Everybody understands the business model behind flipping houses, long-term rental properties, and short-term vacation rentals. For that matter, most of us have rented a home or two ourselves at some point in our lives.
But what about other niches in real estate investing?
They say “the riches are in the niches.” If you want to skip the crowds and competition, consider some of these niche real estate investing tactics for higher returns and fewer headaches.
1. Corporate Rentals
We periodically get together with Al Williamson to break down tips for vacation rentals and Airbnb. But his favorite strategy is actually medium-term corporate rentals, in the 2-6 month range.
You furnish the property, but instead of renting it nightly on Airbnb, you market it to business travelers. People like travel nurses, who need furnished housing for a few months at a time.
The employer typically pays the rent, so you have virtually no risk of rent default. And the renter treats the property well, because they don’t want to get fired over a damage bill.
Employers pay above-market rents for furnished units leased for just a few months at a time. That alone boosts your returns and cash flow.
Best of all, you don’t even need to own the property. You can sign a long-term lease agreement with a landlord as the renter, furnish the unit, then sublease it to a corporate renter. That means you don’t have to make a down payment, and don’t have to pay for repairs or maintenance either.
Known as rental arbitrage, check out our webinar with Al Williamson where he explains the business model in detail.
2. Flip Rentals to Hedge Funds
John Riedl, founder of EasyCash Offer Florida, has a unique spin on flipping houses. “My real estate career has evolved over the years into a systematic online method, purchasing residential single-family homes and quickly reselling them online via a real estate hedge fund.
“I buy turnkey properties in cash — there is no real estate leverage involved. They are purchased with a renter and professional property manager in place, and transferred via a reputable title business, which provides me with title insurance and peace of mind. Each investment property costs less than $100,000: this is comparable to 1970s prices. They generate 9% net yield each year (cap rate), so even if I do not resell them, they generate a respectable rental cash flow.
“I can easily leverage them if I like. In fact, certain institutions will bundle them ten at a time. If I leverage them, the terms will be 80 percent loans with an interest rate of less than 5% fixed for 30 years. Cash-on-cash returns on average exceed 14% per year when leveraged. When depreciation, appreciation, principal paydown, and other factors are included, the return on investment averages 40%+ per year.
“The best part is that I don’t have to wait because I have a real estate hedge fund that purchases them directly online and posts them for acquisition by individuals seeking financing. Buyers who take out rental property loans pay a premium for properties at 8%+ cap rates). The entire procedure is completed online, and the property is resold for a higher price in less than three months through a title business. The capital gains and income yield generate cash returns of 40%+ each year.
“It is the only business concept I am aware of for earning money online in real estate in a hands-off, hassle-free manner (and with low downside risk).
“The critical point is that you buy properties at a discount by making cash offers. Then the real estate hedge fund finds another buyer who gets a rental property loan and pays more than you did, because they earn higher cash-on-cash returns due to the financing.
“It’s all done over the phone and email, and you wire the title company $100,000 as described above. A few weeks later, you receive an email from the real estate hedge fund informing you that another buyer has opened escrow and is paying you $112,500. You then sign again to release the deed and receive the $112,500 back (all through DocuSign online).
“Your net profit would be less than $12,500 because you would have incurred closing charges for the purchase and sale, as well as a 1% commission and a 1% website posting fee.” That’s still less than a real estate agent’s commission, though.
“Your net would be around $8,500 or $9,000 and you can repeat this process as often as you like — which generates well over 30% annualized even if it takes them four months to resell each of your properties. This is even more profitable because you own the properties and thus receive all rental income, which generates another 9% annualized. My annual returns online through them have been around 40% and in my experience, it has never taken them more than three months.”
3. Buy Properties Through Probate
When property owners die, their kids usually don’t want their rental properties. Often they don’t want their parents’ primary residence, either.
So they sell off these properties, often hastily. In many cases, they just want the whole headache of probate behind them, and just want to close everything out as quickly as possible. That spells opportunity for savvy real estate investors.
You step in and offer to settle fast, with no muss and no fuss. Many heirs would rather take a lightning fast closing than a full-price offer at market value.
Read up on probate real estate investing here, and check out my conversation with Sharon Vornholt about her probate investing strategy. She’s been operating in this real estate niche for over three decades, teaches a course on it, and coaches students through buying properties in probate.