April 5, 2016

Investment Options

Buy and Hold

The strategy for “Buy and Hold” is simple: buy a rental property that is slightly under market value and hold it for the long term. The goal is to have the tenants pay off the mortgage so that in the end you have a property that is mortgage-free and on which rental income is being paid to you indefinately.

Flipping

In concept, flipping is simple: buy a home significantly under market value, renovate it, stage it and then sell it for a profit. In reality, it can take quite a while to find a great property to buy and flip. As well, it is typically easier to live through a flip if you, or someone you trust, has some renovation skills. In any event, if done correctly, the rewards can be significant.

The Hybrid Strategy

The Hybrid Strategy is a combination of the “Buy and Hold” and the “Flip”. Most hybrid strategies start with the purchase of a property that is undervalued due to the fact it needs a fair amount of renovation or care. The property is then improved with the intention of holding it for a longer term and renting it, before ultimately selling it when the market is favourable. As with the flip, you may need to look at financing the property more creatively, possibly using a combination of financing sources.

Joint Venture

Many investors who don’t have (or don’t want to tie up) funds in purchasing an investment property on their own, will team up in partnership with someone with the same investment goals. In a joint venture, it is vital to have everything in writing before any money changes hands. You should outline not only the initial financial expectations of each party, but also things like how you’ll decide when or how to do repairs or renovations (and who pays for them), how you’ll select tenants and who deals with them (if applicable) and when you intend to sell and based on what criteria.

Rent to Own

The way it works: investors purchase a property, but rather than advertising as a traditional rental, they look for future owners. These are people who want to own their own home, but can’t, because they either have credit issues or an insufficient down payment. From a n investor perspective, you would negotiate an agreement to have them purchase the property at a predetermined price, by a predetermined date. In addition, an “option fee” of a few thousand dollars is typically charged to secure the property. For a predetermined length of time (usually 2-4 years) market rent is charged, plus a predetermined amount is charged on top of the rent, that goes towards the tenant’s future down payment.