April 2, 2021

For many, a rental property is the first major investment they make which they must also manage diligently. Many new real estate owners don’t move past a couple of properties, while others successfully grow their real estate portfolios into multiple individual properties. Each person has their own unique goals, and like all investments, rental property management is not for everyone. For investors who do prefer real estate as a way to build their wealth, below are some helpful tips for managing real estate accounting.

Typically, if you only have one rental property you can handle most of your accounting at year-end when you or your accountant are doing taxes. That said, as your portfolio of rental properties expands, there will be increasingly complex tax issues to consider, as well as more hands-on accounting for each unique property. While it may seem easier to group all rental costs into one bank account, this will likely create headaches down the line.

It’s worth noting that regular business expenses, tax liabilities and accounting for rental properties often span multiple years. From the time you buy the property to the time you sell it; you need to take advantage of all of the available real estate tax codes to reduce your liabilities. To accomplish this, it’s very important to keep clear records of the total money spent on each rental property separately.  Follow the steps below to keep track of each property, and you will eliminate many potential headaches for you and your tax professionals down the road.

Keep separate bank account for deposits/expenses for each property

Use a separate bank account to collect rent payments. It is unwise to let all of your tenants know your bank account number. A separate account will also let you easily track who has paid rent each month and who may still owe you money. As a general rule, you shouldn’t accept cash; but if someone needs to pay in cash, have them purchase a money order instead. As a general rule, cash is hard to track and easy to lose.

Independently track expenses for each rental property so you can properly disclose them on your tax returns. Ideally, you should maintain a separate bank account for each rental. If that’s too complicated to manage, group some properties into the same account. It’s important to keep in mind that at the end of each year, you’ll need to separate all the expenses by each property regardless of how many accounts you have set up, so it’s best to do it on the front end instead of waiting until the end of the year to divide out all of your property’s expenses.

Track improvements separately from repairs

It’s important to understand the difference between repairs versus capital improvements. This is very important because repairs are deductible when you pay for them, but improvements have to be depreciated over time. Typically, repairs won’t improve the value of your property, but rather simply bring it back to being useful. Capital improvements, on the other hand, will often increase the property value or prolong its useful life.

Don’t track depreciation

Although depreciation can be easy to calculate, don’t try to do so on your own; let your tax preparer calculate it. This is not a cash expense, so it won’t affect your bank account. The current tax code makes it simple, but if you have older properties or have made significant capital improvements, there may be other implications to consider. It’s likely best to leave depreciation calculations to a hired tax professional to handle it for you.

Simplify your accounting

Have a system for tracking income and expenses for each property. Don’t overcomplicate things.  Often times, jotting things down on a piece of paper can be just as effective as a spreadsheet or other more complicated accounting system. You are likely not tracking many transactions, so use whichever method you feel most comfortable with. The key take away here is to ensure you are tracking monthly, and don’t wait until year-end to do everything.

As you grow your rental income, you’ll likely have to expand your accounting system and it is critical to keep solid records. Accounting for your rental properties does not have to be a headache during tax season. Follow the instructions above to ensure you don’t miss any deductions and have detailed records when you eventually sell the property. No matter what system you decide to use, the main accounting objective for successful property ownership is to keep the best records possible and to keep everything organized!

House flipping still represents a solid investment strategy for people who know a thing or two about home remodeling. Sometimes, the trickiest thing about it is arranging financing. Hard money is one option. But is it a good option? Should you fund a fix-and-flip with hard money? There is no right or wrong answer. It really depends on your circumstances and goals. It might also depend on your ability to find a cooperative hard money lender. Some lenders are more than happy to work with house flippers. It all boils down to finding the lender that is right for your needs. Below we will look at some traditional types of hard money loans, so you can decide if a hard money loan is the right approach for your next deal.

