While wise investors know that diversity is key to a strong portfolio, many want to build passive income through real estate investment, which allows them the luxury of maintaining their lifestyle. Buyers looking to enter the real estate game in Birmingham may feel overwhelmed at the thought of juggling all of the responsibilities of being a landlord. We’ll explain alternative methods to gain entry into real estate investing through notes, REITs, and wholesaling.
When you enter the stock market, you understand that you are buying stock, which represents a percentage of the company. The main difference between the two is that real estate is a secured investment through the nature of the collateral being real property. Note investing in real estate in its simplest form is a method of owning the promise of payment on a mortgage over a specified period of time. When a home buyer goes to the lender and secures a mortgage, there is no guarantee the lender will not put the note onto the secondary mortgage market for trading in this manner. Notes can be purchased as a whole, or for the entire lifetime of the loan. They can also be purchased in sections, and are available in different lengths or time. The transfer could be for periods such as 36 months and then will revert back to the original holder for the remainder of the note. Note buying is a great option for those looking to get started with real estate investment, but who don’t want to deal with tenants or repairs.
A real estate investment trust (REIT) is a corporation with holdings of a variety of commercial properties, which they may also operate, as well as mortgage notes. They lease their commercial space and earn residual income through their rentals. They may also act as a financer for commercial properties as well. There are many laws that regulate REITs including tax laws, so proceed with proper guidance. You’ll want to be certain you understand the variations in this method well. In addition to having a trusted professional on your team, you’ll want to do your homework. There are many types of REITs and within those many operating systems which differ widely. Many of these REITs are publicly traded, meaning you are able to enter this method of investing in real estate through a broker or your financial advisor in Birmingham.
Wholesaling is one of many exit strategies investors have at their disposal when purchasing real estate. Investors like us will locate a discounted off market property in need of repairs that typically will not sell on the MLS for a variety of reasons, get it under contract and then flip the contract to an end buyer for a profit. Before you enter into the wholesaling method of investing in real estate, you’ll want to make certain that you’re aware of the laws that govern wholesale real estate transactions in whatever city you are in. This is a great entry into the market for new investors or those without a large amount to invest. It works like this: Your target in this business is to find properties that are exhibiting signs of abandonment or lacking in upkeep and maintenance for a variety of reasons. Homes that are vacant, recently inherited, boarded up or have tall grass are perfect for this. You approach the owner and negotiate a price to get it under contract. This can typically be 30-50% off of what it would be worth when fixed up, also known as the ARV or After Repair Value. You then assign your rights (also called equitable interest) under the contract to another investor for a larger amount than what you have it under contract for. This spread is called an “assignment fee” and will be your profit. You’re in turn alleviating the seller of stress, time and headache listing on the MLS, having to deal with inspections and appraisals while also providing an investor a deal on a silver platter where they can keep their crews busy and making money. Just to reiterate, this is just one of MANY exit strategies we use here at Home Buyers of Alabama. Others include owner financing, buy and hold and the traditional flip everyone is accustomed to. Every single transaction is closed with our local closing attorney so you (and I) can be sure things have been done properly and in accordance with state laws.
Home Buyers of Alabama is here to help you with any questions you may have about other types of real estate investment. Send us a message or give Home Buyers of Alabama a call today at (205) 379-8185! We are happy to answer all of your questions!