Investing in Real Estate Disruption — The Inside Scoop
When you think of real estate investing what comes to mind?
Rental Property? Fix and Flip? Buy and Hold?
What you may not know is that there are alternative methods available for investing in real estate. Advancements in technology and changes in consumer mindset are creating new approaches to the way we consume one of our biggest staples in life: shelter. This has led to a new type of investing. One we at startupproperty.co, like to call disruptive real estate investing.
So, how did we arrive at this drastic change in strategy?
Unfortunately, Margot Robbie was unavailable to help me explain it, so I’ll do my best to entertain you.
Let’s start from the beginning.
Back in the days of disco, this guy named Lewis Raneiri, who was both a total dick and an utter genius, came up with a way for real estate investors to make more money: mortgage backed securities. Everyone thought, “Hey great, a way to make a shit-ton more money without additional risk.” Well, we all know how that turned out about 40 years later.
But, in case you’ve been in a coma since 2008, I’ll tell you what happened. Millions of Americans defaulted on their mortgages, which led to the collapse of the housing market, and the subsequent banking collapse in 2008. Just about everyone got properly (or property) f*cked.
All this changed the face of real estate investing. Real estate was de-commoditized, consumer confidence was at an all-time low, and the banks were bailed out. However, this left a neat hole in RE investment landscape, one where technology and new ways of thinking could take over. This brings us to the present and beginning of disruptive real estate investing.
By now you’re probably drooling with anticipation. You want in on this newfangled idea. Just tell me where and when to invest, you say? Jeez man, slow down. We’ll get to that a little later. First, let me lay the foundation and introduce you to the different types of investment strategies we will be comparing:
Traditional Real Estate Investing
Traditional real estate investments are probably familiar to you already, such as buy and hold, buy and rent, wholesaling and assignment, and probably the most familiar thanks to HGTV, the fix and flip. Don’t stress if you don’t know your ass from a hole in the ground when it comes to RE investing, we’re gonna school you right now.
Fix and Flip
Fix and flip investment is probably the most widely known form of real estate investing thanks to fluffy and unrealistic reality TV shows like Tarek and Christina’s Flip or Flop. In case you’re still not familiar, a fix and flip investment is where an investor buys a property, renovates it and sell it for a nice profit.
While all you can make a pretty penny flipping, there are some serious risks involved. Flipping properties requires a ton of cash on hand, so what happens when the house they flipped doesn’t sell for six months or longer? They still have to pay the mortgage, that’s what.
Buy and Hold
Buy and hold real estate investing involves the purchase of a property with the intention to sit on it until the value appreciates. While being a property horder used to be a sure bet, the wide fluctuations of and variations in the current housing market make this seriously risky business. A buy and hold investment strategy not only requires a boatload of startup cash but you must have the patience of a tiger in order to succeed.
Buy and Rent
A buy and rent real estate investing strategy is where investors buy properties with the goal of then turning around and renting that property to a tenant in exchange for a monthly fee. While investment properties like these can provide great long-term passive income it can also require quite a bit of initial capital. Rental property investments can also provide many headaches and maintenance costs along the way. So, unless you really want to be a landlord or have to manage a property manager, this type of investment probably isn’t for you either.
Wholesaling and Assignment
Wholesaling or assigning is when a real estate investor contracts with a home seller, markets the property to his potential buyers, and then assigns the contract to the buyer. The wholesaler makes a profit, which is the difference between the contracted price with the seller and the amount paid by the buyer.
Wholesaling and assignment is probably the most confusing kind of traditional real estate investing. There are so many agreements, conditions, and quid pro quos it’ll make your head spin.
Unlike the other types of investing we’ve talked about already, wholesaling and assignment takes very little startup cash. However, with this investment strategy you’re essentially a real estate middleman, and nobody likes a middleman.
So, what do all these forms of traditional real estate investment have in common? Mainly substantial amounts of money, time and effort, and real estate investing knowledge.
Don’t get us wrong, it may seem like we are bashing traditional investment strategies a lot here, but they’re really not that bad. Almost any kind of RE investment is a good bet, traditional or otherwise. It’s a great way to diversify your portfolio and build long term wealth, because boys and girls, in the immortal words of Gordon Gekko, greed is good.
What’s Disruptive Real Estate Investing Then?
At this point, you’re probably wondering what on earth disruptive real estate investing actually is, or if it’s something we just made up. Disruptive real estate investing uses technology, new thinking, and innovation that allows more people to join in the fun in exciting ways. Here are some of the different disruptive investment strategies we like the best.
Crowdfunding
Recently, websites engaging in disruptive real estate investing practices have popped up everywhere. Sites like Realty Mogul, Realty Shares and Fundrise are great for crowdfunded real estate investing. Real estate crowdfunding sites like these allow accredited and aspiring investors to participate in real estate investing with as little as $1,000 pledge, which is awesome for aspiring fat cats like yourself. Hey, if potato salad can do it, why not real estate? At least a house won’t spoil at a picnic.
Crowdfunding provides smaller investors with a unique opportunity to get into larger real estate projects that have been unavailable to them in the past. The crowdfunding platform gives you the ability to make informed decisions quickly and easily from their list of pre-vetted deals. This type of RE investing has a smaller initial capital requirement for each deal so you can easily diversify by investing in more than one opportunity.
House Hacking
This disruptive real estate investing strategy puts a new and exciting spin on income properties. House hacking is where you buy a place for you and your buddies to live but you charge them rent, which is so uncool man! But it is cool…man. This way you can live rent free, pay down the mortgage on your home and your buddies get a deal on their monthly rent.
You will need to get a mortgage and put up a down payment, but assuming you can charge enough rent to your frat brothers, you’ll live rent free for the first time since you left your parent’s house. This is one of the best strategies for a first time property investor because it forces you to learn the ins-and-outs of property investing first hand. So, if you can take on a little financial risk and don’t mind the responsibility of being a landlord, house hacking is exactly what you need.
Short Term Vacation Rentals
Companies like Airbnb, Homeaway and VRBO revolutionized not only the way millions of people travel and lodge, but they’ve had a significant impact on the real estate investing world too. These sites allow users to turn their own house into an income property by renting it out while they’re out of town. Now, almost anyone can be an income property kingpin, especially with the creation of analytics software like, AirDNA, and management services like, Pillow. Savvy investors can use these analytics to realize 15 to 20 percent more annual rental income than with traditional rental property methods.
Turn-Key Property Platforms
Turn-key property platforms have really shaken things up by offering the chance to own rental properties without the hassle of being a landlord. These platforms handle everything for you, from the initial purchase to property management. All you need to do is write the check.
The way it works is fairly seamless. Companies like OwnAmerica and HomeUnion allow you to hand-pick investment properties from a portfolio of pre-vetted and rehabbed rental homes all while sitting at your computer screen in your underpants. They handle the acquisition, perform any work that’s necessary at the residence, put tenants in place and manage the day-to-day management of the property. All you do is sit back and watch your investment pay off. No plumber’s crack required.
So what do you think? Do these disruptive real estate investing methods have staying power? Leave a note in the comments. We’d love to hear from you.
At startupproperty.co, we curate all the latest and best information on disruptive real estate investing for your reading pleasure. We want to be your number one source for all things in the world of real estate investing, whether you use traditional or more innovative investment methods.
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Disclosure: This post contains sponsored links from RealtyShares.
