Xem thêm

Using Creative Real Estate Investing Strategies to Boost Your Returns

CEO Khai Intela
Updated Jan 25, 2023 Creative real estate investing is not only about thinking outside the box; it's about finding innovative ways to finance your investments. These strategies can offer significant advantages when traditional methods are...

Using Creative Real Estate Investing Strategies to Boost Your Returns

Updated Jan 25, 2023

Creative real estate investing is not only about thinking outside the box; it's about finding innovative ways to finance your investments. These strategies can offer significant advantages when traditional methods are not viable. If you're looking to take your real estate investing to the next level, these creative strategies might be just what you need.

7 Creative Real Estate Investing Strategies

  • Bird Dogging
  • Wholesaling
  • Rent-to-Own
  • Fix and Flip
  • Buy and Hold
  • Real Estate Mutual Fund
  • REITs

Creative real estate investing aims to identify lucrative deals before traditional investors catch wind of them. Moreover, these strategies seek alternative financing models for real estate purchases. The U.S. housing market's total value exceeded $33 trillion in 2018, making real estate investing an effective way to grow wealth gradually. Some of these strategies require little to no upfront investment, such as bird dogging or investing in real estate mutual funds and Real Estate Investment Trusts (REITs).

The holding period of a property is a crucial factor to consider, as long-term investments often enjoy better tax treatment. Holding a property for at least a year or two allows investors to benefit from the capital gains tax rate for that year. On the other hand, short-term investments are subject to ordinary income tax, potentially pushing investors into a higher tax bracket. Additionally, the additional income may trigger additional taxation or alternative tax methods.

Bird Dogging

Just as a bird dog helps hunters find their prey, bird dogging in real estate refers to individuals who search for profitable leads on potential real estate deals. Typically, investors will pay a fee for these leads. Although anyone can get into bird dogging, it requires effort and skill. Successful bird dogging teaches you how to find the best real estate deals, particularly motivated sellers who haven't yet listed their properties. This initial step equips you with valuable skills and knowledge, setting the foundation for your real estate investing journey.

Building a network of potential buyers and sellers is crucial for bird dogs to thrive in the current real estate landscape. Finding deals is one thing, but finding someone willing to pay for that information is equally important. Bird dogs often collaborate and join local networks to maximize their opportunities. By starting with bird dogging, you can gain invaluable insights and gradually progress to more complex investment strategies, like wholesaling.

Wholesaling

Similar to bird dogging, wholesaling real estate requires some capital investment. Wholesalers scout for undervalued properties entering the market, finding motivated sellers and buyers for these properties. In most cases, wholesalers receive a percentage of the purchase price as a fee. Bird dogs may provide leads and also receive compensation. Emerging real estate areas that have recently experienced significant growth are prime locations for finding lucrative deals. The key difference between bird dogging and wholesaling is that wholesalers often secure the property under contract. By having a motivated seller agree to a specific price, wholesalers can sell the contract to a motivated buyer.

Rent-to-Own

Rent-to-own is an investment strategy with its pros and cons. This approach requires owners to enter into specific conditions with potential buyers who will become tenants. Generally, the tenant pays monthly rent that the owner may apply to the balance owed, similar to an owner-financed real estate loan. At the end of the agreed-upon period, the tenant has the option to buy the property. It's important to note that this option may come with a higher price tag. With the lease terms and option to buy specified in a contract, consulting with a professional attorney is advisable to ensure your interests are protected.

When considering a rent-to-own contract or other money loans, factors such as the current and future value of the property should be taken into account. By essentially locking in a price with a rent-to-own contract, there's a possibility of paying more if future values don't increase as expected. Additionally, the contract should outline who handles maintenance, repairs, and other responsibilities. Tracking payments and keeping accurate records is crucial in these arrangements.

Fix and Flip

Flipping houses is an excellent way to capitalize on undervalued deals that require minimal work and costs. In a fix and flip scenario, a property is purchased, renovated, and then sold for a higher price. The goal is for the profit to exceed the expenses associated with buying, materials, labor, advertising, and selling.

Before delving into fix and flip projects, it's essential to consider potential hidden costs that may arise, which could disrupt your investment plans. Flipping a house often requires backup capital or access to additional funding. Furthermore, home renovation can be time-consuming. It's important to assess your abilities and options carefully before embarking on a labor-intensive real estate project. This strategy is best suited for experienced real estate professionals with a solid understanding of investment strategies as well as construction. Advanced investors may also be interested in flipping commercial real estate.

