Are you new to Real Estate Investing? Have you heard of REI before, but don’t know how to get started? Are you and investor and looking for better returns?
No matter what your interest in Real Estate Investing is, there is something for everyone. There are a variety of ways to make money in this business. However, contrary to what those ads on late night television say–it takes hard work and money to get started. How much is really up to you. Below we’ll briefly discuss a few of the common types of real estate investing.
Wholesaling: New investors are often drawn to this strategy for a number of reasons. Little money and/or experience is required to get started. As a result, many people like this give wholesaling a bad name.
Wholesaling is the process of generating leads, turning the lead into a contract, and then ‘wholesaling’ that lead to another investor or end buyer.
Wholesalers spend a lot of time marketing to sellers in a variety of situations. Often they target distressed sellers. Those that have a property in disrepair, are facing foreclosure, live out of state from their rental home, etc. As a result of these situations the wholesaler can typically purchase these properties at a significant discount. This discount must be large enough to account for profit, repair expenses, and cost of the selling the house once repaired. The wholesaler makes money ‘assigning’ their contract to another investor, receiving a fee for that service.
Buy & Hold: This strategy is typically employed by those investors seeking monthly cash flow. The basic premise is to purchase a property that will provide positive cash flow after all property related expenses are paid.
Many beginner investors fail to understand the number and type of expenses associated with a rental property. They go beyond the monthly mortgage (principle and interest). You’ll need to account for insurance, taxes, repairs/maintenance, property management, and vacancies–just to name a few.
The advantages of this strategy are many. You’ll receive the monthly cash flow, the renter will pay down your loan balance, receive the tax advantages of owning a home, and realize the appreciation on the property.
Flipping/rehabbing: This strategy has been made popular by various reality TV programs. Unfortunately, these programs often misrepresent the process by making it seem all too easy.
There are significant costs involved when flipping a property. You have to pay for materials, contractors to do the work, permits/licenses, mortgage/loan payments, Realtor fees, closing costs, etc. Speed is also a factor when flipping. The longer it takes to rehab a property the costlier it gets. Additionally, the market may change and you may find yourself listing the home for less than originally anticipated. The rewards can be significant and make the difficult process worth repeating.
A common saying in Real Estate Investing is “you make money when you buy, not when you sell.” This is very true and highlights the reason why education, networking, experience, and building a good team are key to your business’ success.
These are just three of the most common examples of real estate investing. Whatever route you choose I encourage you to learn as much as you can before you jump in. We’ll cover some of these finer points in another post. Until next time, happy investing!