With new investors, it’s a little scary to think about owning a property! It’s true that there’s a ton of reward in purchasing a property to either hold or flip, but it’s also (obviously) expensive and can be risky—more so for flipping than for holding.
I advise a lot of people about fix & flips because that’s been my favorite way to quickly grow wealth. But it’s also not the only way that I invest in real estate! I’m all over every type of real estate investment and I think that most of them have great potential for growth.
So today I’m going to lay out 9 ways to invest in real estate with buying property!
Let’s start with one that’s going to be pretty obvious and well-known among the real estate investing community! It’s certainly a common strategy among brand new investors, but I also know people who have turned it into a multi-million dollar per year enterprise and have no interest in doing a full fix & flip!
So what’s wholesaling then?
Wholesaling is when you find a property that looks like it would be a good fix & flip property. Basically, you believe that you could buy the property, rehab it, and pay all the associated loan costs and stay under 70% of the after repair value. That’s a good rule of thumb to live by.
But the cool part is that you’re not actually going to buy the property yourself. You just need to make sure it’s a good fix & flip so that you can sell it to someone who does want to buy and flip it!
So you’re going to go and put the property under contract. Then, before it’s time to close on the property (in other words, come up with the cash to buy the property), you’re going to assign the contract to another real estate investor who does want to fix & flip it.
Investors like to do wholesale deals because:
- They’re fast
- They’re still profitable ($2,500 – $10,000 is standard)
- You’re not buying the property
- Don’t have to deal with a loan, payments, deadlines, extensions, etc.
- Less market fluctuations – with a fix & flip, part of the risk is hoping the market doesn’t turn on you over the course of your 4-6 month project
- No dealing with contractors
- Fewer headaches! – it’s just a much simpler process
One of the major hiccups for new investors is that they have to find someone that they can assign the contract to! What if you don’t know anyone who’s a real estate investor?
This is where networking comes into play. You can find tons of groups online or in person. Just look for real estate investing clubs. You can also talk about it on Facebook just to your friends, or even join Facebook groups. There’s tons of potential there to find people, even in your specific area. It’s a fix & flippers dream to have a steady source of deals, so they’re more than happy to work with you.
Here at The Investor's Edge, our clients can submit wholesale deals to us, and we send them out to our list. They usually get picked up within a day. That’s another option you could try, or check out other online services.
A REIT is a very common way that people invest in real estate. In fact, it’s a part of roughly 147 million American’s portfolios! That’s about 44% of all households. You may not know that you’re invested in a REIT, but if you have an investment account managed by a professional (like a 401(k)), then you’re almost for sure invested in a REIT.
REIT stands for Real estate Investment Trusts, which are companies that own or finance income-producing real estate across all sectors of the industry. Most of these companies actually trade on the major stock exchanges!
While investing in a REIT may function mostly the same to you as owning something like a stock as part of a larger portfolio, they have their own unique benefits. The REIT collects rent on their property, and then pay out a minimum of 90% of their taxable income to shareholders. And in fact, most pay out 100%.
So the piece you own of the company can increase in value, and you’re also going to earn dividends along the way! It’s a pretty great way to invest in real estate without the hassle of bothering with a property.
Furthermore, REITs have a fairly low correlation to other types of assets, which helps increase the strength of your portfolio. For example, if stocks and bonds are going down, it doesn’t necessarily mean that your REIT investment will go down as well. If the market isn’t great, your REITs can still perform well.
You just have to love technology, right? These are websites or apps that makes investing in real estate super simple and yet still incredibly profitable. If you want to invest by yourself, this is a much more attainable goal for many people than taking on a full fix & flip.
These are online services that basically allow you to own a piece of a deal. I know, this list is for NOT owning property. But here, you’re not involved in anything to actually do with the property itself. They’ll do all the buying, selling, and managing, and all you’re going to do is invest some money.
When you think about it that way, it’s actually not much different than buying a stock or another traditional investment—you’re just having someone else manage the portfolio, so to speak.
Now, there are many, many different apps and websites that do this, and they each have their own pros and cons. I’m not going to do a full breakdown of each one, but I’ll talk about some of the general requirements and differences between them.
In order to get started, each one has different minimum investments. For example, the popular Fundrise requires a minimum of $1,000. Crowdstreet invests in commercial real estate and requires $25,000 and that you be an accredited investor, which means that you’ve made over $200,000 for two years ($300,000 if you’re married) or that you have a net worth of over $1 million, excluding the value of your primary home.
Or there’s Landa that advertises that you can “invest in 2 minutes, start with $5.” Talk about feeling accessible!
You’ll also have to decide how active you’d like to be in picking properties. The websites where you pick and choose have low management fees, but obviously require more time and more experience on your part. You can also find ones where you just give them money and you get a return based on the properties they choose from what are currently available.
Also, there’s the length of time that your money is tied up. Some of these apps will plan to pay you back a return after the house is flipped. Others, such as ones that invest in rental properties and pay you part of the monthly income, expect you to keep your money in there longer term. It’s all based on your preference.
