Finding the best real estate investing strategy can be oftentimes confusing to say the least. Plus, there are so many “gurus” out there that tell you one is so much better than the other. Personally, I think you should know the options for yourself first and do some additional research then take action on the strategy that works the best for you. In this article, I discuss the three main strategies for real estate investing success. Wholesaling, flipping and long term investing are the three strategies that are most common within real estate investing and they are all good strategies for different reasons. Let’s get started.
Real Estate Investing Strategy on Wholesaling
The first strategy I want to take a look at is called “Wholesaling.” This is a short-term real-estate investing strategy that can be used to earn substantial profits. Do not confuse real-estate wholesaling with retail wholesaling, the two concepts are completely different. Real Estate wholesaling does not involve more than one property. The wholesaler contracts to buy a home, and then markets the house to potential buyers and hopefully sells it at a higher price.
The aim is to sell the house onwards before the contract with the original seller closes. In this way, the wholesaler does not pass any money to the original seller until he has a buyer who will pay a higher price. The wholesaler’s profit is the difference between the original price and the new price offered by his buyer.
Wholesaling is a method that allows people who want to become involved in property investment to make money from a property without needing finance.
Real Estate Investing Strategy on Flipping
Flipping is frequently featured on reality TV shows. In this real estate investing strategy, someone will search around for a property that needs work and consequently sells for a low price, typically at an auction. If successful in buying the house for a low enough price, they can renovate the house and resell it for a substantial profit. It is hard work, but a series of successful flips can generate a lot of profit that may later be used to buy property as an investment and rented out.
The key to being successful in flipping real estate is to buy at the right price. Getting carried away at an auction can result in buying a property that has little margin for profit. A disciplined approach to buying is essential. Put simply, house flippers aim to buy low and sell high, as quickly as possible.
In the second quarter of 2019, the average profit from flipping a house was $62,700. [ATTOM Data Solutions]. Many people begin house-flipping as a side income and after realizing the potential switch to it full time. Others are content to keep it as a spare time activity.
There is a difference between a Real-Estate investor and a landlord. A landlord has many tasks to take care of, everything comes down to them in the end. How competent you are at carrying out these tasks will reflect on the levels of your success. An investor will typically employ contractors, realtors, property management companies to do much of the time-consuming tasks (in exchange for money). A landlord instead chooses to do this work themselves and keep the money. It is all a perception of what time is worth v money.
When investing in properties to rent it is important to take the time to sit down and imagine what your business model is going to look like. Make clear policies on how everything will be achieved and stick to them. If you take on too much you can become the weak spot in the entire business and cause delays and disruption.
There is nothing wrong with choosing to be a landlord rather than just an investor, as long as you are sure you have the capability and time to carry out the required tasks. Becoming a landlord does mean that you will be unable to scale your business beyond the point that you can manage to handle yourself. As an investor, it is simply the finance that controls the growth of your business, but if you are handling the work that an investor would typically delegate to a realtor, contractor, and property manager, then there is a finite limit to your growth. If you are your own landlord, that particular type of real estate investing strategy is not scalable as you would be doing all the work and not typically something I would recommend.
Hiring a Property Manager
A property manager will typically take care of most of the aspects of managing your properties on a day-to-day basis. A property manager will …
1. Meet potential tenants and show them the property
2. Explain the lease and get it signed
3. Collect the rent
4. Inspect the property
5. Arrange for repairs
6. Handle contracts for maintenance, trash, etc
7. Settle complaints and issues between tenants
8. Prepare property budgets
That is a lot of work and employing a property manager will take those tasks from you and allow you to handle the investment and growth of the business. Yes, it is going to cost you to employ a property manager, but your time has value and you may find that you can generate more income with your time than the manager is costing you.
It may be you enjoy these day-to-day tasks, but was that why you became an investor in Real Estate?
My Final Take
The real estate investing strategy is a great way to build passive income and massive net worth. It does take time to learn and there are a lot of programs out there that don’t really help you learn. Do your due diligence and research on any educational program. I would, absolutely strongly encourage finding a mentor or an investing program. Do not take it on your own. Real estate investing can cause large amounts of personal debt or business debt that if not used effectively could cause some serious financial issues.
In my personal opinion to be truly successful in real estate investing, you may at one time use all three of these strategies. The wholesaling strategy can be for some quick profits or some really short term cash infusions. The flipping strategy usually offers more of a profit, but takes more time as you either need to fix it up yourself or hire contractors. The long term strategy is my personal favorite. This technique utilizes the skills and expertise of property manager company. Ultimately, you keep the rental income and it is generated every month, passively. You also get to participate in tax advantages and appreciation. In addition, learning this strategy can help you get started in multi-family investing, where you can have cash flow from multiple units at the same time.
Before you go…
Once again, this is only one aspect of the asset quadrant. The wealthy have seven streams of income from all four asset classes. For more on the asset classes, check out my other posts on Stock Market Investing. So, if you really want to find that financial freedom, you need to create a business that can become turn key to not only fund some of your real estate deals, but a business that makes money while you sleep. That is true financial freedom.
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