strategy is advantageous for new investors because you can utilize low money down options such as FHA or VA loans (if you’re a military member) to purchase a single family or multi-family property up to four units. In order to fully house hack you must live in a room or a unit and rent out the other rooms/units, whether it is to long term renters or short term rentals such as Airbnb or VRBO.
The BRRRR method has become a very popular investing strategy for buy and hold investors. BRRRR stands for “buy, rehab, rent, refinance, repeat”. This differs from the most popular method of putting 20% to 25% down, rehabbing the property if necessary, then renting out the property because the refinance aspect of the BRRRR method allows the potential to pull out any money you put into the house and reuse that money for another property. I have yet to use this strategy as depending on the market it may be difficult to pull all or majority of your money in the deal and tough to execute, but does not mean it is not possible or that you cannot pull out any money out of the deal.
Flipping houses might be the most “active” form of real estate investing of all of these methods, because it involves purchasing a distressed property (in most cases) and then rehabbing the property. This can take a lot of connections, managing contractors, or doing a lot of rehab yourself. Flipping a house can come with tough tasks, but the great thing about real estate is although problems may seem tough at times, there is always a solution.
Wholesaling is similar to flipping in a sense, because you are trying to sell a property as quickly as possible. Also similarly to flipping, this is not a passive form of real estate investing. In order to wholesale a property you need to first find a property, arrange a price and conditions that work, and assemble a purchase agreement. After you find a property you’d like to wholesale, you need to find someone who will purchase the property per the terms of agreement you’ve arranged and now the buyer is the homeowner, the seller gets paid, and the wholesaler collects a finder’s or assignment fee.
Real estate investment trusts, or REITs, give investors broad and indirect exposure to the real estate market and can be purchased on a stock brokerage account. However, similarly to a stock, you do not have control over the properties (in the case of stock ownership, you do not have direct control over the company). This may be a positive or may be a negative to some. REITs are required to pay out 90% of their earnings and those earnings are paid in the form of dividends.
You can find a more in depth description in a previous article here.
Funding a Real Estate Deal
This a big question that holds many people back from getting started in real estate investing. We broke down the many ways to fund a RE deal, but here’s a brief summary of that article, if you want the full article you can find it here. There are many ways to fund a real estate deal, but here are the three primary methods:
Using a bank/loan
Using a hard money lender
Getting a partner
There are various bank loans you can get to help cover the overall cost of a home. These loans include a veterans affairs (VA) loan, federal housing authority (FHA) loan, 203k loan, conventional loan, an adjustable rate mortgage (ARM), and a home equity line of credit (HELOC) if you already have a property. We took a deep dive into the FHA loan because of how powerful of a tool we believe it is, check it out here.
Hard Money Lenders
Hard money is different from a bank loan because it comes from an individual or private money lender. Generally, hard-money lenders use the asset (in this case, the property being purchased) as leverage for the loan which is commonly used by house flippers because of the usual short term nature of these loans. These loans also generally have a higher interest rate and include other fees not typically included in bank-backed loans.
There could be a full article strictly on partnerships, and there may be one in the future, but a brief summary of a partnership would be either someone or multiple partners provide the capital for down payment or full purchase price of the house and then the entire property is owned by the partners. Equity in the house can be divided and responsibilities of the house - whether it be a flip or buy and hold - can also be divided and agreed upon in order to keep the partnership and property maintained.
In conclusion, this is a very brief explanation to give you a general idea on what some real estate investing strategies entail and how to potentially fund them. There is plenty more to each strategy and what all goes into real estate investing. Hopefully this sparked your interest and you would like to do some more research or even start going through the exercise of evaluating deals! If you have any questions about real estate, please feel free to reach out and we will answer the best we can, or point you to potential resources.
If you’re new to real estate investing, check out our real estate investing series:
Real Estate Wrap Up
Have a great rest of your week!
Brandon & Dan
Disclosure: The article was written by Daniel Kuhman and Brandon Keys, and it expresses the author's own opinions. The information presented in this article is for informational purposes only and in no way should be construed as financial advice or recommendation to buy or sell any stock, asset, or cryptocurrency. Brandon and Daniel are not financial advisors. We encourage all readers to do further research and do your own due diligence before making any investments.