All in all, these are a great alternative to standing in front of your brand new house, knowing you must fix it up and sell it for profit or it will all have been a huge mistake! That can feel overwhelming. This is easier for most people, and can still provide double digit returns.
One note: Fundrise and some of these others call themselves eREITs, but they’re not quite the same as the REITs mentioned above. With Fundrise, you’re investing directly in a property. With a REIT, you’re investing in a company that invests in property. Not that there’s really a huge distinction, but just so you know.
Private/Hard Money Lending
So this is my bread and butter! Obviously, right, since you’re on a site for hard money lending and I own the company…moving on.
For many years, I focused on fix & flips, and I did several hundred deals. After awhile, I decided that it was time to focus my time more on passive real estate investing! While I still do deals (I’m working on a deal the week that I’m writing this) and I own plenty of rental properties, I like to participate in hard money lending.
This means that I loan money to fix & flippers! It’s especially rewarding for a number of reasons:
- Passive returns – Someone else is doing the dirty work. While my company provides a ton of resources and help for flipping homes, it’s ultimately the borrowers who are in the trenches.
- High returns – Many of our deals provide 18%+ annual percentage yield. Hard money lenders have to charge high interest rates because there’s risk in flipping houses and the loan term is so short that the only way to make money is to charge high interest. The investors are happy to pay it because they walk away with $30k+ per deal (that’s the average for our borrowers).
- Giving people a chance at financial freedom – many years ago, a man named Dan took a chance on me. He took me under his wing and loaned me money. Without him, I wouldn’t be even close to where I am today. I believe strongly that everyone willing to work for it deserves a chance at financial freedom. I have no requirements for experience or credit, and we have 100% financing options so that everyone can have a chance to get funding for a deal. In other words, I wake up every morning knowing that I’m going to help someone change their life. It’s the best feeling in the world.
This is a strategy that I suggest to TONS of people as perhaps the best way to get started with little knowledge, make some money, learn a ton, and immerse yourself in local real estate!
So how do you do all this?
Bird dogging means that you go out and find deals that would be good fix & flip properties, but then you sell the lead to a fix & flipper!
Bird dogs will often receive a set finder’s fee for the property, but they could also receive a percentage of the profit. This is appealing to the investor because if the deal goes south, they don’t still want to owe money to the bird dog and go further in debt.
So what types of properties are bird dogs looking for? In my real estate investing years, I frequently like to network with people who are in position to send me deals. Think REO agents, probate attorneys, bankruptcy lawyers, etc.
While they may not be bird dogs in the traditional sense, I do tell them to send me deals, and if I close on it, I’ll send them a check for $500.
Now, I do the same thing with real estate agents, too. I’ll talk to a whole bunch of them in an area, but I tell them only call me if there’s a property selling for less than 70% of the after repair value. If they call me and I ask them and they say it’s not, I say goodbye and hang up.
It’s the same for someone who works as a traditional bird dog. Those properties that sell for less than 70% of the after repair value are the ones that you need to target, because real estate investors will take those off your hands.
Of course, you’ll need fix & flippers to sell these leads to! However, that shouldn’t be tough considering our HGTV generation where everyone and their uncle are wanting to do fix & flips! You can find others on Facebook groups, forums, in-person real estate groups, or even among your family and friends. If you’ve got a deal with profit potential, someone will take it off your hands.
Real Estate Mutual Funds
A real estate mutual fund invests in stocks and bonds of real estate companies. In other words, they provide capital to companies that invest in real estate deals!
If you’re thinking this sounds similar to a REIT, you’re not far off. In fact, real estate mutual funds often do invest in REITs! They can also invest directly in real estate companies.
In a real estate mutual fund, it’s going to function (obviously) like a regular mutual fund—just in real estate. There are ton of benefits to investing in a real estate mutual fund:
- Low-Cost Investment – You don’t need a down payment for a property, or worry about the upkeep on it. You don’t have to be an accredited investor either, like you might need to be for hard money lending or some crowdfunding platforms.
- Professional Management – You’ll have a professional that manages the fund and knows exactly what they’re doing. You’re likely to receive higher returns for less effort.
- Passive Investing – You don’t need to know much at all in order to invest with this strategy. The only research you need to do is deciding which mutual fund to join, but then afterwards, they’ll do all the work.
- Diversification! – We’ve talked about this before in this article…but real estate is one of the single most resilient investments out there. And with a mutual fund, you’ll be investing in a wide range of securities across many markets. This is a safe way to grow your money.
- Liquidity – With real estate, your money is often tied up for years before you can return a profit. Even a quick fix & flip requires several months of hands-on work before you see any return. With most mutual funds, you can have your money back out in a day.
BONUS: Invest with $0 Down
There are many reasons why you may not want to buy a property as part of a real estate investment…and one of the most common is the risk. When you buy something expensive like a house, you’re thinking that it’s going to cost thousands of dollars to get it.
