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in Real Estate Investing, Series: Getting Started in Real Estate · October 26, 2021

Retire with Real Estate: Investment Strategies

INVESTMENT STRATEGIES

| Flipping | Live-In Flip | House Hacking | Turnkey Rentals | BRRRR |

Welcome to the fourth blog post of the Real Estate Investment Series! In this post, we will discuss five of my favorite real estate investment strategies.

There are many options when it comes to real estate investing, so how do you pick the right strategy? The best way is to educate yourself by reading books, listening to podcasts, and blogs. Understand your options and just start with the one strategy that calls to you the most.

The strategy you start with doesn’t have to be the one you stick to. More often than not, real estate investors focus on one main strategy while keeping their options open for any opportunities that may come along the way. Our investment strategy is focused on buying and holding rentals long-term using the BBBR strategy when possible.

In my case, I chose long-term rentals over flipping because I worked in property management and it was what I felt more comfortable venturing into.

Let’s go over the pros and cons of each strategy below.

HOUSE FLIPPING

House Flipping refers to buying a property that is distressed, meaning in bad condition and in need of repair, renovating it, and then selling it at a higher price for a profit.

How does it work?
  • You find a house at a discounted price that needs repairs
  • Run the numbers to make sure that the value after repair will be enough to cover the purchase price, the rehab, holding costs, sales commissions, taxes and your profit
  • Once rehab is complete, you list the house for sale and repeat
Pros:
  • Higher short-term returns
  • Great way to raise capital to fund more deals
  • Do not have to worry about managing tenants
Cons:
  • Profits are taxed at the regular tax rate – as such, need to account for taxes in profit calculations
  • There is a risk that the property does not appraise for its estimated after repair value – this is where it is important to have good knowledge of the market and sales comparables
  • Have to include selling costs in your estimates
  • The risk of not being able to sell the property

When it comes to flipping, multiple exit strategies is key to minimizing risk. For example, can the property be rented at a profit if unable to sell?

Flipping is a great way to raise capital so that you can fund the purchase of long-term rental properties. If you are a fan of BiggerPockets, you may have heard of Brandon Turner, book author of the best real estate books and host of the BiggerPockets Real Estate Podcast. He started house hacking (explained below) and flipping houses and now has a multi-million dollar real estate empire.

We have not ventured off to flipping yet, but we have plans to start in 2022. We need to obtain more money to buy the last set of properties we need to set us up for early retirement.

Who can flip houses? Anyone.

The biggest concern that new real estate investors have is on how to obtain the funds to fund the flip. This is a legitimate concern, but there are many sources out there. A common source is called a hard money lender. There are plenty of them. These are people that specialize in lending to real estate investors. Be warned, they are expensive. A hard money lender may charge upfront fees that range from 1 to 3% and charge anywhere from 8-20% interest. Even though it sounds outrageous, if you have a really good deal and you can get someone to lend you 100% of the money to get started, then it makes sense. You need to make sure to find a deal that can support the costs of borrowing and still be profitable. The more experienced you become in flipping, the more credibility you get which will help you get lower rates down the road. You have to start somewhere.

How can you find a hard money lender in your area? Ask in real estate investing groups, referrals from your network, or your local real estate investing association. Once you find them, start building a relationship with them.

Be warned of shady hard money lenders. There is also plenty of those. You want to make sure you are dealing with a reputable lender. One tactic used by fraudulent lenders is requiring cash up-front (before the closing or purchase of the house). I would highly recommend not paying anything up-front as all fees should be included at closing.

Recommended Readings:

FLIP: How to Find, Fix, and Sell Houses for Profit

The Book on Estimating Rehab Costs: The Investor’s Guide to Defining Your Renovation Plan, Building Your Budget, and Knowing Exactly How Much It All Costs.

LIVE-IN FLIP

As the name implies, a live-in flip is when you buy a property using a conventional or FHA loan with the intent of occupying it, rehabbing, and eventually selling it for a profit.

How does it work?
  • Similar to a standard house flip, you find a house in need of repairs that can be significantly increased in value with rehab
    • Note that if you are financing with an FHA or conventional loan, the house needs to be in habitable conditions
  • You occupy the property and make repairs while living in it
  • After a year or two, you sell at a profit – remember that to qualify for capital gain tax exemption, you must wait two years before selling
Pros:
  • You get to take advantage of owner-occupied loans which are generally cheaper than hard money
  • If you live in the house for two years, you will also get the benefits of tax exemption on the profits – up to certain limits
Cons:
  • Difficult to scale as you generally need to occupy the house for a certain period of time as your primary residence
  • You have to live in a messy house while remodeling – probably with a makeshift kitchen

Recommended Readings:

The Book on Flipping Houses: How to Buy, Rehab, and Resell Residential Properties.

LONG-TERM RENTALS

There are three main long-term rental strategies: House Hacking, BRRRR, and Turn-Key Rental. I’ll go over each one below.

