There are many ways to invest in real estate with fix-and-flips, long-term rentals, vacation rentals, REITs, short-term rentals, crowdfunding, nonperforming loans, wholesaling, and your personal residence. I invest in real estate with long-term rentals and house flips, although I also own a real estate brokerage. I love long-term rentals because they offer great returns which continue to pay you as long as you own the property. I also love to flip houses because of the money you can make, and it is a lot of fun to transform old houses into something new.
What is considered real estate investing?
I flip houses, but I do not consider house flipping an investment. House flipping is more of a business or a job. Every time I sell a flip, I must work to find another one to make more money. A great real estate investment provides a great return on your money without much effort. Rentals bring me money in every month without much work and without having to keep buying more rentals. I use the flipping income to buy as many rentals as I can. I still list house flipping in this article because most people consider anyone buying or selling real estate an investor.
Each way to invest in real estate has a different level of risk, return, and time commitment. Some investments in real estate are more of a full-time job than an investment like fix-and-flipping, while some investments like REITs take almost no work.
How to invest in real estate with rental properties
Long-term rental properties are my favorite way to invest in real estate. It can take a lot of up front cash, but the returns are incredible if you buy right and are patient. I make over 15% cash-on-cash returns on my long-term rental properties, and that does not include appreciation, equity pay-down, or tax benefits.
When you invest in real estate with long-term rentals, you must focus on cash flow. The best way to get a lot of cash flow is to buy properties at below market value, make repairs to increase value, and choose houses that will give high rent-to-purchase price ratios. It is not easy to find properties like this as it can take me months to find the right deal for a long-term rental. Not every market has great rental properties as well. I was buying many residential rentals in Colorado after the housing crash, but prices increased so much I could no longer cash flow with them. I was going to invest in real estate in Florida until I found I could make money with commercial rentals locally.
I chose to invest in single-family rentals because they give me better returns than multifamily. However, in different areas of the country, multi-family properties may offer better returns. Part of the reason I can get better returns on single family houses is there are more of them. With more volume, there is a better chance I can find that great deal.
Commercial rentals are tricky. Rent terms are usually much longer with commercial properties, and it can take a very long time to find a tenant. There are many types of leases: some leases have the tenant paying for everything, including repairs and maintenance. Other leases have the owner paying for almost everything, including converting/remodeling the property to the tenant’s needs. With commercial properties, loan terms are much different with shorter terms and higher interest rates.
Below is a video of my latest commercial rental property:
Here are some more articles on rental property investing:
- How much money so you need to buy a rental property?
- How much money can you make with rental properties?
- What makes a good rental property?
- How to get a loan on a rental property?
How to invest in real estate with house flips
I started to invest in real estate by investing in fix-and-flips. My father has been a Realtor since 1978, and he has done fix-and-flips since I was in high school. When I started in real estate in 2001, I became a real estate agent. I loved fix-and-flips, but selling houses to strangers, I did not love so much. I am naturally an introvert, and fix-and-flips were perfect for me because I could focus on the house. I could find great deals, decide how to repair them, and sell for a profit.
On one fix-and-flip, I repaired the house myself. I installed new cabinets, counters, appliances, windows, doors, hardwood floors, and painted everything. This was one of the biggest mistakes I ever made in my real estate career! It took me 6 months to complete the repairs because I was not a contractor and I learned on the job. The biggest error in my judgment was the time it took to repair the house. My other business suffered greatly because I spent all my time working on the house. We barely made a profit on that deal because it took me so long to complete the job. I learned never to repair houses myself! I think many first-time fix-and-flippers try to save money by making repairs themselves, and they don’t realize they are actually costing themselves money. It can cost $50 to $100 per day to hold a property that is vacant after interest, utilities, and insurance costs. It is usually much more beneficial to have a contractor do the work who will do it quickly and correctly.
I have flipped over 155 houses now, including 26 in 2017. Fix-and-flipping is a great way to invest in real estate, but it takes a lot of work. You have to find deals, manage contractors, keep track of accounting, and get houses sold. It also takes a lot of money for down payments and repairs, although hard money can be an option to reduce the cash needed.
I have videos of almost all of my house flips on Youtube:
Here are more articles on how to flip houses as well:
- How much money can you make flipping houses?
- How much money do you need to flip houses?
- How do you know how much to pay for a house flip?
- How to repair houses
How to invest in real estate by wholesaling houses
Wholesaling real estate is when an investor buys a house or gets a house under contract and they immediately sell the house to another investor without making repairs. An investor can wholesale a house without buying it by getting them under contract and then assigning that contract to another investor or completing a double close. The advantage to wholesaling is you don’t have to make repairs on a house and it is sold very quickly.
Many gurus teach wholesaling as an easy way to make millions in real estate, but it is not that easy. Wholesalers must find really good deals to be able to sell them to other investors who can still make money. Usually, wholesalers find properties through direct marketing or driving for dollars. Once the wholesaler finds a deal, they also must find a buyer for it as the houses cannot be listed on the MLS.
How to invest in real estate with your personal house
Your personal residence is another way to invest in real estate. Some may not consider a personal residence a way to invest in real estate because you aren’t bringing in any rent or income. I think there are definitely ways to make your personal residence a great investment. You also have to pay rent if you do not own your house, so even if you are not making money, you are saving money in most cases.
I bought the house I owned before my current house at the foreclosure sale in 2009. I recently sold it for $150,000 more than I bought it for because I bought it at below market value. The nice thing when you invest in real estate with your personal residence is you can make a tax-free profit if you live there for two years or more! Check out this article to see the details on tax-free profits with a personal residence.
One of the biggest advantages of buying real estate is being able to buy below market value. You cannot do that with most investments. On every house I flip, I get a great deal, and owner-occupants can do that as well. In fact, HUD and other banks often sell their foreclosures to owner-occupants first.