For example, just buying a house for yourself to live in (which is a great investment) is going to cost you 3.5%, or $10,500 on a $300,000 house. That’s not even accounting for all the other costs that come from owning a home.
Or, if you’re going to buy a house for a fix & flip, most of the time, you’re looking at $30k down or more just to make the deal work!
So yes, there’s a lot of risk when you do it that way…but I’m going to give you three very common ways that you can get into deals with $0 of your own money—and therefore lowering your risk in the deal.
There are plenty of ways to structure partnerships, and you can figure out which one works best for the situation that you want! Here are some of the ways:
- You do the fix & flip, someone else brings the credit/money – There’s less risk because it’s not your money on the table! You’re either using their cash, or using their superior credit to get access to more funds, such as with a line of credit.
- You bring the credit/money – So this doesn’t work if you’re trying to put $0 into the deal…but if you’re biggest concern is your ability or the time it takes to flip the deal, then this is the way to go. You find someone who’s done this before, and you fund the deal.
- Debt vs Equity vs Flat Rate – When it comes to splitting up the profit, there are (at least) 3 ways. For example, if the person bringing the money is a debt partner, they’ll act just like a bank and get their money back with a set interest rate. For an equity partner, you’re going to decide beforehand what percent of the profit each of you will make. For a flat rate, the person lending the money will get their money back plus a set amount…then the other person makes the rest.
Make sense? So if you’re worried about using your own money, you can have the other person bring the money while you do the flip, and then structure it to pay back a percent of the profits! I’m not a fan of the flat rate, because if the deal goes south with negative profit, then you’re stuck paying back a sizeable chunk of money.
Use a Home Equity Line of Credit
In my opinion, this is the single easiest way to come up with the money you’re lacking for a real estate deal! You don’t need a partner and it’s backed by a valuable asset that you own.
A HELOC means that you’re borrowing against the equity of your house. Typically, you need to have 15% to 20% equity in your house, which means that you have some value to offer. If you just moved into your house yesterday, and you owe about as much as the property is worth, there isn’t value for the bank to be incentivized to lend to you.
20% equity in your house means that if your house appraises for $400,000, you owe $320,000 on your loan. In other words, you have $80,000 equity on a $400,000 house—or 20%!
Because they’re backed by such a valuable asset, you can get much lower interest rates on these than most other sources of funding. You will have to have a credit score in the mid 600s to make this work.
Another incredible benefit of a HELOC is that you can make payments by withdrawing more money! This might sound like an endless sinkhole designed to draw you into crushing debt, but think about it from the perspective of doing a fix & flip! During those six months that you’re securing your loan, paying closing costs, and doing the rehab, you can withdraw money as you like (as opposed to taking out a huge chunk, like you would with a personal loan), and make payments by withdrawing more from your HELOC.
Then, once you flip your property, you take the profit and pay off the balance on your HELOC! See, that’s not so bad when you have a concrete plan to pay it off—and you didn’t have to touch a penny of your savings.
100% Financing Fix & Flips
I saved the best for last. The big one. The holy grail!
There are some hard money lenders out there that will actually finance 100% of your loan! Now, you’ll have to be wary of many 100% financing claims…so ask yourself, “they’re going to finance 100% of what, exactly?”
Often, 100% financing to these lenders means they’ll lend you 100% of the purchase price…but then only 90% of the rehab and none of your other costs associated with the project. In that case, you’re still likely going to bring $15k+ to the table.
That’s not what I’m talking about.
I’m talking about full-on, no messing around, TRUE 100% financing. Yes, it does exist. Because we offer it.
For good deals, we’ll pay 100% of the purchase price, rehab costs, and all other costs associated with the deal. You’ll come to the closing table with $0.
So what does a deal like this look like?
Typically, we’ll lend up to 70% of the after repair value on the property. Some properties will carry deductions, such as ones that are too close to a busy road, have crime in the area, or nearby train tracks. In those situations we may only lend 60%-65% of the after repair value.
So, let’s say you find a property that carries a $100,000 price tag. You’ve done your competitive market analysis and you’re confident you’ve found like-for-like comps that accurately represent what your property will be when you’re done with the rehab.
You figure the after repair value (or what you think it’s going to sell for after you’ve fixed it up) at $200,000. That means we’ll lend up to $140,000.
So if the purchase price is $100,000, that gives you $40,000 to fit in the rehab and other loan and closing costs. If you can do that, you’re likely going to be able to bring $0 to the closing table!
But the other beautiful thing about a 100% financed loan is that even if you miss the mark by a bit, you’ll likely have to bring very little cash. We see this ALL the time—our borrowers shoot for 100% financing, but then have to bring $2k-$5k to the closing table…which is still incredible!
Our average borrower walks away with $32,578 after flipping their property. That’s some serious cash for very little down payment!
Whether you’re interested in completely staying away from owning property, or you just want to lower your risk with owning a property, there are plenty of ways that you can invest in real estate!
Learn how to make money flipping real estate with us by attending our next webinar.