HOUSE HACKING

House hacking is when you rent part of your primary residence, which in-turn reduces your own housing expense. The most popular house hacking strategy is buying a multi-family property and living in one of the units. In a perfect House Hack, the rented unit(s) pays for 100% of the mortgage. House Hacks are popular among the FIRE community (Financial Independence, Retire Early) because the lower your personal expenses are, the faster you can retire.

How does it work?
  • Look for a multi-unit property
  • Run the numbers to make sure all but one unit of the property will pay for most if not all of the mortgage, taxes, and insurance
  • Buy with an owner-occupied loan (VA, FHA) and put low to $0 money down
    • FHA normally requires 3.5% down payment when a 1-4 unit property
  • Live in one unit, rent out the rest
  • You could also buy/build a house with a lot of bedrooms and rent by the room
Pros:
  • Low initial investment
  • You get 1-4 units at once
  • You should end up paying little to $0 in personal housing costs per month
  • You build equity
  • You gain investment experience with less risk
    • At the end of the day, you still need a place to live – the worst that can happen is that you end up having to pay for the mortgage in full
Cons:
  • You are required to live in the property for a year
  • You may not want to live with your tenants
  • It may not be the house of your dreams
  • Must buy a property that will be approved by conventional lenders meaning in habitable conditions (unless using a 203k FHA loan)
  • A 203k FHA loan will lend on purchase price plus repairs of a property – the loan process can be a bit time-consuming, but may be worth it

Unfortunately, I didn’t get the opportunity to House Hack. We tried, but couldn’t find something we liked within the timeframe we needed it and at this point, we are not looking to move anytime soon. However, I am renting my front yard/backyard to store RVs/Trailers. Would that count as house hacking?

Case in Point

My dad house hacked his first investment property. He bought a duplex using an FHA loan and only put 3.5% down. He went from paying $1,000 in rent to paying $500 in mortgage with the help of the tenant rent. At purchase, the duplex was occupied, but we terminated the leases and he moved into one unit. While the units were in “habitable” conditions (if you can count roach infested units as habitable), they needed a lot of work. My dad moved into one unit first, renovated, leased it and then renovated and moved to the next one. He held the property for a year after with $50k in equity. Now that I think about it, he implemented a House Hack and a Live-in Flip as he sold this duplex after a year.

Recommend Readings

The House Hacking Strategy: How to Use Your Home to Achieve Financial Freedom.

TURN-KEY/LOW MAINTENANCE

Turn-key rentals are a great place for new investors to start. If House Hacking doesn’t sound like something you like and prefer to stay away from major repairs coming in, then turn key might be a good option.

You can say that our most recent purchases are somewhat turn-key. While, there is some deferred maintenance, we have not had to come in immediately and make repairs. We bought the houses occupied and paying rent on time each month. Eventually, they will need to be rehabbed and we might have the opportunity to make it a BRRRR (a delayed BRRRR).

How does it work?
  • Look for a property that is ready to rent or already rented
  • The property is in good shape and maybe just a little bit outdated, but nothing major is needed
  • Buy with conventional financing (20% for investment properties)
  • Do a few minor upgrades (or none)
  • Rent it out (if not rented)
Pros:
  • No major rehab required
  • You don’t need to live in the property
  • You will start cash flowing immediately
  • Great for appreciation strategy (property value increase)
Cons:
  • You may not be making the highest return on your money
  • You will need a larger investment (20% of purchase price)

BRRRR (BUY, REHAB, RENT, REFINANCE, AND REPEAT)

BRRRR is when you buy a distressed property that will increase in value after rehab. You buy the property either with cash or a loan, rehab it, rent it to a tenant, and then go back to the bank and get a loan based off the new value of the property. In a perfect BRRRR, the new loan will cover 100% of the purchase price and renovation costs.

BRRRR is our favorite investment strategy so I dedicated a blog post that will go over one of our successful BRRRR instances in Blog Post number 5 of the series.

Recommended Readings:

Buy, Rehab, Rent, Refinance, Repeat: The BRRRR Rental Property Investment Strategy Made Simple.

There are other strategies out there like short-term rentals, wholesaling, syndications, etc. I highly recommend that you keep it simple to start. Don’t overthink it. Eventually, it will all come into place.

Real estate is a really great way to build wealth, especially long-term rentals. With a good plan, real estate can be your way out of the rat race and become financially free. Our plan is to retire early with rental income enough to cover our personal expenses.

I highly recommend reading the book Retire Early With Real Estate: How Smart Investing Can Help You Escape the 9-5 Grind and Do More of What Matters (Financial Freedom)

This book helped me come with a plan to retire early by investing in real estate. Even if you are not considering retiring any time soon, you may end up changing your mind after this reading.

This post may contain affiliate links. I may get commissions for purchases made through links in this blog.

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New Blog Post 🚨 In this week’s blog post I am New Blog Post 🚨 In this week’s blog post I am going over why we bought a short-term rental, our experience so far. Plus what we did prior, during and after purchasing our first short-term rental in March 2022, a Cabin in Blue Ridge, GA.

Check it out at www.beyondjustnumbers.com or link in bio @beyondjustnumbers
I can’t stress this enough. Some investors are l I can’t stress this enough. Some investors are looking to make money from day one, but that’s not always the case. It wasn’t for us and I’ve talked to a lot of rookie investors who have told me “Thank God I have my personal finance situation together.” 

This is just my opinion. Do you agree? Let me know in the comments!

Want to join a free community of like-minded individuals? Join our REI Coffee Chat Community where we talk real estate investing, personal finance and financial freedom, and much more! Link in bio @beyondjustnumbers

Want to learn more about investing in real estate? Read my blog www.beyondjustnumbers.com

#realestateinvesting #realestateinvestor #creativefinancing #investmentproperty #buyrealestate #firemovement #debtfreejourney #financialindependenceretireearly #rentalproperty #investinginproperty #personalfinanceblog #wealthbuilding #planforretirement #investorlife #livefree #airbnb #moneyisfreedom #enjoythejourney #reicommunity #realestateinvestments #shortermrentals #cashflow #realestate
I used to think that investing in real estate was I used to think that investing in real estate was for the rich. I became in love with real estate while working for a real estate investment company that owned hundreds of units. This was back in 2011 and I was 20 years old at the time. I had less than 5 years permanently living the US, so I had no idea about anything. I grew up in Colombia and the only talk of money we ever had was the lack of it. 

The investors I worked for were a wealthy family, so naturally, I thought… Real Estate requires wealth. I don’t have wealth. Therefore, I cannot invest. 

I figured… well shit, I need become wealthy so I can invest in real estate. Eventually, after educating myself I realized how wrong I had it. You can build wealth BY INVESTING in real estate.

Took me a couple of years to figure it all out. Hence, why I didn’t start investing until 2019. I wish I had figured out earlier, but it is what it is. In just 3 years of investing in real estate, I was able to accumulate more wealth than I ever thought possible. 

Just to give you an idea…Did you know you could invest in real estate with as little at 3.5% of the purchase price? For a $150,000, that’s only $5,750. Buy a duplex that needs a little bit of work, fix it up, rent one side and live in the other. This will reduce your monthly expenses significantly, save the money and do it all over again.*

Of course it’s not that simple, but it’s also not that difficult. There are some particular steps and considerations which is  why I recommend doing further reading on the subject. 

Book Recommendation:
✅“The House Hacking Strategy” by Craig Curelop and ✅“Investing in Real Estate with No (and Low) Money Down” by Brandon Turner. 

#realestate #realestateinvesting
🚨 New Blog Post! Continuing the “Getting Star 🚨 New Blog Post! Continuing the “Getting Started in Real Estate Series” 

You’ve found a property either on your own or through a realtor, you’ve run your numbers, you’ve got a lender and now you are ready to make an offer. What’s next?

In this post I want to discuss a few items:

✅Key components of a real estate contract
✅How do you make a compelling offer to ensure you get the property you want
✅The main contract contingencies and how they work
✅Communicating with your realtor

I also provide real examples of what we have done personally. 

Check it out at www.beyondjustnumbers.com

Let me know what you think!
If I listed all of the hats, I’d never end 😂. If I listed all of the hats, I’d never end 😂. Anyone else? Show me the multiple hats you wear and tag me. Let’s have fun with some reels.

Trying to get good at the real game like @investinginyourwealth. How did I do?
The fact that you are not where you want to be doe The fact that you are not where you want to be doesn’t mean you won’t get there. Greatness takes time. Focus on what you control.

And remember, it’s okay to pivot.

#mindset #realestate #firemovement #realestateinvesting #realestateinvestor #rentalpropertyinvestor #rentalproperty #cashflow #motivation #financialfreedom #financialindependence #financialindependenceretireearly
We see a lot of advice around hiring a real estate We see a lot of advice around hiring a real estate friendly CPA. However, when you look up  CPAs that specialize in real estate, they can be pricey.  However, that doesn’t mean that other CPAs or tax professionals aren’t good. They might not be particularly aware of certain items, but they can research and collaborate with theirs peers. Perhaps it may require you to do a little of work to compensate. Things you can do:
✅ listen to The Real Estate CPA podcast or join the Facebook group
✅follow social media accounts of the pricey Real Estate CPA and take notes of what they are saying
✅attend free educational events 
✅read BiggerPocket book on Real Estate taxes 
✅if you know anyone working with a really good Real Estate CPA firm, ask them what they are doing

Then use that to go your CPA or tax professional and be like “Hey, is this something we can do for me?” They’ll probably say, “Let me look into it”. 

If they are good, they are going to research it and/or ask their CPA peer group. (CPAs and tax preparers also have Facebook groups where they collaborate with each other).

Here is a piece of advice, if they tell you “No, we can’t use this loophole or no, you don’t qualify to use this strategy” —> Ask WHY and “How can I qualify in the future?.” This way you confirm they did their homework and aren’t just being lazy. Don’t just take no for an answer. You can then get a second opinion by asking a question in a forum or to your peers.

So don’t panic if you don’t have a real estate CPA or tax professional. 

Next video I’ll be answering the question… “Can I skip the tax professional altogether and do my own taxes?”

#realestate
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