The first steps to actively invest in real estate in a less active way.
If you’re interested in real estate as an investment, it’s certainly fun to watch those TV shows with the fix-and-flip investors turning a beat-up old house into someone’s dream home. And of course, it’s entertaining to see them raking in five-figure profits while they’re doing it.
Other TV shows, seminars, and books lay out the excellent cash-flow opportunities and long-term profits available from rental-home investing. You watch an investor shop for bargains, possibly bidding at a tax auction, or maybe negotiating with a home seller to get a rock-bottom deal. You see the numbers all laid out for you, with a nice monthly positive cashflow to take to the bank.
While it can be exciting to watch these shows or attend the seminars, these active real estate investment strategies are not for everyone. The truth is that many people have the assets available to buy rental homes, but they’re not doing it because they don’t have the time or the inclination to be an active investor. They have no desire to pick up a hammer or to supervise contractors for a fix-and-flip, nor do they want to scour the local market for a ready-to-rent home and compete against other investors for it.
If you’re in this rather large group of investors who see the value in real estate, mainly rental properties, there is a better way. You’ve possibly already checked out real estate mutual funds and maybe those crowdfunding websites where you can invest passively. The question is whether there is something in the middle that will yield the cashflow, overall returns, and tax advantages of active investment without the active part.
There are successful active real estate fix-and-flip investors and rental property locators who know what to do, but they are splitting their time between those activities and seeking funding. Many use local private money or hard money lenders to fund their deals. These specialty lending sources can charge higher fees and interest for short-term money to fund repairs or to flip a move-in-ready home to a rental investor.
There is an opportunity for short-term, high-yield investing if you team up with one of these investors, funding their deals to take your profits out in shorter periods — from days to weeks. Real estate wholesalers specialize in locating deals that they can sell, either to a fix-and-flip investor if the property needs work, or to a rental investor if it’s ready for a tenant.
Start investigating opportunities in your area by attending a meetup group at one or more local real estate investment clubs. They’re all over the country, and most will let you visit one or a couple of sessions before requiring you to join. There, you’ll meet investors of all types, as well as vendors and contractors involved in all phases of real estate investment.
You have an excellent chance of meeting someone who has the skills you lack (or don’t have time to use) but who is seeking funding. Of course, you’re going to want to be careful, check references, and ask for their previous deal breakdowns, especially if you’re funding a short-term flip. If you’re going to buy a ready-to-rent home at a price below current market value for good cashflow in a market that’s a little outside of primary markets, you can talk to wholesalers at these meetings. Get them to show you the numbers for previous deals and the rents that their buyers are getting.
Once you connect with a successful wholesaler, you’re dealing with someone who understands what you want in a rental home, and they will go out and find homes that will bring good cashflow and they will deliver them to you. All you need to do is buy the property. If you don’t want to be a landlord, you can hire management for 8-10 percent of your monthly rent to take care of that as well.
You can enjoy the advantages and returns of active rental property management without the bother of the active part.