Today we begin a series on some unique and perhaps non-traditional real estate investment opportunities. When you think about investing in real estate what is the first thing that pops into your mind? If it is buying a rental home and finding tenants to occupy it then you’re not alone. It’s the way I started and perhaps the way most of the other Realtors on this site got started building their real estate fortune.
I want to challenge you as an investor or potential investor to look at some other options for investment that could save you years of “OJT” and thousands of wasted dollars. Keep an open mind and I promise you will learn something that will make you money and then help you make money easier than ever before. The goal, if you are interested, is to “bunny hop” the learning curve in real estate investing. But first, let’s look at why the traditional way to invest in real estate may not work for you.
There are not many joys in the typical “tenants and toilets” style of landlord investing. This is the typical “landlord approach” to getting rich in real estate that you hear about on late night TV infomercials: “Buy a foreclosure, tax sale, short sale, or any distressed property then rehab it, flip it or put a tenant in it, then do it over and over again.” If you have the time, energy and patience it can work well. But what if you have a day job, kids at home and sports to play or need to work out and school events to attend and a life that needs a break or a vacation?
The truth is that buying a traditional rental property is like taking on a second job. You can get property management to handle it but if you are like most investors trying to squeeze every nickel out of their investment then you will manage it yourself. And it does take time, especially if you do it correctly. I recommend property management in almost all cases to my investors who buy Texas
Ok Ron, So what are some of the alternatives to the traditional buy it and rent it approach to investing in real estate as there are thousand of opportunities out there. The beauty of real estate investing is that no one has the magic rainbow. There are a 100 ways to buy or sell the same house. One of the best ways I have found for passive investors is the “leaseback investing” approach. This term may be strange to you but basically it is the sale and immediate lease back of the property from the seller. There are several forms of leaseback investing. We will deal with only one for now, Model Home Leasebacks.
What are Model Home leasebacks? Model home leasebacks in most cases are homes that are occupied and maintained by the builder’s sales staff. They use the home as a tool to sell and showcase their products. The model homes include all the amenities, features and upgrades available by the builder to entice potential buyers to build in their community. Typically, the upgrades can add an additional 20-30% to the base price of a home. You can buy the model home as equipped and then lease it back to the builder for a period of time, usually until the development is completed several years down the road. At the end of this article is a nice video tour of some model home leasebacks that have sold over the past year.
Why model home leasebacks? Hopefully you are seated while reading this because these facts will astound you. With most model home leaseback programs there are no property management fees, no maintenance costs, no repair fees, no tenant turnover, no utility deposits or payments, immediate tenant, reliable rent payments, fully loaded homes at today’s prices, exquisitely maintained home, easy exit strategy, and in some cases…NO TAXES or Home Owner’s Association fees to pay! Is it any wonder why many long distance investors lick their lips when they hear the term “model home leaseback”? If you are looking for a simple way to invest long distance it will be hard to beat model home leasebacks. It’s really a very simple and more secure way to invest in real estate, especially if you are risk averse.
If you have ever taken a pencil to the fees and expenses you incur for a typical rental home over 2 years then you know where most of your cash flow actually flows…right out of your pocket. With model home leasebacks the cash flow you earn is the cash flow you actually keep. Some of the builders also pay taxes and home owner’s association fees in addition to above average market rent. Those deals are rare but are out there if you dig deep enough, or better yet, know someone who has those connections.
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