It is time for many investors to look beyond stocks, bonds, and other traditional investments. Real estate has always been one of the best long-term investment strategies, but alternative investment news shows that more and more people are looking for nonconventional ways to get into the growing real estate market. Alternatives to traditional stock investments include providing mortgages, leasing to farmers, and starting syndications.
Private Mortgages or Hard Money Loans
When investors cannot obtain funding from traditional or conventional sources, they turn to private funding such as hard money loans. The lenders that fund private mortgages and hard money loans are themselves investors who are earning interest on those funds. By providing investors with hard money loans or by providing private mortgages to homeowners, your money will be filling a valuable niche market.
Private mortgages often have much higher interest rates than conventional mortgages and the lender can set whatever terms they want to help mitigate risk. The property becomes collateral for the loan.
Hard money loans are usually provided to investors for short-term projects like renovations or flips. The loans have high interest rates and provide funding for properties that otherwise would not be fundable, such as dilapidated or unlivable homes. Loans are based on ARV, or after repair value, rather than current appraisals. They sometimes offer interest-only payments in exchange for short-term loans, sometimes called bridge loans.
Investing in land can be profitable as long as the investor is knowledgeable in his market and area. There are several different ways that land investments can bring a profit. Land can be developed, used for agricultural uses, recreational uses, or it can be purchased as a buy-and-hold strategy.
Buying land as a buy-and-hold strategy can be a good method depending on the location and type of land. Holding land until it appreciates can be a long process, and in some cases, it may never appreciate enough to make it a good investment. In other cases, land appreciates quickly and may become very valuable. This strategy can be risky.
Agricultural land can be purchased and leased to farming operations for row crops, grazing, or timberland. While this is a good long-term strategy that may provide a little cash flow while you are building appreciation, don’t expect your leases to bring huge cash flow. Farming is expensive and volatile, and there’s no guarantee that the land will appreciate significantly. While this strategy can be a good one, and it’s much needed, it should be undertaken by those who understand the market and agriculture.
Land can also be purchased for development. This is a way to quickly add value to a piece of land. Developments can include preparing the land to be developed into housing and then selling lots, installing infrastructure for commercial buildings, or it can go so far as building and installing a strip mall and leasing to businesses. When done in the right market and location, these properties can be very valuable but they do require a lot of funding to start.
When a land owner fails to pay property tax to a government, that entity can place a tax lien on the property. This limits what the owner can do with the property. When you purchase a tax lien you are buying a lien on someone’s property, not the property itself. The owner now owes you for the debt, plus interest and other fees. If the owner pays you, your interest earned on the loan was the profit from the investment. If the owner fails to pay after a set amount of time, the property can become yours.
Real Estate Syndications or Partnerships
Real estate syndications or partnerships allow investors to take part in owning properties they otherwise wouldn’t have the capital for. They are partnerships where funds, skills, and other assets are pooled to purchase expensive real estate such as portfolios or multi-family housing. There are many ways to structure these partnerships and they can have as few as two investors or many more. When creating a syndication or partnership, it is important to know what you are doing and have everything written and approved by a lawyer.
Renting Things You Already Own
Renting out space or vehicles you already own is becoming more popular as an investment. While you are unlikely to pay for your kid’s college from renting out your garage, it can help earn you some side money.
Renting out your garage for storage is a great way to add a bit of income to your life from an asset you already own. People are renting garage space for personal storage, boat and vehicle storage, and for storing equipment and tools.
Homeowners are converting their garages, sheds, and basements into small apartments for people to rent as either long-term or short-term rentals. If you have a space that you aren’t using, consider what it would cost to convert it into an area that you could rent out. Be sure to evaluate your ability to tolerate living with guests nearby, especially if you are planning on a long-term roommate situation.
You can also rent out a recreational vehicle. Most people do this through programs that provide insurance and guidance, and bring renters and owners together through online apps. You will want to make sure your RV is well-maintained and in excellent condition. This is a great option if you aren’t ready to dive head-on into being a landlord. Some RV owners rent out 2 or 3 units and provide a second income for their families.