Buy and Hold

Buying and holding property is a tried-and-true method for building wealth through real estate. If you have the necessary capital, there are countless ways to get started. Buy and hold strategies rely on the appreciation of real estate value over time. Holding investments for longer durations (over 1-2 years) can also offer tax benefits. This strategy can be combined with other approaches, such as renting out the property to generate residential or commercial income. Property management companies can handle everything from tenant screening to maintenance, allowing property owners to earn passive income while building equity. As property values increase, the income stream from rentals can be used to pay down the mortgage faster.

There are numerous rental property tax deductions that investors can claim. Furthermore, properties can be leveraged to build a real estate empire. For instance, one property can serve as a down payment for another rental property, creating a chain reaction. The income generated from all sources can then be used to pay down any one mortgage more rapidly.

Creative Real Estate Investing Creative Real Estate Investing

Real Estate Mutual Fund

Investing in real estate doesn't have to be an individual effort. Pooling funds with other investors through a real estate mutual fund can significantly reduce risk while still providing decent returns. Although the cash flow may not be as substantial compared to investing in properties individually, teaming up with like-minded investors allows access to larger and more valuable properties. These could include buildings or complexes with multiple units.

Joining a local real estate investors association (REIA) is highly recommended for individuals interested in real estate investment strategies. REIAs provide excellent networking opportunities with other investors and vendors, as well as a platform to learn about potential investment opportunities. Alternatively, buying shares in pre-existing real estate mutual funds is another viable option. Various companies manage and offer access to mutual funds focused on real estate. Investors can also explore Real Estate Investment Trusts (REITs), which can be traded on exchanges.

Real Estate Investment Trusts (REITs)

Real Estate Investment Trusts (REITs) are legal entities that manage properties and distribute income to investors. Similar to real estate mutual funds, investors don't have to purchase entire properties to participate. REITs offer the advantage of eliminating the need to manage properties, handle repairs and maintenance, deal with tenants, or pay property taxes.

Traditional vs. Creative Real Estate Investing

Traditional real estate investing involves purchasing properties with cash or loans from banks. These loans or mortgage payments serve as the primary funding source for acquisitions. Typically, properties are purchased after being listed by sellers. When purchasing property outright is not an option, real estate investors turn to traditional banks for home loans. It's essential to work with approved lenders insured by the Federal Housing Administration (FHA).

However, traditional real estate investing comes with certain constraints, such as credit score requirements and down payments. A low credit score, high debt, and other factors can limit your ability to secure traditional loans. Moreover, most real estate loans require a down payment ranging from 20% to 25%. For instance, a $300,000 property would require a $60,000 upfront payment with a 20% down payment. In some cases, it may be possible to reduce the required down payment. Alternatively, FHA loans or Veteran Affairs (VA) loans can be considered.

Creative real estate investing offers freedom from these traditional constraints, such as credit scores and down payments. Some properties may not qualify for specific loans. Unless you're already wealthy, larger real estate deals, like skyscrapers or apartment complexes, can be challenging to finance. Creative real estate investing allows investors to discover off-market deals, providing a significant advantage. Moreover, alternative financing options offer more investment opportunities.

What is Creative Financing for Real Estate?

When investors are unable or unwilling to use personal or traditional funds, various creative financing options come into play. Owner financing, also known as "seller carry-back," involves the property owner financing the buyer. In this scenario, the buyer signs a contract or promissory note for the purchase price and makes payments over time. Other alternative funding options include crowdfunding or small loans from multiple parties, such as private investors, family, and friends.

Another option is using a loan from a retirement account to purchase property. Borrowers pay the principal plus interest back into their retirement accounts, effectively paying themselves for the loan. Before considering these or other alternative financing options, consulting with a professional attorney is advisable.

Creative Real Estate Investing

Real estate investing offers numerous ways to earn passive income and build wealth. Even seasoned investors can benefit from utilizing creative investing ideas. Options like bird dogging allow individuals to gain experience with minimal investment. Real estate mutual funds and REITs enable investors to pool resources and purchase larger properties. By buying shares in these investments, you can enter the market at your desired increment without the need to manage an entire property.

REITs and real estate funds provide decent returns while minimizing the risks typically associated with the market. Rent-to-own agreements offer another avenue to acquire real estate by arranging monthly payments with the owner.

Some of the most successful investors combine multiple strategies. Buying and holding properties is an excellent way to profit from increasing property values. Renting out properties to residential or commercial tenants generates additional rental income. For those who prefer a hands-off approach, property managers can handle the day-to-day operations. Many investors also focus on acquiring undervalued properties in need of repairs, intending to flip them for a profit. Creative financing options are also worth exploring. Always read contracts thoroughly and seek advice from a lawyer experienced in real estate before signing anything. For assistance with real estate investing, tax planning, and asset protection, contact Anderson Advisors today.

1