Is Owning Property Really the Best Way to Make Money Investing in Real Estate?

Is Owning Property Really the Best Way to Make Money Investing in Real Estate?

3 min read
Dave Van Horn

Dave Van Horn is a veteran real estate investor and CEO of PPR Note Co., a $150MM+ company managing funds that buy, sell, and hold residential mortgages nationwide. Dave’s expertise is derived from over 30 years of residential and commercial real estate experience as a licensed Realtor, real estate investor, and private lender.

Experience
Beginning his career in construction and as a Realtor, Dave bought his first investment property in 1989. After years of managing his own construction business, Dave became a full-time real estate investor, specializing in fix and flips, buy and holds, and eventually commercial projects, before moving into note investing in 2007.

Over the past decade, Dave has also invested his time into becoming a connector and educator, who helps others achieve success. He focuses jointly on helping accredited investors build and preserve wealth with his group Strategic Investor Alliance and with general audiences through the annual MidAtlantic Real Estate Investor Summit.

Dave has also shared his strategies and experiences with real estate and note investing via hundreds of articles published on the BiggerPockets Blog and with his acclaimed book Real Estate Note Investing.

Press
Dave has been featured on the BiggerPockets Podcast twice (shows 28 and 273), as well as episodes of familiar podcasts, including Joe Fairless’ Best Ever Show, Invest Like a Boss, Cashflow Ninja, and many others. He also has been a guest of Herb Cohen’s on Executive Leaders Radio, which airs nationwide.

Accreditations
Dave is a licensed Realtor with eXp Realty with CRS and GRI designations.

Follow
Dave’s LinkedIn
PPR on LinkedIn
PPR on Facebook
Twitter @DAVIDAVANHORN

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It seems that many of us learn about the “American dream” of homeownership at a very early age, and for some, that dream can stick with us.

When I was working in real estate sales and as a contractor, my ultimate goal was to own a LOT of real estate. The more, the merrier!

Not to be a Scrooge, but now I’m starting to question the premise that “owning more is better.” Is ownership really the only, or even the best, way to make money investing in real estate? Or are there better ways?

Related: When You Should and Shouldn’t Consider Rent-to-Own Investing

Control vs. Ownership

As I get older and hopefully wiser, I wonder if the best way to invest in real estate is always buying and holding properties, along with all the management and maintenance that comes with it. Or are there better ways to invest that are just as effective and efficient—with less risk? Is ownership really the dream we’re after—or is it more about control?

Today, I’m heading down the path of controlling more assets than I own. Especially as I’m approaching my retirement years, I’m always looking for better ways to simplify my life and my investing.

Here are some of ways you can mix up “pure” ownership with other ways of controlling deals.

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Trusts

Of course, some things make more sense to own outright, like shares of the business you run. But there are many things we can control without owning and still enjoy a lot of the benefits of without all the risks that could come along with ownership.

Take trusts, for example. Holding real estate inside a trust could be the perfect entity structure for an investor because “you” don’t own it (the trust does). And you’re not even the trustee or the beneficiary, yet you could still be the manager and control the bank accounts. In other words, the trust takes on the risks of ownership while you maintain the actual control over the assets owned by the trust.

As I’ve always said, “The best form of asset protection is not to own anything.”

Fractional Ownership

Another great way to invest in real estate without taking on too much risk is to only own part of the deal.

For example, you could have majority ownership (and control) but bring in a high income or high net worth partner to sign on the financing for your deal (e.g., apartments, mobile homes, student housing, etc.).

So, why would they be willing to do that? Well, if you found the deal, ran the value-add renovations, and were responsible for all the property management and maintenance, they may be more than happy to do their part by signing on the loan for a nice chunk of ownership with little to no work.

Another way that comes to mind is if you passively, usually for a preferred return with or without upside, invest in a company or fund that invests in real estate. Now, this can take many forms. Some fund investments have tax advantages (i.e., depreciation), like apartment funds, and some don’t have many tax advantages, like note, tax lien, or hard money funds.

Even being a private money lender is a great way to indirectly invest in real estate, without a ton of work or risk, for that matter.

Related: 10 Real Estate Markets Where The “Buy and Hold” Strategy Actually Made Sense

Control Without Ownership

Other than managing a trust, the next big way to have control of real estate without ownership is through options. For example, doing a sandwich lease option is the epitome of being able to capitalize on a deal you don’t even own.

Let’s say you find a property you can rent for $700/month with a $1,000 deposit for three to five years with the option to buy it for below asking price (i.e., sales price minus a commission, offering, say, $75,000 on an $80,000 asking price). Then, you can turn around and sell it on a rent-to-own lease option to a buyer/tenant for, say, $950/month with a $3,000 deposit with the option to purchase in two to three years for $95,000.

Make the seller handle any repairs over $300 and the new tenant/buyer fix anything up to $300, and you’d probably have a home run on your hands.

Downside of a deal like that? The worst-case scenario is that you’d return the property back to the seller at the end of the term.

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Control With Ownership

That said, it is also possible to have control with ownership in a way where there is very little risk. A perfect example of this is buying a property “subject to” the mortgage. Because the loan on the property that you take over is not in your name, your risk is very limited.

Although the lender could call the loan, the biggest risk would be if you have a lot of money tied up in a renovation or if you couldn’t liquidate the property quickly enough. If you have enough reserves or access to capital, this may not be a problem.

Time to Get Creative!

The list of strategies for controlling (and benefitting from) real estate without owning it outright goes on. Don’t just settle for what is commonly done or what you’re already familiar with.

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What are some of your favorite strategies for mitigating or limiting risk while investing in real estate? Are you dreaming of ownership—or control?

Be sure to comment below!