West Jersey Real Estate Investors Association

I always thought investing in real estate meant buying a property and renting it for income. Like many people, I was a little skeptical about becoming a landlord. Tenants just meant a lot of headaches. First of all you have to find them to make sure your property is not vacant. Then you negotiate the rent you want and keep  them for a longer period to minimize your vacancy cost. The worst fear is to have to respond to untimely requests for repairs. My husband just fed fuel to my fears with anecdotes of how he spent every Christmas eve fixing burst pipes and blocked toilets when he worked as a plumber with his dad.

So imagine my surprise when I met many investors over the past 3-4 years who work in many other ways. Here are some interesting methods in which I have seen other landlords manage their property holdings:

• Distressed Property Flipping

In this approach, the investor finds a property that is either in the process of foreclosure or is now owned by a bank. They negotiate a below-market price with the bank and then resell it to a “retail” buyer – i.e. one who will purchase at close to the market price. These properties may be rehabilitated or not depending on the investors’ choice.

• Buy and Hold for Income or Appreciation

Buy a property such that its rental income at least covers all expenses and perhaps a little more to provide an income stream. The investor may manage the property themselves  (like my nightmare) or hire a property manager to take care of maintenance and renting. If the property is in a growth area, it may be sold at some point for gains.

• Loan Money to A Real Estate Investor

This is the simplest way to invest in real estate and is sometimes called ‘Private Money’. Your loan works just like a real estate mortgage. You hold the note secured by a specific property. You are paid an interest by the Investor at a rate agreed between you which stops when the property is sold and your principal is repaid. The interest income may be taxable.

• Buy a Fractional Ownership Unit

In this approach you are buying a portion of a property. You receive a prorated portion of any income or profit from its sale. You receive tax write-offs each year as an owner which you may use  each year or accumulate based on your situation. When the property is sold, any accumulated write-offs may be tax-deductible against the gains. The managing members of Fractional Ownerships typically manage all maintenance and rental activities.

• Wholesale-ing

Some investors are middlemen who buy volume properties and resell them to individual investors.

I am sure there are other variations that I haven’t listed here. If a reader knows of some, please comment.