Lending Based on Collateral

Some hard money lenders tend to shy away from house flipping deals. They do not have anything against house flipping, it is just that they prefer to put their money into larger projects. Nonetheless, some may be willing to offer you a hard money loan but the deal will likely be largely based on collateral. The collateral you have to offer influences nearly every aspect of any loan you might obtain.  As a house flipper, you are most likely going to offer the property being acquired. The lender must look at how much you want to borrow weighed against two things:

• the current property value
• the property’s future value after renovations.

Remember that the lender has to consider the possibility that you will default, forcing them to assume ownership of the property and find a way to sale it in order to recoup their investment. That means the lender has to consider any additional investment that might be necessary to fully recover the amount you borrowed.

What Does A Typical Hard Money Loan Look Like?

There are no hard and fast rules dictating how a hard money loan must be structured. This is one of the reasons hard money lenders can be more flexible than banks and credit unions. They have a lot more room to structure loans in ways that make everybody happy. That notwithstanding, a typical fix-and-flip loan follows a basic pattern. The investor finds a property to add to their portfolio. They then look to acquire that property for as little as possible. Going to a hard money lender, they will usually offer that property as collateral on a loan that will fund both acquisition and remodeling costs. Then they have one of two options as an exit strategy:

• Sales Proceeds – The first option is to rely on sales proceeds to repay the lender. This assumes that the investor will be able to complete renovations and sell the home within the loan’s stipulated terms.
• Traditional Financing – A second option is to secure traditional financing as soon as renovations are complete. The traditional financing pays off the original loan and gives the investor a bit more time to decide what to do next. They may still decide to sell the property, but may also decide to rent it out instead, depending on the market.

Be aware that smart lenders look long and hard at exit strategies. In fact, a borrower’s exit strategy is second only to his collateral in terms of importance. Lenders want to see a solid exit strategy before they are willing to lend.  One of the primary benefits of hard money to house flippers is the ease at which loans can be obtained. Hard money lenders do not care all that much about a borrower’s credit history or credit score. They do not look at the borrower’s income and assets. As long as the collateral and exit strategy are there, loans can be made. That’s why hard money is such an appealing way to get into house flipping as a new investor.

March 12, 2021

Buying your first investment property can be a strange experience. Most people approach their own home with the attitude that whatever maintenance is required should be done as quickly as possible even if it is more expensive. Whereas, once you purchase a rental property, you suddenly have to think about things like your return on the investment and your overhead cost. If you spend too much maintaining the property, you could end up losing money. Below, we will look at a few ways you can better maintain your rental property, avoid major issues, and put a cap on your total maintenance costs.

Understand The Properties Unique Needs

One of the reasons why property owners dislike maintenance and repair costs is that they often come up unexpectedly. It’s hard to budget for improvements or set rent when you’re never sure when a major repair might pop up out of nowhere. To move past this, it’s best to get to know your property inside and out.  For instance, if the house has a known history for termite damage, that’s something you’ll want to have checked out shortly after closing. You should never assume the prior owners took care of the issue. Termite damage, in particular, can compromise your property’s structure and lower its value. Even if you don’t currently have an infestation, you’ll need to remain vigilant in the years to come.

This same principle applies to the entire property including the outside. If the home inspection indicated possible long term issues with the roof, or informed you that the water heater is getting old, you may save a lot of money down the road by fixing those known issues prior to them becoming an emergency.

Stay Ahead On Routine Maintenance

Preventative maintenance keeps the property in good condition and can reduce a lot of potentially expensive problems. It can also help you save money throughout the year. Getting the A/C serviced annually, for instance. A yearly tune-up usually costs between $75 and $150. If that tune-up, however, helps prevent a single major breakdown or repair, it has easily paid for itself many times over. The same thing is true for sewer line inspections, pest control, and other prudent maintenance.

To keep your maintenance costs down, divide your property’s maintenance needs into two categories: projects you can complete yourself versus projects you’ll need an expert to help you with. Some of the maintenance projects in the first group should include items such as repainting interior walls, deep-cleaning carpets between renters, or fence repairs. Is the second group, you’ll want to bring in a pro to help with items such as HVAC, plumbing, roofing, pest control, or electrical issues, unless you are very handy and have solid experience in those areas.

