High-volume investors’ businesses operate on an even larger scale than full-timers, with repeatable systems and processes, more employees and contractor teams, and more sources for capital — all of which allows them to find and execute more deals, faster.
Types of active real estate investment deals
Any classification or level of investor can be involved in any type of active real estate investing. Possibly the most popular and well-known type of active real estate investment is the fix-and-flip. A fix-and-flip is when a developer acquires a piece of real estate with an existing dwelling on it with the intention of rehabilitating the home to increase its market value before the developer eventually sells it for a profit. A fix-and-flip can be a smaller, cosmetic rehab or a larger, full-gut rehab.
In order to get fix-and-flips complete, investors need funding via fix-and-flip loans. Fix-and-flip loans are typically short-term loans (three to 18 months) that include acquisition and construction components to them (i.e., for a $200,000 total loan amount: $100,000 sent out at loan closing, and $100,000 held back for construction reimbursement). Some loans may even have interest escrow wrapped into the loan amount.
[Case Study: Beginner Self-Directed Investor’s Fix-and-Flip Earns Double-Digit Returns]
Another type of active real estate investing is wholesaling. Sometimes the borrower never takes ownership of the asset, but instead, simply assigns the contract to someone else. There are other cases where a borrower may close on a property with the intention of doing little or no work to it (clean up) and then sell it to another investor at a higher price than they paid.
[Related: Real Estate Wholesaling and Options in a Retirement Account]
The third type of active real estate investing is fix-to-rent. This method is similar to fix-and-flip, but upon completion of the rehab, the developer rents the property to tenants instead of selling it. Some borrowers will buy a property with the intention of renting it and refinancing it into a long-term debt product so they can grow their portfolio of cash-flowing assets. Other borrowers may rent a property to then sell the cash-flowing asset to another investor who is trying to grow their portfolio.
Sometimes developers set up property management companies and when they sell their tenanted property to another investor, the developer agrees to remain on as the property manager for a monthly/annual fee. These same strategies also apply to the build-to-rent method.
Build-to-rent is when a developer acquires a piece of property with the intention of constructing a new home on it, therefore increasing the market value (and market rent) before tenanting the property to hold long term for monthly income and cash flow. This is also applicable to vacant lots and lots with existing dwellings (knock-down-rebuild).
Lastly, the build-to-sell method or active real estate investing is when a developer acquires a piece of real estate with the intention of constructing a new home on it, before eventually selling the property and new home for a profit. Just like in the build-to-rent method, this is also applicable to vacant lots and lots with existing dwellings (knock-down-rebuild).
Now that you have a better understanding of the pieces and parts of active real estate investing, visit Fund That Flip’s website to learn how these properties become investment opportunities for passive real estate investors and how you can get involved.
About Scott Eilerman
Scott Eilerman is VP of Underwriting at Fund That Flip, the nation’s leading residential rehab lender and real estate fintech marketplace. Accredited investors can invest in pre-vetted real estate-backed loans on Fund That Flip’s platform starting with as little as $1,000.
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