What Are Active Ways to Invest in Real Estate?
May 20, 2022
Second Homes and Rental Properties
A second home can be a fitting investment, especially if you're looking for a property to generate rental income. However, it's important to remember that second homes come with their own set of expenses, from mortgage payments and insurance to maintenance and repairs.
Rental properties can also be a good investment option, especially if you're able to find tenants who are reliable and pay their rent on time.
Rent payments can be a secondary source of income, which is why many investors choose to take this route.
House flipping is a smart idea for those who are savvy in real estate valuation, marketing, or renovating. House flipping requires funds and the ability to do repairs or oversee them as needed.
This is considered the more alternative, wild-side of real estate investing. House flippers typically hope to make profit and sell the undervalued properties in six months or less.
Although, some real estate flippers buy reasonably priced properties and increase their value by renovating. This method can be a long term investment, as these investors can usually only afford to flip one or two properties at a time.
The Buy, Rehab, Rent, Refinance, Repeat (BRRRR) Method
Speaking of house flipping- the Buy, Rehab, Rent, Refinance, Repeat- or BRRRR Method- is another way to flip a house and gain profit or income. With the BRRR method, an investor can flip property, rent it out, and then cash-out by refinancing it in order to fund additional rental property investments.
Here’s how this works:
- A property is purchased:
The property purchased is usually distressed or considered a “fixer upper.” The property will typically need some work and renovation in order to be up to code to rent. Due to the condition of the home, it will likely be less expensive than a home that is not in a distressed or less than perfect condition.
- Fix or “rehab” the property:
Due to the less than perfect shape of the property, it will likely need to be renovated or fixed and will require some work. This step may require some structural or aesthetic improvements.
- The property is rented out to tenants:
The investor/owner will then determine the price of the home or property, and find tenants to rent.
- The investor does a cash-out refinance on the property:
If an investor chooses to do a cash-out refinance, the equity is converted into cash. You can access the equity by taking out a larger mortgage, borrowing more money than you owe. This can be used for whatever the investor would like- including purchasing another property.
- The investor uses the funds from the refinance to purchase a second property:
For this step, the process starts all over again. The funds from your cash- out refinance will be used to purchase another “fixer-upper” property, rehab it, then rent it out and refinance that property.
This method can be repeated as many times as an investor would like, in order to gain profit or income from rental properties.
No matter which method you choose, be sure to do your research and understand the risks involved before making any decisions. Investing in real estate is a big commitment that comes with risk, but it can be a very rewarding one if done correctly.