Resolve Problems Quickly

No matter how much time, money, and effort you put into preventative maintenance, you’ll inevitably have to deal with one or two major issues every few years. While you can’t predict exactly what you’ll have to face, you can control your response. You should always respond as quickly as possible and communicate clearly with your rental tenants. When your renters do call with a legitimate issue, you should try your best to make resolving the problem a top priority. Don’t hesitate to call in a professional as soon as possible. It’s a great idea to call several service experts in your area before you have a problem and establish a working relationship so that you have their contact information easily accessible when situations arise.  By being decisive in a crisis, you’ll help limit the damage to your property, saving you money and making future maintenance easier and less expensive.

March 5, 2021

If you’ve ever thought about investing in rental property, now may be a good time. Mortgage rates remain historically low, and rental income could offer valuable protection against ongoing economic uncertainty. Many economists are predicting a wave of foreclosures in 2021, which may lead to more people looking for available rentals. So, how do you finance a rental property? The answer, for most people, is the same way you finance the purchase of your own home: with a mortgage. Whether you plan to live in the property or not, a mortgage is the most secure method of financing a rental purchase because it’s secured by the home.

How are rental mortgages different?

Mortgage lending is all about risk levels. A typical mortgage for an investment property carries a higher level of risk than a mortgage for a primary home, simply because the mortgage holder isn’t living in the home.  To discuss in more detail, below are three ways a rental property mortgage differs from a mortgage for your primary residence.

1. You May Have to Make a Larger Down Payment

In most cases, the minimum down payment required for investment property is roughly 15% to 20%. Comparatively, you can make a down payment on your own home of as little as 3% in some cases. However, for a down payment lower than 20% on your own home, a borrower is required to pay for private mortgage insurance, which can cost between .25% and 2% of the loan balance per year. It is worth noting that private mortgage insurance does not cover investment properties, so investors may have to make a larger down payment as a result.

2. Your Mortgage Rate Will Likely Be Higher

In a low interest rate environment, the interest rate on a mortgage for a rental property is still relatively low. For most borrowers, the rate will be about three-quarters of a percentage point higher for an investment property than it would be for a primary home, or about the mid-3% range currently.

3. You May Have to Pay Off the Mortgage Sooner

In some cases, the loan may have a shorter term than the typical 30-year term offered on the purchase of a primary home. Like with other types of mortgages, a rental property loan can either be fixed or variable, depending on the loan and the borrower’s relationship with the lender. So, what are the different types of rental mortgages?

Is now a good time?

Even if it requires extra paperwork and documentation, getting a mortgage for an income-producing rental property may be a good idea, especially at the moment.  Low mortgage rates help make purchasing real estate more affordable, while economic uncertainty may make it appealing to have a passive income stream available through a rental property. Low rates are driving interest from a wide variety of real estate investors, but rental properties are one of the safer bets.  Investing in a real estate property for a short-term purpose, such as a fix and flip, would likely be far riskier in the current real estate environment. There is likely to be an influx of real estate supply through foreclosures which could depress prices and have a negative impact on real estate speculation in 2021. This may be offset by the large demand seen in the past several months for real estate, but nevertheless remains a risk.

Bottom Line

If the coming months result in a wave of foreclosures—particularly after the government’s Covid related foreclosure moratorium ends—that will likely result in an increase of new applicants for rental properties, which will be a boom for rental property owners. For investors who are able to qualify for a rental property mortgage and are willing to handle or outsource property management tasks, now could be the right time to make an investment that will pay off for many years to come.

February 25, 2021

Investment properties are properties in which the owner plans to make a return on investment through either rental, resale, or both. With the right planning and management, they can be a nice way to earn additional income. But sometimes, they can be a slippery slope into financial distress. If you’re planning to invest in real estate, here are a few hard truths about what could potentially await you.

