Creative real estate investing helps investors find real estate investment deals before other traditional investors notice or acts on them.
Techniques employed in creative real estate investing aim to help investors find alternative financing models for funding real estate purchases.
Creative real estate investing is an excellent way to make a profit, seeing as the property’s value usually tends to increase over time.
Thus, creative real estate investing strategies include options requiring small or zero actual investment, like buying exchange-traded Real Estate Investment Trust (REIT), real estate mutual funds shares, or bird-dogging.
There’s a need to consider how long an investor holds a property seeing as long-term investments always receive better tax treatment.
Short-term investments are seen as income, resulting in substantial capital gains due to the home’s high value. Often, you may run into the risk of entering a higher tax bracket when you need to pay property taxes. More so, the additional income may trigger alternative or additional taxation.
On the other hand, long-term investments gains over a year or more allows investors to claim that year’s capital gains tax rate.
As an investor, you mustn’t depend on only the traditional investing strategies. The following are creative real estate techniques to employ. Besides the methods, we’ll also address the meaning of creative real estate investing and compare traditional investing and creative investing.
Consider visiting https://steedtalker.com/blog/creative-real-estate-investing/ to learn more about the concept.
Meaning of Creative Real Estate Investing
This real estate term offers a way for investors who are unable to get mortgage loan approval or don’t have sufficient money for a down payment to buy an investment property.
Several investors began their real estate investment journey with creative real estate investing before moving on to traditional real estate. While others simply prefer this method even when they’re able to afford traditional investing.
Creative real estate investing techniques is usually best for finding investments. And the best part is, they can be as rewarding as traditional real estate.
Comparison Between Creative and Traditional Real Estate Investing
Traditional real estate investing entails buying properties with a bank loan or cash. The buyer often purchases the property after the seller has listed it.
Real estate investors can always go to traditional banks and get a home loan when they can’t buy a property for the whole amount. It’d be best to work with Federal Housing Administration (FHA) approved and insured lenders.
However, you’ll need a down payment and a specific credit score to get home loans. High debt amounts, low credit score, and other factors may lower your ability to get a traditional loan.
Conversely, under creative real estate investing, the investor isn’t bound by traditional constraints like down payments and credit scores. Unless you’re very wealthy, some larger real estate investments (apartment communities or skyscrapers) might be difficult to achieve except through employing one of the strategies for creative real estate investing.
Creative investing also entails discovering deals that won’t or haven’t made it to the multiple listing service (MLS) or other similar platforms. That way, you get a better deal.
Creative Real Estate Techniques
● Rent-to-Own Homes
Like the buy-and-hold strategy, investing in rent-to-own properties involves finding someone who’ll rent the place for a while before buying the property.
This way, you get a lease option fee, charge a premium on rent, and free up your capital for investing in new rental properties in the future.
The downside is, you’ll be responsible for the property management while praying that the tenant will qualify for traditional financing within a few years.
● Owner Financing
One of the popular creative real estate investing techniques is owner financing. As the name suggests, owner financing, also called seller financing, entails the buyer arranging the financing to purchase the home with the seller rather than getting a loan from the bank.
The buyer might make a down payment and, over time, continue to pay an agreed amount regularly to the seller as an exchange for the property’s additional equity.
Under owner financing, the lending requirements are usually more flexible.
● Wholesaling
This creative real estate investing term involves purchasing a property from a seller at a discount and selling to another buyer at a premium.
Seeing as the property is bought and sold quickly, you can make a fair amount within a short period. Nevertheless, you’ll need to spend time searching for off-market properties. More so, you’ll need to have a huge network of interested sellers and buyers to practice wholesaling effectively.
● Crowdfunding
Crowdfunding entails using an established creative real estate group or investment platform to invest in ongoing projects run by an experienced developer.
Under this strategy, several people can come together and invest small amounts in financing a project while earning interest in the loan amount.
The upside is that you don’t have to be an investment expert to participate in crowdfunding; just have a small start-up capital for investing. More so, there are no landlord responsibilities.
However, the returns aren’t that great like other techniques, seeing as you aren’t fully involved in the process.
● REITs
Real Estate Investment Trusts (REITs) are legal entities managing properties and providing capital to their investors. Investing in REITs is like investing in a stock market and buying shares of an entity.
REITs are relatively easy to do and don’t require much income to start. And the best part is, you won’t have any long-term responsibilities. However, REITs can lose value, just like stocks.
● House Hacking
One old but promising creative real estate investing technique you must know is house hacking. Though a new real estate term, the concept had been around for a long while now.
House hacking involves purchasing a multi-unit property, living in one unit, and renting the rest to tenants. Under the house hacking strategy, the investor hopes to get enough rental income to cover their mortgage payment.
Final Words
Thanks to technology, people can now invest in real estate through several methods. Investors aren’t limited to choosing the traditional real estate investing strategies. They can earn money with their mobile devices while in the comfort of their home simply by investing in real estate online.
If creative real estate investing is an option you’d want to explore, consider using one or more of the aforementioned strategies. With hard work and small capital, you might be on your way to becoming a successful investor.
Suppose you don’t know where to start from or want to learn more about creative real estate investing, contact Steed Talker. Their real estate investment professionals are available to give you all the help you’ll need to kickstart your journey as a creative real estate investor.
