One of the best aspects of real estate investing is the diversity of possibilities when it comes to strategies you can implement. Many folks are aware of the common ways to invest in real estate, like buying and renting to tenants or rehabbing to flip a house.
But there are far more creative ways for you to get involved with real estate investing. Depending on what your investment objectives are, some strategies may deliver better returns than others. Let’s cover some of these creative strategies so you can find the perfect one for your investment goals.
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With the live-in property flipping approach, you live in the investment property while it’s being rehabbed. Often, investors will rehab to attract higher-quality rental tenants for when they move out, allowing them to command higher rental rates.
What’s really great about this strategy is that there’s an opportunity to pay zero capital gains taxes on properties that earn up to $250,000 for single filers and $500,000 for married couples filing jointly, called the Section 121 exclusion in the tax code.
The main qualifications for the Section 121 exclusion include:
If by some chance, during your live-in flip, something comes up that makes you move before the two-year requirement, you may still be eligible for a partial Section 121 exclusion, depending on the reason for the move. Acceptable reasons include:
Property tax lien investing is when an investor pays the outstanding taxes out on a tax lien as well as any interest and fees, and then when the property’s owner finally pays their property taxes, you get to collect the principal and interest from the state or municipality.
To invest in property tax liens, you can either buy the property tax liens yourself at an auction or invest in special property tax lien investment funds managed by professional real estate tax lien investment companies.
With property tax lien investing, there’s not too much risk involved. While there’s a possibility, the property owner could fail to make their payments, allowing the investor to put the property into foreclosure, but this isn’t very common. Typically, property owners make their back tax payments in six months to three years.
Buy, Rehab, Rent, Refinance, Repeat (BRRR) is one of the most popular long-term property investment strategies.
Essentially, this strategy involves buying real estate at below market value, rehabbing it, and then renting it to tenants. Next, the investor uses the funds generated from renting plus a cash-out refinance to repeat the process.
A key benefit of this strategy is that as your real estate investment portfolio grows, the more resources there are to invest in it, enabling access to more lucrative properties that come with larger returns.
BRRR also delivers economies of scale as your portfolio grows, making costs of rehab and tenant dealings more manageable. The more times you repeat, the more power you have to negotiate better deals on labor and materials.
Essentially, the idea of “snowballing” in real estate investing comes down to building up cash reserves to eliminate any outstanding debts on the properties in the portfolio. This is accomplished in a couple of different ways—rental debt snowball and all cash rental.
With rental debt snowballing, the positive cash flow from all of the properties in the portfolio is used to pay down the mortgages of each property one by one until there’s no real estate investment property debt left. When it comes to the all-cash rental plan, positive cash flow is saved up to buy more rental properties debt-free.
The benefits are huge for owning rental real estate without any debt. Risk is lowered considerably, and investors are afforded more time to carefully select tenants for the best possible chance for uninterrupted cash flows, unexpected vacancies, or property damage.
Real Estate Investment Groups, also known as REIGs, are private groups of real estate investors who pool their capital and expertise to invest in multiple types of real estate with varying strategies, including some we’ve described here.
REIGs can operate in many different structures, membership fee configuration, and levels of required direct participation. Unlike REITS, a REIG isn’t taxed like a corporation or governed by strict investment criteria.
For example, REITs are required to reach 100 investors in their first year, with at least 50% of the fund owned by more than five individual investors.
Conversely, REIGs are governed by private agreements rather than stringent government guidelines and regulations, providing more latitude in strategy while owning a more direct stake in physical property rather than shares that simply pay dividends.
Similar to REIGs, real estate investment funds provide access to more direct investment but deliver consistent monthly dividend payments that can be reinvested into larger stakes in the fund.
Real estate investment funds deliver some of the best aspects of investing in real estate with far less risk because they’re operated by expert investors who work at investing full-time.
With so many real estate investment strategies available, there’s sure to be a strategy out there that suits your cash reserves, risk preferences, time, and how hands-on you prefer to be with real estate investing. If you’re unsure which route to go, the real estate investing experts at Saint Investment Group can help you find the right strategy.
If you’d rather invest in real estate with an expert team who knows the ins and outs of real estate, investing with Saint Investment Group is a solid approach. We provide detailed reporting on your real estate investment performance that helps you understand how your capital is being allocated. Call (323) 483-0291 today to learn more about getting started in real estate investing.
A master in Investment, Marketing, and Capital Raising.
Nic has honed his focus on the Real Estate and debt markets with Saint Investment Group and pursues large-scale Distressed Asset purchases with his partners and syndications.