Initial Costs Can Be Steep

Buying property is a costly affair in general, let alone when you’re venturing down the investment avenue. Financing the purchase of your investment property could well be your first hurdle, especially if you already have a mortgage. One way you can do this is through a cash-out refinance, however you will need to have sufficient equity in your home, as well as pass your lender’s assessments. Investment property mortgages are another option, but they can be very costly, and you can expect down payments of at least 25%, as well as stricter credit score requirements and higher interest rates.

Upkeep Can Be Costly

Once you bought an investment property, there’s a very good chance you will need to perform some maintenance on it. Depending on the building’s age and condition, this can be anything from a fresh coat of paint, to plumbing repairs or installing new flooring.

Upkeep, however, is something you will need to keep on top of for as long as the property is in your possession. Rental properties in particular can be very high maintenance, and could require costly upkeep, depending on the tenants who have lived there previously.

At the same time, it’s important to check on and maintain properties that you intend to sell, especially if nobody lives there. For example, a vacant property that’s been on the market for several months can suffer unexpected damage, such as a pipe freezing in winter, and causing water damage when it bursts. Not only will you have to contend with the financial losses that come with a property that isn’t selling, but now you also have an expensive repair on your hands.

Finding the Right Tenant Can Be Tricky

If you’re buying an investment property that you intend to rent out, it’s important that you find the right tenants to live there. Ideally, you should draw up a contract that clearly stipulates rules such as no smoking or no pets, as well as ask for a security deposit. Yet even so, you should prepare for cases in which rent is paid late, tenants are disruptive, your property is damaged, items get stolen, or tenants simply abandon the property without any notice.

In the best-case scenario, the security deposit will cover any damages and items that need replacing. But even so, you run the risk of taking your property off the market for a few weeks, while repairs are being performed, which can set you back financially.

It’s worth noting that evicting a troublesome tenant takes time, and needs to be done in accordance with the law and the local renter’s rights. Also, as a landlord, you will need to wait a standard 30 days before you can use the security deposit, assuming that your tenant doesn’t qualify for a return.

The Property Value Could Decrease

Depending on market fluctuations, the value of your property can either rise or fall. This can cause issues if you’re buying investment properties with the intention of selling them later on. The most common scenario is neighborhood decline, which will result in a depreciation of your property’s value. Regardless of whether you’re dealing in commercial or residential investment properties, pay close attention to the signs of a declining neighborhood prior to buying, such as an increased lack of stores or public transport.

Selling an Investment Property Can Take Time

Unlike other types of investments, properties are not a liquid asset. If you’re flipping properties or just planning a resale later on, prepare for any financial drawbacks that could arise while the property is on the market. And as any investor knows, the older the listing is, the bigger the risk of not closing on a sale.

Lots of Hidden Costs to Watch

On top of the initial cost, upkeep and maintenance, investment properties pack hidden expenses that might not be obvious at first sight. The best example is long periods of vacancy for rental properties, especially when there’s little demand. Not only that, but if you’re a landlord dealing with several rentals, you will find yourself in need of hiring a property manager, which adds to your monthly costs. Don’t forget to take property insurance into account, and also keep an eye out for an increase in local taxes.

February 12, 2021

Truthfully, every new investor has their own idea of what makes a real estate mogul. However, in general, a realty mogul can be defined as a high net-worth entrepreneur who has accumulated the majority of their wealth through investing in real estate. With that in mind, if you dream of building your own real estate empire someday, keep reading. Below is a step-by-step guide to growing your real estate portfolio into a thriving business that will help you achieve financial freedom.

 Clarify your financial goals and investment strategy

If you’re reading this article, chances are, you do dream about becoming a successful real estate investor. That said, if you’re serious about making it happen, it’s important to realize dreaming is not enough. In this case, you need to start thinking like an entrepreneur, which means that you need to clearly define your goals and the steps that you intend to take to achieve them.  To do this, start by thinking about your goals in a more specific way. For example, rather than just saying you’d like to earn extra income by investing in real estate, think about what being a successful real estate investor looks like to you. What would you eventually like your net worth to be? The more specific you can be here, the better.

Once you’ve taken some time to define your goals, it’s time to turn your attention to your investment strategy. In short, your investment strategy is the specific method you intend to use to achieve those goals. For instance, you could follow a buy and hold strategy where you purchase a rental property and rent it out to a long-term tenant, or you could choose a fix and flip strategy where you purchase a distressed property, fix it up, and resell it for a profit.

Create your real estate investment business plan

After you’ve taken some time to really think about your goals and to zero in on the investment strategy that’s the best fit for you, the next step is to create your real estate business plan. It can be helpful to think about your business plan as the roadmap that you intend to follow on the way to achieving your goals. It will include the specific methods and strategies you intend to use to build your portfolio.

While this may seem like a lot of work to do before you ever even look at an investment property, it’s a crucial step to building your real estate business. Having a business plan will help you be more strategic when it comes to identifying the right investment opportunities, deciding how you’re going to manage your cash flow, and knowing when it’s time to employ your exit strategy. Additionally, if you’re planning on bringing business partners into the mix, having a cohesive business plan will make you look more professional, especially if you don’t have much of a proven track record.

Keep in mind that while it’s important for your business plan to make sense, it doesn’t have to be perfect from the get-go. A real estate business plan is not a static thing. It should grow and change with you as you continue to grow in your role as an entrepreneur. Try not to get so caught up in making it so perfect that you prevent yourself from moving forward.

Buy your first investment property

Once you have a outlined business plan, it will be time to buy your first investment property. However, before you do so, it’s important to take the time to educate yourself on your local real estate market. In this case, you should be sure to familiarize yourself with the going interest rates in your area and the neighborhoods that are most likely to offer investment opportunities that match your particular strategy.

Once you’ve found a few properties that meet your criteria, it’s time to do a property analysis. At its core, a real estate property analysis helps you analyze metrics to figure out whether or not a specific property meets your bottom line and is likely to give you sufficient returns.

Continue to build and diversify your real estate portfolio

No matter what type of investment strategy you followed up until this point, eventually it will be time to continue to grow your portfolio. The nice thing about investing in real estate is that you can often leverage equity in order to help you grow.  If you followed a buy-and-hold strategy, you’ll have the option of using a home equity loan to supply the funds for the down payment on your next investment property. Likewise, if you’ve followed a fix-and-flip strategy, you can use the profits from the sale of your first investment property to buy another.

Once you’ve gotten comfortable growing within your existing real estate niche, it’s time to diversify your portfolio. This could mean a few different things to different investors. For example, if you focused on residential real estate so far in your career, you could move to investing in commercial real estate.  Ultimately, the method you choose to diversify your portfolio is up to you. However, if you do dream of becoming a mogul, it’s crucial that you eventually diversify. At the end of the day, diversification will always help minimize risk, which is one of the keys to building a sustainable real estate empire.

Break into high-end markets

Once you’ve had the chance to accumulate a decent amount of wealth and build a full portfolio, it’s time to break into high-end markets. These markets are often only attainable to those who would be considered accredited investors in regard to the stock market, meaning they already have a high net worth and are more experienced in the real estate business. Here, in exchange for the high up-front cost and tough competition that you’ll likely face when trying to buy properties, these markets often will give you the best returns.

The bottom line

Real estate investing is certainly not easy, let alone if you’re trying to become a real estate mogul. However, with a lot of hard work and due diligence on your part, it can be done. With that in mind, use this as your guide for how to get started building your real estate portfolio and eventual empire. Armed with this knowledge, you should have everything you need to create a roadmap for achieving your dream of financial freedom.

February 5, 2021

Many people believe investing in real estate is the key to obtaining their financial goals. Seasoned investors will be the first to warn, however, that investing in real estate comes with some big risks that need to be weighed before an individual is financially ready to begin investing in real estate. If you’re considering investing in real estate, there’s a lot to know before you make your first purchase. It’s unlike any other type of investment you’ve owned so far, and requires a different approach from how you manage it to how you earn from it.  For anyone who’s wondering if becoming a landlord is the right move for them, below are a few signs that you have reached a point where investing in real estate is the right move for you.

You have savings for retirement

Before anyone starts working towards investing in real estate, they should already be saving for retirement and have enough cash left over. Make sure to consider your retirement needs by allocating the appropriate contributions to a 401(k) plan and/or Roth IRA.  You may also want to consider having a brokerage account before taking on the additional risk of a real estate portfolio.  Anyone considering investing in real estate should build up these areas before becoming a landlord if they plan on being successful.

You have free time to manage your investment

Time is of the essence in real estate investing and you may need a lot more of it than expected to tend to all that a real estate portfolio will require. Ideally, real estate investing is best pursued once you’ve freed up your work schedule or are nearing retirement to allow you the proper time necessary. It can sometimes feel like another full-time job so you should have the extra time to manage the property.  Most of the time you will need to focus on more than just managing the properties and will also need to deal with areas like marketing and legal requirements in the area.  Real estate investing also requires a lot of customer service if you’re planning on renting a property out for additional income. All that management takes time and energy you’ll need to have before investing.

You have cash for a down payment

The process of buying an investment property is a lot like buying a home, but in some ways, it’s more difficult. There’s typically a little bit more upfront capital requirements for investing in real estate. Lenders see rental properties as a higher risk, and charge more for them in interest and require larger down payments. At minimum, you’ll likely need a full 20% down payment to be able to start investing in real estate.  If you have the cash on hand to start investing in real estate, it’s likely a sign that you’re financially ready to start if your other goals are met. However, keep in mind that you’ll also need other cash to keep and maintain that building. It is wise to set aside money for unexpected repairs and still being responsible to pay the mortgage if the property sits unoccupied for a period of time.

Like any investment, profit from real estate isn’t a given. Anyone who’s considering investing in real estate should do so with that understanding that real estate isn’t necessarily a better investment than stocks, or vice versa. There are many variables at play and success in real estate can come down to simply the location or any number of other things that may or may not be within your control.  While the same can be said for the stock market, it’s worth noting that real estate is unique in some of its risks. Hopefully the above areas will help guide you to make an informed decision on whether or not you are ready to invest in real estate.

December 28, 2020

Whether you’re a first-time homebuyer or a long-time investor, it’s important to be strategic about how you spend your hard-earned money.  You have many different investment routes to choose from, which can sometimes be overwhelming and leave you with more questions than answers. What’s a better investment, multi-unit properties or single-family homes? Should you fix and flip or fix and hold? When should you live in a property first before renting it out?  Below we will discuss ways to reliably maximize the value of an investment property.

Purchase a multi-unit property and live in one

If you are just getting started in real estate investment, purchasing a multifamily property and living in one of the units can be a great idea.  Multifamily dwellings with up to four units are considered residential, not commercial, for financing purposes. This means you can purchase a multi-unit property with a residential loan and rent out the remaining units. You will be able to generate income as soon as you move in, helping you offset the cost of your mortgage and building a passive income stream.

This is a fantastic strategy for first-time homebuyers. If you want to begin building your real estate investment portfolio, but you don’t have much capital, start small. Instead of buying a single-family home in a suburban neighborhood, buy a duplex, triplex or quadplex in an urban market and generate ongoing income.

Purchase and renovate a multi-unit property you don’t live in. 

Consider expanding your real estate portfolio with a multifamily property that needs some renovation. Take a long-term, fix-and-hold approach, refurbishing one unit at a time and renting out the rest. You’ll be able to leverage your rental income to pay for construction expenses, spreading them out over several years instead of in one lump sum.  That said, renovating a multi-unit property is a big undertaking. Ask these questions before you commit to a project:

• Do you have any previous remodeling experience? Do you have a team of professionals you trust to help you with the work? Go in with eyes wide open about how much time and money each unit will require.
• What are the changes you need to make to the units? Are they standard cosmetic jobs, like replacing flooring, cabinets and appliances? Or do you have to make building-wide upgrades that will be more expensive and extensive? Steer clear of properties that have major structural problems that will prevent you from renting out units while doing construction.
• How much do you expect your property to appreciate after you renovate? Will your rental rates increase significantly? Do your homework, researching the rents of similar properties in the area.

Purchase a Duplex

Another smart way to maximize your real estate investment is to buy a duplex. You can choose to live in one unit and rent out the other, or rent out both for double the income. Ideally, if you choose to live in one of the units the rental income you make off of the other unit should either pay for or earn close to the total amount for the mortgage on the entire property.  Best of all, these types of properties will often appreciate at a higher rate than a typical single-family home.

No matter what your experience level is in real estate, you can take action to enhance the value of your properties. Whether you decide to purchase a multi-unit, single home or duplex property, renovate or live onsite, the above information can help guide you to a wise and informed decision that is right for your particular situation.  Hopefully the above strategies will help you to make the most of all of your investment opportunities.

December 1, 2020

There’s more to real estate investing than simply buying an investment property and calling it a day. Traditionally, there are four different types of real estate investors. As with any type of investing, each one has its own benefits and disadvantages. Below we will discuss all four types of investing, as well as the pros and cons for each investment type.

What is a real estate investor?

A real estate investor is any investor who purposefully adds a real estate asset to their portfolio. Truthfully, real estate investors come in many different shapes and sizes. While many people think of someone who buys and holds a rental property as the classic example of a real estate investor, that is just one type. It’s possible for real estate Investors to also put their money into a real estate investment trust (REIT), to follow a fix and flip investment strategy, or to be wholesalers.  Now that you know a little bit more about what a real estate investor is, the next step is to take a closer look at the different types of real estate investors.

REIT investor

Investing in a real estate investment trust (REIT) is the most passive form of real estate investing available. With this method, you’ll invest similarly to the way you’d invest in the stock market. Here, you’ll buy shares of a real estate investment company and receive dividends when the company pays out its profits. A publicly traded REIT will even have its shares listed and traded on major stock exchanges. However, a non-traded REIT may still be listed with the SEC, but it’s not publicly traded or it may be a private company.

The major benefit of investing in REITs is that, like stocks, anyone can do it. You don’t have to be an accredited investor or even have that much real estate experience. In this case, it’s as easy as buying and selling shares.  That said, the downside of investing in REITs is that you have very little control over what they invest in or how they’re managed. With that in mind, it’s important to do your research before investing in any particular REIT. Also, dividends from REITs are taxed as ordinary income, as opposed to a lower rate.

Buy-and-hold investor

Buy-and-hold investing is the classic example of real estate investing, where you buy up an investment property and rent it out for consistent monthly income. On the whole, this is a relatively active form of real estate investing. You do have to do the groundwork of marketing for a tenant, vetting all the potential applicants, and being on call to handle maintenance issues. It’s also meant to be a long-term strategy since investors tend to buy an investment property and keep it in their portfolio for multiple years.

The big benefit of following a buy-and-hold investment strategy is that you have the opportunity to achieve relatively stable returns. In this case, landlords can usually count on the same amount of rental income coming in every month. The major downside of this investment strategy is that it can be a lot of work for smaller returns than you might find with another method.

Fix-and-flip investor

In fix and flip investing, the investor will do their best to find a real estate deal that’s undervalued for the market. Then, they’ll fix it up and market it for resale at a much higher price. Once the buyer is found, the investor gets to keep the difference between the initial investment and the final sale price as profit.

The main benefit of this type of real estate investing is that, if you find the right investment opportunity, it has the potential for high returns. Also, it’s a short-term investment strategy, meaning you could see a return on your investment in just a few months.

That said, this is also a very active investment strategy. In this case, it’s up to you or your real estate agent to find the right real estate deal. Then, you have to figure out how to fix up the property. Here, you can often achieve better returns if you can do the work yourself. However, if you aren’t handy, you’ll have to plan to pay for labor costs in your budget. Finally, there’s also the risk that you could over improve the property and lose money on the deal when it’s time to sell.

