Today, there are two reliable ways to make good money investing in real estate. Flipping houses and renting houses. You need to know how to do both and which one is best for today’s marketplace.
Foreclosures, the tough economy, and strict lending standards have built a brick wall between many people and homeownership. Large hedge funds and other institutions are moving heavily into the single-family house rental market. This combination will drive up rental rates for the next several years.
That makes it very tempting for investors to jump into the landlording business. But do you really want toilet problems, tenant problems, and 2a.m. phone call hassles that come along with the landlording business? There is another option that creates long-term positive cash flow without the landlord hassles…
Owner Financing Eliminates Landlord Hassles
There is a way of quickly flipping houses without finding a buyer needing to qualify for a standard loan. And often without having to rehab the house. A good formula is finding a distressed house to invest in at least 30% below the after repaired value. As soon as you have it under contract, you begin marketing it as a seller financed home.
Seller financing works great in neighborhoods where you set monthly payments close to what two and three bedroom apartments are renting for.
According to the Wall Street Journal, the average national apartment rent is $1,048. Compare that with seller financing a $100,000 house with a 10% down payment and a 12% interest rate with a monthly payment of $1095.92. That includes loan payment, property tax, and homeowners insurance. For that extra $47.92 a month, the buyer has the pride of ownership, a private yard, a garage, and the many other amenities that come with homeownership. Qualified people that can’t obtain a standard loan grab these opportunities.
Creating Multiple Passive Income Streams
First, you buy the house for $70,000 and sell at $100,000 to create a quick $30,000 profit. But you need to get all of your money out of the house so you can reinvest.
There is a strong secondary market for loans secured by real estate. With a 12% loan on the house, you can turn around and sell the loan at 10% to create a long-term passive income of 2% for yourself. The beauty of doing this is it returns your capital so that you can reinvest. Over time, you can easily create 10, 15, 20, or more passive income streams from the interest payments, while at the same time collecting a nice profit from each sale. It’s the best investment strategy for today’s marketplace.
About the author: Brian Kline has been investing in real estate for more than 30 years and writing about real estate investing for seven years.