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Smart real estate investing is not about investing your money in the right property to get great returns. It is about investing with little money to get the best returns. But wait, how can you invest in a property with less or no money? Here’s where the creative real estate strategies come into play.
What strategies come to your mind when you think of traditional real estate investing?
- Buy and hold
- Buy to rent
- Fix and flip
These are the three common investment strategies in traditional real estate investing. Anything in this type of investment involves arranging money. You need to have insane amounts of money to buy the property or be eligible for a home loan. Even if you can arrange for home financing, you still need to make the down payment to the seller.
It is where creative real estate investing helps you. This out-of-the-box strategy involves locating opportunities, financing the properties differently, and buying the property smartly with the help of real estate consulting services.
How do you go about creative real estate investing?
Creative real estate investing is all about smart investing. You start with small amounts of money and play smart. You gradually build enough capital to make your business a success.
1. Seller financing
It works best for buyers who are having a hard time qualifying for a loan. Here, the buyer and seller arrive at a deal. The buyer pays monthly installments to the seller with a set interest rate for a period of 3 to 5 years. The benefit is that the buyer can secure a refinance loan on the property that is easier to get than a purchase loan.
2. Subject-to
When you buy a pre-foreclosure property, the onus of financing the house falls on you. But in the subject-to strategy, you purchase the home that has finance tied to it, but the seller pays for it even if the property’s title is in your name. It essentially means that the seller continues to pay for the mortgage for a set duration. It gives you time to refinance and pay the remaining mortgage. The benefit of using this strategy is that you will not have to pay the down payment while purchasing the property.
3. Rent-to-own
It is a creative real estate investment strategy that is widely popular because it involves buying a property with less money. Here, an investor rents the property for a few years with an option to buy the home at the end of the duration. Under this agreement, part of the rent you pay to the seller goes towards the purchase. So, the rent is higher than you usually pay for a home. It will be the sum of balance plus interest, similar to a real estate loan.
The benefit is you don’t need to pay the down payment amount. You can purchase a property with little savings and the least risk. The buyer and the seller sign a contract specifying the lease terms and the option to buy. Ensure that you hire real estate consulting services to protect your interests.
There are risks involved in the rent-to-own method. Will the seller use the current value of the property in the deal? Will they add a premium estimating the appreciation in the property’s value? What if the property value decreases when your lease term expires? Discuss these terms with the seller before you go in for this rent-to-own agreement.
4. House hacking
It works best for people interested in owning rental properties. You buy a multi-unit property. You live in one of the units and rent the others to tenants. The money you make from rent should be enough to cover your mortgage payment. Hire the services of a real estate consulting firm to take care of the deal and make the process smooth.
5. Wholesaling
It is a simple buy-and-sell technique. Here, you use your resources to locate sellers who are willing to sell their homes at discounts. It is done usually before the seller lists their home on the MLS databases. Once you buy the home, you search for buyers and sell it to them at a premium. But again, this requires that you have money to invest and the network of interested buyers and sellers to make a decent profit.
6. REITs
Investing in REITs is easy. You save money, time, and effort needed in going through the challenge of finding a good property to invest in. If you don’t have enough money to buy a property, you invest in some good REITs. One disadvantage of it is that like the stock value, the value of REITs also moves up and down.
7. Crowdfunding
Thousands of people come together to finance an experienced real estate developer for any current project. In crowdfunding, you get returns on the loan you have contributed. The developer hires the finest real estate branding services to attract audience interest for funds. Only when a project reaches millions of people, will the developer be able to collect adequate funds. The downside as an investor is that the returns aren’t lucrative. Another aspect is that the project may require multiple rounds of crowdfunding for the project, and this delays the returns earned by the developer and you.
Traditional vs creative real estate investing: The verdict
While traditional real estate investing is more a tried-and-tested textbook approach, creative real estate investing is taking risks and playing smart. Of course, both have their challenges.
The traditional approach requires no thorough understanding of the real estate investing processes. At the most, you can invest in an agent to get the work done.
The biggest challenge in creative real estate is getting access to resources to help you market the real estate uniquely. Understanding the basics of creative real estate marketing and implementing it is critical to its success. But unfortunately, people do not have it nor do they take it seriously. They still follow the traditional investing methods and believe they have got value for money deals. Since the legalities are complex, real estate consulting services help you in negotiating the terms with the seller. Also, financing is another major aspect of creative real estate investing. Here, the firm helps you adjust the finance terms to get the most out of your investment.
Creative real estate investing is the best choice for people willing to try something new and take risks. If you are having a small amount of capital and want to invest in real estate, go with creative strategies. If you have the money and are eligible for a loan, you can go with traditional real estate investing. Either way, be sure to hire real estate consulting services to make the best deals and earn good profits.