It is also possible to buy a personal residence that you can turn into a rental property. This is a great way to buy a rental property with little money down. You can buy more than one property this way and build up a portfolio of rentals with small down payments.
Below you can see a video on why a house really is a great investment.
I wrote an article here that shows how most people build their wealth through owning a house.
Is a house a good investment?
How to invest in real estate with REITs
REITs are Real Estate Investment Trusts and are purchased like stocks or mutual funds. I have purchased a few of them in my IRA with good results. REITs are large funds that invest in real estate and then pass on dividends and profits to the shareholders. REITs will invest in large commercial projects, land, industrial buildings, or even government buildings.
REITs are the easiest way to invest in real estate since the trust decides what to invest in and handles all the management. The returns may be great but can also go up and down like the stock market. I prefer to invest in real estate with a more hands-on approach because I can make more money. You can’t buy a REIT below market value like you can a house.
How to invest in rentals in another market?
Many people would love to invest in real estate but find house prices extremely high in their market. New York, San Francisco, and many other areas have incredibly high prices for real estate. If the price for a starter house is $500,000, that makes it very hard to invest in real estate. It will take a lot of upfront cash with high prices and be very difficult to cash flow.
Investors are starting to invest in real estate by investing hundreds or thousands of miles away. There is a lot of work needed to make long-range investing work. You need to pick a market, find a great realtor, find a great property manager, and find the right property or properties. I have not tried to invest in real estate long distance, but I have talked to and learned from many people who have. Here is a great article on how to invest in turn-key rental properties that are already rented.
- Pick a location: One successful investor I know hired a firm that keeps track of detailed sales information to find the best markets for his fix-and-flips. He then spent 6 months there exploring the market and then decided to invest in real estate in that area. I am not saying you have to spend 6 months in an area; after all, this investor makes his living flipping. It is smart to spend some time meeting people and exploring any area you want to invest in.
- Find a great Realtor: A great realtor is a key to any successful investors strategy. If you want to invest in real estate long distance, you need an awesome agent. That agent will help you find deals, possibly inspect houses for you, and schedule inspections. If possible, I always suggest investors become agents themselves, but that is difficult with long distance investing.
- Find a property manager: If you want to invest in long-distance rental properties, you need a property manager. A good property manager can mean the difference between profitable rentals and a disaster. A property manager will rent out the house, manage the expenses, hire contractors, and look over the house for you.
- Find a great contractor: It can be tricky to find a great contractor in your local area; it’s even tougher long distance. This is where you need a great Realtor and property manager to help you find a great contractor. The best way to find a contractor is word of mouth or referrals. You need to have people you can trust in the area you are investing in to refer contractors.
How to invest in real estate with vacation rentals
Vacation rentals are out of my comfort zone, but I know the basics. Buy a house in a great tourist location, use a great property manager to rent it out for you, and collect the rent. The difficult part of a vacation rental is the extremely cyclical market. Peak season can bring top dollar while low season can bring almost nothing because demand goes down. I have stayed in many vacation rentals, and the key, in my opinion, is to price a vacation rental low enough that the unit stays rented.
The cash flow on vacation rentals can look amazing at first, but the management fees, expenses, and vacancies will almost always be much higher on a vacation rental than a long-term rental. Vacation rentals take a lot of management if you want to take on that task yourself. I am not saying you cannot make money with vacation rentals, but you must be very careful.
How to invest in real estate by speculating
Short-term rental properties can be planned or come about as a necessity. Many investors will invest in real estate and hope it appreciates, so they can sell the property for a profit. This is a very dangerous tactic when you invest in real estate. Most of the time, cash flow is not the primary goal, and people end up losing money every month when they invest for appreciation. It is very difficult to hold a property for years when you are losing money every month. Many times, the investor will be forced to sell the house in a down market and lose even more money. If you invest for cash flow and look at appreciation as a bonus, you can avoid this mistake.
Other investors are sometimes forced to move out-of-town or they want a nicer house but cannot sell their current house. The investor ends up renting out their house and hoping the market improves enough to sell the house in the future. This tactic is also dangerous because there is no guarantee the market will appreciate. The market could continue to decline and make things even worse.
How to invest in real estate with nonperforming notes
Nonperforming notes are mortgages that have been taken out against a house and the homeowners stopped paying or have fallen way behind. The interesting part about investing in nonperforming notes is you can buy them for a huge discount. Many companies sell nonperforming notes to investors, and I have a great article on the subject here.
When you invest in nonperforming notes, you are not buying the house, only the mortgage. If the owner defaults, you must foreclosure yourself, complete a Deed in Lieu, allow a short sale, or come up with another solution. Buying notes can be a great way to invest in real estate without actually buying a house.
How to invest in real estate with crowdfunding
Real estate crowdfunding is a newer strategy where a company gets many investors together to loan money to other investors. It is similar to hard-money lending for house flippers. The rates and terms for the investors can provide a decent return, but there is a risk that the end investor could default and you lose your money. There are many companies that have started crowdfunding sites.
How to invest in real estate as a real estate agent
If you want to make money in real estate but don’t know about investing yet, you may want to look into becoming an agent. I have made a lot of money selling houses as an agent and broker over the years.
You can also save a lot of money by being a real estate agent when you invest in houses as well. I save hundreds of thousands of dollars a year as an agent and get more deals as well.
There are many ways to invest in real estate. I prefer long-term rentals because they continue to provide cash flow month after month, year after year. Fix-and-flips can provide tremendous income, but you must keep a high volume of deals going and turn them quickly to make a lot money. Vacation rentals, long distance investing, and nonperforming notes can also be great investments if you do your research, take your time, and buy right.
For more information on finding awesome rentals or flipping houses. Check out my best selling books on Amazon: