We often receive messages from our loyal readers about the different investment opportunities in real estate. It’s not surprising to know that most of them believe that residential properties are the simplest, most efficient way to go. However, by diving deeper into the industry and informing them about its intricacies, it’s quite fascinating how their eyes brighten up by the thought that there’s a whole new world out there when it comes to real estate investing.
Go Blue Sun recently had an in-depth discussion with one of our good friends from the DC area, Andy Kolodgie. Just to give you a bit of a background, Mr. Kolodgie is the owner of The House Guys, a premier real estate firm in Washington DC’s metropolitan area. Here, we’ve talked about the basic investment opportunities in real estate, as well as some practical tips on how to enter.
1. Buy From a Wholesaler
According to Andy Kolodgie, there are so many ways to invest in real estate from the aforementioned residential, to commercial, to even real estate investment trust (REIT), the list goes on and on. But, one of the best strategies to invest in real estate—especially during this ongoing global health crisis—is to buy properties from a wholesaler (someone who specifically finds properties that are in need of repair) and flip the property for a profit. Buying a property from a wholesaler will typically garner you a deeper deal than buying off multiple listing services (MLS), as you will avoid the agent fees (which in most areas are 6%).
2. Invest with a Reputable Hard Money Lender
Another great way to invest in real estate for a high rate of return with a secured investment is investing money with a hard money lender. A hard money lender is a company that lends money to flippers at a high interest rate (13%+) while securing the money with the underlying asset (the property).
Good hard money lenders typically return 10% investments quarterly to investors. Investors do not need to be accredited to apply, however, there are typically minimum buy-ins for these products. These investments have not been affected by COVID-19 as they rely on flippers continuing to flip properties– house flipping has not slowed down during the pandemic.
3. Go the Old Yet Reliable Route of Flipping Properties
Flipping properties is an investment strategy that allows you to have direct control of your investment– you can decide the risk/reward profile meaning you can typically access higher rewards for an increased risk or more financial exposure and vice versa. However, flipping properties is typically a hands-on process and is difficult to scale out of unless you structure an entire business around it.
Throughout the pandemic, home prices have been increasing dramatically due to a shortage of supply. This has continued to make flipping houses a profitable venture even for those new to real estate.
4. Hire Property Management for Rental Properties
Rental properties are unique that they can be either a passive or semi-passive investment. If you’re self-managing a rental, then it’s still significantly less work than flipping a house but requires management and tenant interaction. Further, you’ll be handling/delegating any maintenance concerns or issues with missed rent payments and evictions.
If you hire a property management company, then there’s a system in place to handle all of the tenant interactions, rent collection, maintenance, and evictions, which would make this a passive investment. However, in return for the work put in by the management company, they’ll take a cut of the profit as well.
Rental prices have dropped in urban regions throughout the pandemic as young adolescents return home. Although rentals can always be a profitable venture if the price is right, it’s important to be more wary today as rent prices have dropped in areas such as San Francisco and Washington DC as much as 20%.
5. Consider REITs
Last but not least, REITs are an incredibly effective tool for investing in real estate as it is entirely hands off. The management is typically a voted board and has an extensive track record. REITs are highly liquid, which allows for a convenient and fast way to invest in real estate.
Different REITs have been affected differently during the pandemic. Commercial REITS were the most affected as commercial tenants have struggled the most to pay throughout COVID-19. This has caused the stock prices to drop significantly. At this time, there is a lot of room to grow for REITs, but there is also a great deal of uncertainty.
We sure hope these examples shed some sort of light to your path toward investing in real estate. It sure is good to know that you have plenty of viable options out there, the key, however, is knowing where and how to invest according to your risk appetite and knowledge.
If you have tips to share, reactions, and what have you, please feel free to comment down below. Lastly, we just want to give a special shout again to our friend Andy Kolodgie of The House Guys for imparting his knowledge and his expertise for this article.