Do you want to enjoy the perfect moment of the real estate market today but don’t know how? You don’t even have to have money to be a part of the market. In this blog post, you are going to learn 3 ways to make massive money in the real estate market without actually investing in real estate.
This is not a bubble
By the time I’m writing this post (May 2020), the perfect storm has hit the real estate market in America. On the demand side, we have the lowest interest rates in history, a booming economy, and people looking to move from their previous homes to newer, bigger, and more comfortable new properties.
Coronavirus, definitely, helped the market recently. As people are encouraged to maintain social distancing, sky rises have been traded for single-family homes in the whole country, increasing demand for that product. In States like Florida and Texas, the market is even hotter, as thousands of people are leaving states with more strict rules to those that are more open.
On the Supply-side, inventory is going down nationwide. In the first moment, existing houses were being sold to a level that, now, is very hard to find something available. Everything that hits the market flies off the shelf in days, if not hours. And, of course, the construction cycle cannot follow the current demand. Between buying land and delivering a finished property, months go by. The result: prices are increasing.
But, to make money in real estate, you don’t need to buy or build anything. Follow these three strategies and start making money today.
Real Estate Development
A real estate developer is an individual or company, that transfers a current piece of real estate into something new. For instance, land into a house, or building. A house, into a new house. Even though I said before you don’t need to build anything, what I meant was that YOU don’t need to buy land and put your money into construction to make it happen. You can be the Real Estate Developer.
By locating a property that can be developed, you can partner up with an architect to design a project (house or building), talk to a general contractor to have a budget in place (called Pro-Forma), and present that project to investors, if the numbers work.
Real Estate Developers have several streams of income: Structuring fee, charged at the beginning of the project to compensate the work of finding the land, having a project, and projecting the budget; Management Fee, to manage the project for the investors; Performance fee, a bonus at the end of the project based on the result it returned for the investors. The more your partners make, the better for your pocket also.
This, of course, takes a little bit of time. But you can shorten that curve by looking for land that has projects already in place. If you do, 60-70% of your pre-development work is done. Now, you just need to run the numbers and talk to your guys.
The good side, though, is that the management fee will give you a steady income for the period of the project.
Wholesaling
Another option is similar, but this time you don’t have to build anything. As a wholesaler, your job is to find a property that can be bought for a price and sold for a higher price to a third party. This party, the end buyer, can be the user or someone looking for a fix-and-flip opportunity. In both cases, the numbers need to make sense for them. This is how it works.
You find a house that needs some rehab, and for that reason, you can buy it at a discount, let’s say, $80,000.00 in a market where it could be sold for $150,000.00. This house could need about $10,0000.00 worth of renovation, which you will need a General Contractor to give you a cote.
When you have those numbers, you can offer the current owner of the house $80,000.00 to buy it, get a contract with a low deposit (usually something around $1,000.00), and ask for 7-10 days inspection period.
Now that you have the contract, you will find a buyer for that house for, let’s say, $100,000.00. The reason you are going to do that is that the new buyer will have to buy this house, invest in the renovation, and sell it with a profit. In this case, a $40,000.00 profit.
Once you have the new buyer under contract, you’re going to set the closing for both properties on the same day and find a private lender to finance you. They will do it because you have the buyer closing on the same day.
At the end of the day, let’s say you paid $1,000.00 in interest for this private lender, you will end up with $19,000.00 in profits.
Repeat that, and make a Million Dollars in a Year.
Rental Arbitrage
The third way to make money on real estate without investing in real estate is by doing rental arbitrage.
Arbitrage is the act of buying something in one market and selling it at a higher price in another market. And in rentals, we can do that with Long Term and Short Term rentals.
Long-term rentals, usually, pay less than short-term rentals. While a property that is rented at $2,000.00 per month on a long-term contract, it could be rented daily for, let’s say, $200.00. At the end of the month, you could potentially make $4,800.00, if you have an 80% occupancy rate, up to $6,000.00, if you have a 100% occupancy rate.
From that, of course, you need to get your costs, which are, usually 10-20% for management, and another 10% as a provision for replacing damaged items.
In this scenario, if you rent a property on a long-term basis, and pay $2,000.00, and make $3,360.00 net (with 80% occupancy rate), you are putting in your pocket $1,360.00 without buying or building any property. Repeat that as many times you want, and can, and you will have a nice rental portfolio for you.
Very important: don’t forget to ask your landlord if that’s allowed and check with local authorities if short-term rental is legal.
Now, go to work!