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Traditional methods of real estate have a proven track record, and there are many benefits to partaking in those methods of investing. However, some beginners or veteran investors may be looking into alternative ways to have passive income that does not fit in the box of normal real estate practices.
Here are four strategies for expanding your real estate portfolio using creative investing.
1. House hacking
House hacking is a term to describe purchasing a property with multiple units and living in one of those units while you rent out the remaining space. The other tenants will, ideally, pay your mortgage with their rent payments while you live for free.
House hacking has become increasingly popular since you can feasibly cover your mortgage payments, property taxes and other maintenance and housing costs with the cash flow from your other tenants. You’ll also be building equity on your home while house hacking, so if you can deal with living with others, it may be a great option for you and your investing journey.
This method of real estate investing may not be for everyone, though. You will most likely have to put up with the discomfort of living with roommates and potentially sharing a kitchen or bathroom. It may be worth it for you to add individual kitchens and bathrooms to each unit to both appreciate and add value to the property while making your stay a little easier.
House hacking also serves as a good starting point for new real estate investors. You will learn the ins and outs of real estate investing while living in your primary residence, so learning from your mistakes may become easier since you will be personally impacted by many of your decisions. You will also qualify for lower interest rates and keep that owner-occupied loan even after moving out of your property, which is ideal if you’d like to convert that home into a long-term rental.
Related: House Hacking for Extra Income? Here’s How You Can Make Money and Preserve Your Sanity
2. Self-storage units
Storage unit investing is all the rage in real estate investment circles. This method of non-traditional real estate investing is highly lucrative without much of the hassle and headache that comes from tenant management or home maintenance, two requirements of traditional rental ownership.
Self-storage investors can either buy an existing storage facility or build a new one, and once the business is up and running, the usage of automation and strong property management software can take care of many of the day-to-day tasks for you. Look into some of the best real estate apps for investors of self-storage facilities to see what would work best for you and your business.
This creative investment strategy allows your tenants to pick a storage unit, sign a lease, fill it with their belongings and rarely have to think about it again. Tenant management is a breeze, and you will rarely have to deal with your tenants once they sign the rental agreement.
Self-storage units are also in high demand, so vacancy rates will be kept low with a steady cash flow and long-term profit potential.
3. House flipping
Another creative real estate investing strategy is flipping houses. This method is also called a “fix and flip,” and it refers to investing in an oftentimes low-value property, improving it to increase its appreciation value, then selling it for a profit. Many investors make house flipping their full-time job, so it can be very lucrative when done correctly.
House flipping can be easier than regular rental management since you will not be renting the property out and will simply sell it once you complete your flip. This gets rid of the hassle of tenant screening, rental maintenance and management. However, you will turn a larger profit if you do much of the “flipping” (the renovations and repairs) yourself, rather than pay to hire contractors to do it for you. If you do not have extensive contracting knowledge, maybe think twice about this method.
It’s a good idea to talk to contractors, real estate agents and interior designers who would know the best renovations to make that will increase your home’s value the most. You will learn plenty about how to sell a home, renovate it and get it in tip-top shape to pass inspection. However, house flipping is not the most beginner-friendly of the options on this list. There is a fair amount of risk in the process, so be aware that it’s possible to lose money doing so.
Related: 10 Lessons this Entrepreneur Learned from Flipping $100 Million in Real Estate
4. Section 8 affordable housing
You may have heard that Section 8 housing is a hassle for landlords or that the tenants are unreliable and damaging to your property. This is not always true — in fact, Section 8 investing can be a lucrative investment for many landlords, and the tenants tend to be more low-stress and long-term than traditional renters when subjected to a strong tenant screening process.
All that said, it is important to be informed about the Section 8 process before you apply to the HUD. Section 8 and fair housing regulations make being a Section 8 landlord complex and sometimes frustrating, since you are constantly navigating a government program that is known for its long wait times and extensive red tape. However, these rules are in place to ensure that every tenant receives fair and equitable housing, so if you can gather the patience, it will most likely be worth it in the end.
Innago is a great way to navigate the tenant screening process and offer your tenants an easy and reliable way to pay online. Section 8 tenants receive at least 70% of their rent payment from the program, so their payments tend to be consistent. By extending the option to pay online, you are getting rid of many potential obstacles that could arise when delivering a physical check or money order.
Creative investing can be a great way for new landlords to try out the real estate space without risking large sums of money or for veteran landlords looking for another passive income stream. If you think outside the box, you may be able to reach your financial goals faster than your competitors who are only trying the traditional methods. Look at each of these strategies, and continue to do your own research to see if any of them would fit well with your portfolio.
