The 3 Best Ways to Invest in Real Estate in 2021
I have been involved in real estate investing in one form or another since 2008. In fact, the great recession provided my first real opportunity to invest. That investment in defaulted home loans remains my most profitable to date. Today, in 2021, I see similar opportunities emerging. Here are my predictions for the top 3 real estate investing opportunities in 2021
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Non Performing Notes
The biggest opportunity to access heavily discounted real estate came in 2008 as banks sought to sell off millions of defaulted home loans. I bought as many as I could find back then. It was hard work and time-consuming turning them around, but also extremely profitable.
There are rumors of another foreclosure wave heading this way in 2021. By Autumn 2020, almost 5% of all residential mortgage loans were more than 90 days overdue. That’s more than 2 million loans, the highest since the GFC.
The Stimulus Cup Runeth Dry
While trillions of dollars in Federal stimulus has so far supported the financial institutions holding these loans, that cannot continue in perpetuity. When the rug of free money is eventually pulled, lenders will be faced with some very tough decisions.
Banks, credit unions and other lenders will have to either foreclose the loans or sell the bad debt cheap to the highest bidder. Foreclosure take time, and with courts already backed up due to Covid, it is far more likely for these lenders to sell off the debt for some fast cash, and to balance their books.
This is precisely what banks did in 2008 through 2010. They sold off millions of non performing notes to hedge funds and even small private investors like me. Buyers with available cash were able to buy these loans for pennies on the dollar. Personally, I paid 10 cents on the dollar for my loans.
A Tremendous Value Add Opportunity
Once you own the debt, you then have to set about adding value. This can include working out a forbearance plan or modifying the loan with the existing borrower, taking ownership of the real estate via a deed in lieu, or foreclosing on the loan.
The profit margin can be immense. I have bought loans for 10 cents on the dollar and sold them on for four times as much once we got the loan upright and the borrower making payments again. But investing in non performing notes successfully takes time, money, and knowledge. It’s not ticket it instant easy wealth, and it is way easier to lose money than to make it if you don’t know what you’re doing.
Related: Performing vs Non-Performing Notes – Which is the Better Investment?
The Covid crisis has coughed up another opportunity (pun intended). While millions of families have been unable to pay their mortgages, there are an equal number that have been unable to pay rent. This has put huge pressure on landlords who have had to keep up on property taxes, maintenance, insurance, management, and other costs. At the same time, eviction moratoriums have left these landlords hamstrung, stuck with non paying tenants and mounting costs.
Many of these landlords – especially the small hobby landlords – will be forced to sell. Some won’t have the cash to ride the situation out, while others just don’t want to expend any more time or hassle on money-losing assets. I have already bought more than 10 properties from distressed landlords in my markets in 2020, and I suspect I will be buying many more in 2021.
Related: Note Investing vs Rental Properties – Which is the Best Investment?
For those investors that are seeking a more passive way to participate in 2021, private lending to active real estate investors is the way to go. Active investors like me will be seeking to get our hands as dirty as possible this year, buying, rehabbing, renting and selling as many properties as we possibly can.
Experienced active investors have the time, expertise, team and network to execute the more hands-on and time-consuming strategies like buying non performing notes, and negotiating cheap properties from distressed landlords.
To take advantage of as many opportunities as possible I will be partnering with private lenders to fund my acquisitions. I have used my private lender model to buy over 70 rental properties so far, and my lenders love sitting back and collecting their passive income checks every month while I deal with all the tenants, toilets and trash!
Related: Private Lending 101 – Everything you Need to Know About Private Money Lending
So, there you have it, my top 3 real estate investing opportunities for 2021. I hope you found this article useful. If you would like to learn more about my private lending program for investors, click here
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