Best cash flow options in real estate

[Sandra Regnell]

Hi there!

I’ve been an engineer for 30 years. I’ve bought and sold real estate but lost a bunch of gains in the 2008 crash. Also lived in California which was expensive.

I have 2 rentals at the moment with some equity but they aren’t cash flow positive.

I was laid off last week.

I will likely get another job before disaster strikes but would love to get into real estate full time. I’m a high wage earner and would love to replace or exceed my full time income.

What are some great money making strategies right now? I’ve considered selling homes but that doesn’t seem wise based on the inventory where I live.

Other ideas?

[Joel Florian]

@Sandra 

@Sandra Regnell 

I would love to dig deeper into the question behind the question (which I'm guessing is "What should I focus my energy on next?)   

But since your two questions were:  "What are some great money making strategies right now?" and "Other ideas?", I will endeavor to answer those.

Great money making strategies (in real estate):

BRRRR (Buy, Rehab, Rent, Refinance) -- assumes there are plenty of relatively cheap, run-down properties in your area and you are capable of rehabbing or managing contractors.

Long distance RE investing.   See David Greene's book titled the same.  Most often used by high-wage earners living in overpriced primary and secondary markets.  I tried this a year ago while working in Hawaii with limited success (purchased a turnkey property in Huntsville, AL.   Paid 20% too much, waited 3 months to get it rented, etc.  But now it is delivering 15%CAC and is valued at more than I paid)  Roofstock got me dreaming, it might give you some ideas.  

You could become a realtor or wholesaler.

Another strategy I just heard about on BP Business podcast is to buy businesses and by extension, commercial real estate.   Locking people in their homes, cancelling evictions, halting foreclosures, artificially low interest rates, and the extreme likelihood of inflation have driven residential real estate prices higher in many areas.  Covid has hurt many small businesses.  Many business owners relying on walk-ins have lost enough money that they are ready (or forced) to liquidate at or below asset value.   This could mean bargains in commercial property -- especially purpose-built buildings.  Think of the McDonnalds franchise:  They are one of the wealthiest landowners in the world:  The burgers and shakes pay the mortgages on prime real estate owned by McD.  Small RE investors could use the same strategy:  buy a cashflowing business with RE assets and use the cashflow to pay for the RE.   In many cases the seller may be so motivated that he/she would owner finance.

You could start a developing company or general contracting business

You could become a hard money lender

You could buy RE notes (I have only bought performing notes but I've read that non-performing notes can bring higher returns.)

You can invest in tax deeds and tax liens.  (each state has different rules about how to deal with unpaid taxes on land  but the simple explanation is that after several years of unpaid taxes, the state forecloses on the property and sells the right of redemption to an investor.  The titled owner has a certain amount of time to pay back taxes and penalties or the land becomes property of the investor.)

You can buy raw land (in remote, cheap areas) and remarket it (to rich people who need a getaway and are accustomed to expensive land)

You could start a title agency (title agencies are buried right now because of low interest rates) and I suspect the backlog will continue until the flood of deferred foreclosures starts.

You could become an appraiser (much demand because of low interest rates)

You could start a home inspection or commercial building inspection business and possibly leverage your engineering expertise.

You could design a new type of home or innovate a construction process that uses cheaper/eco-friendly/durable materials or saves time -- or makes rich people feel better somehow -- and revolutionize RE with your new building technology.

You could start a single-member LLC, open a Solo401k, and roll retirement funds into it so you can use it to invest in RE. I bought notes with mine and I have borrowed 50% of my Solo401k 4 times to buy primary homes and a business.

You can also buy shares in fundrise or diversyfund or patchofland.

You could invest with a syndicator,  or partner with one with the goal of becoming a syndicator yourself.

What are your objectives?  Passive income?  Replace your W2 income?  

How much money are you willing to risk?

Why do you want to invest in real estate?

Do you like dealing with people or with things?

Are you mechanically inclined?

Do you like conflict?

One last thought:  If you  hope to borrow money to invest in RE, it will be easier to get financing if you show consistent income (preferably in the same field)  Banks seem to love W2 and K1 income and they look back 2 or 3 years.

Assuming you can find rental properties that cash flow about 10%.  And assuming your annual income is $100k, you would need to buy $1M worth of RE to replace your income.   And the banks probably will not count your rental income until you have 2 years of history.  So to keep growing, you would need more cash or a job in order to qualify for financing.

Hope that helps