What is Real Estate Investing?
The word ‘real estate’ seems very common at first glance or utterance, and can even come across as non-discript. Real Estate investing is investing in real property or related assets with the intention of making a return on that investment.
Types of Real Estate Investing
Real Estate is usually broken down into residential, commercial and industrial. Each of these categories can further be broken down into sub-layers of resale, new construction and raw land. Although New Construction and Raw Land in itself are also categorized as a type of real estate investment.
With its many facets, there are multiple ways to invest in real estate. Some of them include:
Buy & Hold
Rehab & Resell
PML/private money lending
REITs- real estate investment trusts
Buy & Hold- are properties that you purchase and rent out long term. Usually for a 12-24 month period. With commercial properties longer term leases are expected; 5-10 plus years is not uncommon.
Vacation Rentals- are properties that you purchase and rent out on a short term basis- daily weekly or monthly.
Sub-Lease- with residential properties, this consists of renting out a part of your home or property. A single room, attic, basement or garage apartment. With commercial properties, a part of the property or space is leased. For example; most Super Walmarts rent a part of their space to McDonalds, Subway, or Nail Salon. Target Stores tend to sub-lease to Starbucks. It’s also very common for gas stations to sub-lease to various restaurants.
Rehab & Resell– developers purchase property in need of repair below market value—rehab them, then sell them on the open market to make a profit. A good rule of thumb is to buy properties at least 70% of the after repair value minus the cost of repairs. When rehabbing you make your money on the purchase of the property.
Wholesale/Flip– entails contracting a property at a discount and reselling it at a higher price.
For example: Buyer A agrees to purchase a property from a homeowner for $140,000 then sells the agreement to Buyer B for $150,000 thus making $10,000 in profit.
Private Money Lending– if you want to invest in real estate without having to negotiate contracts, hire or fire contractors, and be bothered with pesky deadlines, then private money lending may be for you. With this strategy; you agree to work with another investor by funding the purchase of a property, or by funding the rehab cost…maybe both. PMLs can usually make around 5%-15% return on investment and the loan is typically less than 12 months. Many investors don’t mind taking this avenue since the return on investment beats having their money sit in a savings account or other money market deposit accounts. INCLUDE LINK TO BE PML– FILL OUT CONTACT ME FORM— CUSTOMIZE QUESTIONAIRE
Crowd Funding– consists of a group of investors who combine their money to invest in real estate, then share the profits. There are two ways to participate in crowd funding. You may invest in the equity as a buyer, or you may invest in the debt; as a lender.
Most investors choose to participate as a buyer. Capital is raised for a particular project- which is usually already identified and may even be already under contract. In this scenario; funds are needed to close or complete the transaction. Investors ‘buy’ into the equity of the property, become shareholders and receive a shared portion. The return is based on the income of the property, minus any fees previously agreed to. When the property sells the investor will also receive a portion of the proceeds.
Joint Venture- consists of two or more parties that agree to co operate or work together on a particular project. Responsibilities, risks, ownership percentage and profits are divided or shared as agreed prior to any of the parties taking action. This is usually a temporary partnership that is agreed to for a stand alone project.
REITs- real estate investment trusts- this give investors the opportunity to participate in commercial real estate estate. REITs operate on a large scale; and purchase properties as well as loans. They develop properties such as hotels, apartment and office buildings, malls, warehouses and self-storage facilities; in turn they also manage the income of these properties. Their goal is to make money on the income that is generated and build their own investment portfolio. As a result; their strategy is usually to buy and hold. However; it’s not uncommon for REITs to renovate or rehab properties as needed in order to maximize their income. Investors receive scheduled dividends from the profits.