This post is derived from the webinar clip above. I do these webinars every other week to teach a group of agents at eXp how to invest in real estate.
For Context:
- Most of this is applicable to everyone, but some points I make are really only useful for agents.
- Real estate is local, so I try to slant everything to what I see in the Birmingham market. Things could be different where you are.
House Hacking
The very best way to get started with real estate investing. Very low risk. This is how I got my first rental.
- Own to rent – Super simple. Buy a house you want to live in. When you want to move, don’t sell. Instead rent it out. Some people build portfolios of 5 to 10 really nice rental properties this way.
- Rent out rooms – Utilize the spare rooms in your house and rent to roommates. The rent you collect can often pay some or all of your mortgage.
- AirBnB – Instead of having a constant roommate, list your rooms on AirBnB. This is highly profitable. Normal AirBnb expenses (like cleaning, utilities, and internet) get internalized when you do it this way.
- Multifamily (2-4) – Buying a duplex, triplex, or quadplex, and living in one unit while renting the others. You can put 5% or less down! It’s not easy to find small multifamily properties in good areas of Birmingham. It’s not impossible though. Here’s my breakdown of the multifamily market in Birmingham
- Live-In-Flip – Buying a property that needs work in an up and coming area. You can do the renovation before moving in, or do it as you go. You don’t get your mortgage paid monthly, but I have clients who’ve made big chunks of cash once they sell these live-in-flips. I’ve also done it.
Rentals
The single greatest way to build wealth in real estate. This is how you make your money work for you while you sleep. Birmingham is one of the top markets in the country for rental properties.
- Turnkey – These properties are totally renovated. Tenant in place. Cashflowing on day one. Downside: You’ll likely pay at or above market prices.
- BRRR – Buy a property to flip, but instead of selling rent it out and refinance. Here’s a post I wrote in BRRR in Birmingham.
- In-Between Turnkey and BRRR – Buying quality houses off the MLS. Lower prices than a Turnkey, but less work than a BRRR.
- Multifamily – Apartment buildings from 2 units to hundreds. Great ability to scale your business. Something worth building up to.
- Other Commercial – Strip malls, office buildings, storage buildings etc. Not really my niche, but some people specialize in these.
- Creative Acquisitions – The word in investor circles is that these strategies will be making a major comeback in the next few year. Here’s a couple variations.
- Owner Finance – Let the seller carry the note on your purchase. I’ve done this a couple times. It can be a win-win.
- Lease options – I know a handful of people who have used a lease plus and option to buy as an acquisition strategy in Birmingham. It’s not popular though.
- Sub2 – Buying a property while leaving the existing mortgage in the previous owners name. I’ve done this once. I see it every now and then. Again, I don’t know of anyone doing a lot of them.
- Tax Deeds – A unique way to acquire rental properties. Mostly in C class areas. I know people who’ve built portfolio’s of 20+ rentals with no debt this way. I’ve had success with these. However, there are a ton of rules around them. A whole book could be written on the in’s and out’s of Alabama Tax Deeds.
Flips
Flips are really advanced strategies in my opinion. I don’t think it’s a good place to start. However, once you learn your market, they can be very profitable.
- Retail Flip – Like you see on HGTV. Buy a house that needs work, renovate it, then sell to a home owner. Be careful in the nicer “Over The Mountain” neighborhoods of Birmingham. That’s where I see most people lose money. I’ve had the most success in areas like Pinson, Forestdale, Pleasant Grove, etc.
- Turnkey Flip – Buy, renovate, rent, then sell as a cashflowing rental property. Usually located in B and C neighborhoods. Renovated with a tenant in mind. Most buyers are out of state investors.
- Quick Flip – Buying a property and selling it without making any improvements. Usually selling to another investor. The goal is to have your buyer lined up before you purchase. You have to get a really really good deal to do this.
Brokerage
I consider working with investors to be a form of investing. You may not use your own capital, but you are using your time and expertise. Here are the best uses of your time and expertise while working with investors.
- A Class Rental – These clients want to own rentals in the top “Over The Mountain” neighborhoods. Not as concerned with pure cashflow. Stability, ease of management, appreciation, and tax benefits are the primary drivers. Look for the “least pretty house” in an outstanding neighborhood.
- B Class Rental – Help people find listed properties between BRRR and Turnkey. These buyers are mostly concerned with cashflow. Many look for properties to meet the 1% rule. In this case you usually want to find the best looking properties in the neighborhood. Look in all the suburbs except “Over The Mountain”
- Flips – Helping clients who want to flip is great for agents. You get two transactions from one house. The best clients to work with are heavily involved in the construction process. They know how to save money, so they can make the numbers work on more projects than someone who is hands off.
- Multifamily – Multifamily deals are larger and commission percentages are higher. There’s a pretty steep learning curve. They’re valued based on cap rates. These are great deals to work on.
- Work for private funds – Some of the top producing agents in the Birmingham market over the last few years have represented private equity funds buying single family rentals. At eXp, we’re rolling out eXpress Offers. This will give our agents access to many of the top private equity fund buyers. I think this will present some interesting options for us.