Wholesaling

Real estate wholesalers will act as a middleman between a property owner and an end buyer. Here, the investment strategy is to find an underpriced real estate deal, quickly sell it for a higher price to an interested buyer without rehabbing it first, and keep the difference between the price you paid for the property and the price you sold it for as a profit.

In truth, this is a relatively passive investment strategy, and you have the potential to make a sizable profit. Typically, wholesalers will buy and sell a property the very same day in order to cut down on carrying costs. However, in order to make this work, you often need to have an established network of real estate contacts who can help you find interested buyers and distressed sellers.

Real estate investing can be a great way to diversify your portfolio. However, if you’re just getting started in this arena, it can be confusing to differentiate between the different types of real estate investors. In light of that, use this as your guide to your options. Armed with this knowledge, you should have a better idea of what type of real estate investing is right for you.

November 13, 2020

When many people think about investing in real estate, they often assume they should buy a single-family home. More and more investors, however, are looking towards multifamily commercial real estate like apartment complexes instead as an alternative to invest in new and lucrative real estate properties.  Below we will discuss a few key reasons why you should consider investing in multifamily commercial real estate.

Let us begin with discussing what is multifamily commercial real estate or MFCR. Essentially, multifamily commercial real estate (MFCR) is used to describe residential properties with more than five units.  Often, this term refers to apartment buildings but there are also quite a few different property types within MFCR such as mid- and high-rise apartment complexes and garden apartments.  Included in these types of properties are residential housing units such as assisted living facilities and student housing.  Regardless of what type of multifamily commercial property you decide upon, you’ll have the following asset classes to choose from as an investor.

Class A properties: which are essentially luxury buildings offering high end amenities like fitness centers and pools. These properties bring in the highest rents but require a larger investment.

Class B properties: still offer a good quality value and are in desired locations but they may have less amenities than class A properties.

Class C properties: tend to be more outdated but are the most affordable rent-wise for tenants on a tight budget.

Now that we have discussed the different types of multifamily commercial real estate and how they are classified, lets look at the benefits of investing in these types of properties.

The Benefits of Investing in Multifamily Properties

One of the best benefits of investing in multifamily units is that they are often easier to secure financing for than single family homes if you are intending to utilize them as a rental properties. This is because multifamily homes often come with less risk to the lender.  Since there is more than one tenant in a multifamily building, there will be less impact on the bottom line if something goes wrong, a tenant is unable to pay or the property is unable to be occupied for a period of time.  Additionally, since multifamily housing typically comes with shorter leases, there is more opportunity to adjust the rental rate to current market demands and for inflation.

How to Invest in Multifamily Housing

If you are interested in investing in multifamily housing it is critical to understand your financing options so you can get the best deal possible for your situation. There are several different financing options you should look into before moving forward, but in general there are three main ways to finance these properties we will discuss below.

Government backed multifamily mortgage loans: are typically the best fit for investors who intend to live in one unit and rent out the other units. These loans are typically easier to qualify for than conventional financing and have lower credit requirements.

Portfolio Loans: are worth looking into if you do not qualify for federally backed loans because financial institutions set the requirements to qualify.  Financial institutions also set the interest rates on a case by case basis and keep these loans on the books instead of selling them on the secondary market.

Short term multifamily financing: typically come in the form of a bridge or hard money loan.  These loans are often a good fit for fix and flip investors wanting to rehab a property.

Once you have researched and have an idea of the best type of financing for your situation, you should see what options are available in the particular area you are interested in and work with a real estate agent to zero in on the best possible multifamily property available.

Since multifamily buildings allow you to manage multiple tenants at once, they can be a great way for investors to diversify their portfolios and increase their cash flow. As with any investment, it’s important to understand the market and know what you are getting into ahead of time. Hopefully this article can be a useful guide in deciding if purchasing multifamily commercial real estate is right for you.