3 Ways to Invest in Real Estate – Why We Flip Houses

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3 Ways to Invest in Real Estate – Why We Flip Houses

May 15, 2015

By Tarek El Moussa

A lot of people have asked me why Christina and I continue to flip houses instead of getting into another type of real estate investment. There’s a short answer to that, and a longer answer. The short answer is: we’re good at it, and we love it! The long answer actually involves a little bit of explanation of other ways to invest in real estate and the pros and cons that come with them.

Joining a Real Estate Investment Trust

First of all, a real estate investment trust (REIT) is a lot like a smaller version of a mutual fund. This method of real estate investment is very hands-off. If you don’t want to get involved with fixing and flipping a property or with maintaining it and keep your tenants happy, then this is a great option for you. There’s just one problem: you have to have the investment money upfront.

While you don’t have to have enough money available to buy an entire apartment or condo building in cash, you do have to have a portion of that money because REITs work by pooling all of their investors’ capital together to buy something bigger and more lucrative than any of them could afford on their own. If you’re looking for investment money, you shouldn’t be looking into an REIT.

Becoming a Landlord

You can also invest in real estate by becoming a landlord. If you go this route, you’ll have more luck financing a property because your tenants will be paying you rent, which will cover your mortgage. However, it’s a lot easier to qualify for a home loan on a house you intend to live in than a house you intend to invest in.

So, if you can afford to delay your investment for a year or two and live in the house for that time, you’ll have better luck with mortgage lenders. You obviously can’t do that on all of your investment properties, though. So you’ll have to come up with a means to finance each one or to pay cash up front and then rehab them as you would with flip houses.

Being a landlord is also really labor-intensive. You’ll either need to hire a property management company or take on all of the repairs and maintenance yourself. Either way, you’re going to have to make sure that you have tenants in your house if you want to make any money on it. Any time that it stands empty, you’ll be losing money as you pay down the mortgage and pay on property taxes without any help at all.

Flipping Houses

Are you getting a better idea for why Christina and I chose flipping when the housing bubble burst and why we continue to do it today? When you buy flip houses from motivated sellers, you get them well below market value, and you can usually find an investor to help you out. Sometimes we have to borrow on our credit cards or get hard money loans, but these are easily paid off very quickly when we flip our properties quickly for a profit.

The Bottom Line

All in all, real estate is a great investment for either the long or short term. Depending on your needs, joining an REIT or becoming a landlord might be the route for you. However, we’ve found that there’s a lot of money to be made in real estate investment with flip houses. Plus, you can get into the business without spending any of your own savings, which is a big plus in my book!

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Tarek El Moussa

Tarek and Christina El Moussa have over a decade of professional real estate experience and have been featured in national print publications, online media outlets, and a popular real estate TV show. Tarek is known for his determination to get the job done and doing it right.