Investing can seem really scary and intimidating to people, which is honestly a really valid feeling for most people when they are starting to look at things. But I am here to give you the down low and let you know that it isn’t as scary as you think it is. In fact, it is a lot easier than you may think. So today I am going to break down the top 5 investment strategies that many people use and that are actually profitable.
First, we have rental properties. When a property has reliable tenants that pay rent on-time and are long-term, it generates a steady income for landlords. Most landlords will have a property manager that will screen applicants, run credit checks and background checks, to make sure that they are safe to be rented to. Most people will call this a passive income because of the management company. Besides the screenings, they will also handle maintenance on the property (during and in-between tenants) and evictions if needed. This is a hands-off approach to investing but it is still profitable to do, and is one of the easiest. As long as you do your due diligence and know how much you would need to charge for rent in order to be able to pay the management company and still have money coming in, then this is an easy one for many people.
Next, we have buying and holding properties, or if you watch any home improvement channel it is also called rehabbing. But in the case of a holding property, after the rehabbing aspect is taken care of it is intended to be kept and used as a rental property. With a holding property you can use a 1031 exchange to reduce the tax burden that comes with this type of rehabbing. Buying and holding can be used for either single family homes or apartment buildings.
Options three and four are actually two different versions of flipping. Regular flipping is something that most people are familiar with because of TV shows that are on HGTV. This is when an investor specifically buys some of the worst properties in neighborhoods because they are cheap, and then rehabs them for more then what they bought it for. In order to be successful in flipping you need to know the market that you are flipping in and what then current buyers are looking for in a home.
The second version of flipping that people do is live-in flipping. This means that the investors live in the property while it is being renovated. A live-in flip actually has a huge benefit. There is something called a Section 21 exclusion; if you live on the property and claim it as your primary residence and own the property for two out of the five years before you sell the property, you can qualify to have to pay zero capital gains in taxes on the property. That means if you file your taxes as single then you can save upwards of $250,000 and $500,000 for a married couple filing jointly. If for some reason that the investor of said property needs to move out, as long as you meet the qualifications—job relocation, change in health, military deployment or unforeseen circumstances—then you may qualify for a partial section 121 exclusion.
Our final investing strategy for this week is wholesaling. Now this is not a passive form of investing like our first option, this is far more hands on. Wholesaling is actually meant for people who have bad or little to no credit who want to be able to start saving up a nest egg. There are four steps to wholesaling:
- Find a property, arrange the price and conditions that work, and assemble a purchase agreement.
- Find a buyer for the property.
- Sell the purchase agreement arranged with the buyer.
- The buyer is now the homeowner, the seller gets paid, and the wholesaler collects a finder’s or assignment fee.
This option is more work, but it does pay off in the long run, though it is not for everyone.
