Real estate investing is a time proven way to build wealth - more people become millionaires in the US through real estate investing than any other means. All real estate strategies can make you profit, but many choose a specific type when just starting out due to current resources and exposure. Whether you are new to real estate investing or you have experience (but may need a little inspiration) let’s review the three main types of investing strategies. I encourage you to begin testing out these different areas, as you gain experience you can begin to practice all of them simultaneously.
Three Types of Real Estate Investment Strategies
- Buy, Fix and Flip
- Buy, Fix and Hold
Buy Fix and Flip
We are starting with this strategy because this is what most people think of when they think real estate investing. Due to the number of TV shows and marketed success, fixing and flipping is hot right now. While you can make a lot of money fixing and flipping, there is a harsh reality that you need to know what you’re doing. Fixing and flipping is high risk.
To fix and flip real estate successfully, you need capital, specialized knowledge and a reliable team.
Specialized Knowledge to Fix and Flip
Fixing and flipping is really for educated real estate investors (those who have a few profitable deals under their belts).
- Intimate knowledge of the neighborhood where you are investing
- To accurately project construction costs, closing costs, holding costs and rehab costs
- Relationships with wholesalers, bird dogs and real estate agents to bring good deals
- A reasonably priced contractor or company you can trust
For your first few deals, you may want to go in with an experienced partner. You will also need education to avoid the many pitfalls of flipping houses. We offer a rehab class for 3 days, and the amount you will learn will save you thousands on all the deals you do. Plus, you’ll enter the project with confidence.
Wholesaling is the easiest way to make money as a real estate investor. It takes little money or credit. In a typical wholesale deal, you purchase a property at a significant discount. Then, you flip the property to a rehabber or someone interested in the buy and hold strategy. Your profit as a wholesaler comes from the spread you create.
You do not purchase the property. You control the asset, by putting it under contract at significant discount.
As a real estate wholesaler, you need:
- To know how to find motivated sellers and distressed properties
- To know real estate purchase and assignment contracts
- An experienced escrow/closing agent that understands the wholesaling process
- A database of investors to sell your inventory to
If you have little money, credit or education, this is a great way to start your real estate investing career.
Buy, Fix and Hold
When you buy, fix and hold property, you choose to keep your purchased property as a rental property. The necessity of owning rentals is cash-flow and amortization. After all expenses are paid each month, you need to have money left over each month as your profit. You purchase the property through your own cash, a conventional loan, a private money loan or by working something out with the original property owner.
As someone who buys, fixes and hold, you need:
- A strong marketing understanding to target the right deals
- A reliable agent and mortgage broker to facilitate transactions
- A contractor you trust (very important!)
- A great property management company
- The ability to analyze a property and evaluate holding costs
- Potential money partners willing to fund long term rentals
- Ability to convert wholesale inventory to long-term inventory
Buy, fix and hold is the only real estate investing strategy for long-term wealth. You will want to target deals less than $150,000 in working and middle class neighborhoods. AVOID low income and dangerous neighborhoods. You do not want to own a property more susceptible to being vandalized.
Also, when it comes to buying property, income potential, property condition, property age and location are more valuable than equity. Be picky when determining your rental. You will be a better landlord and investor because of it.
Begin Real Estate Investing
If you are interested in getting started as a real estate investor, please contact us now. We can help on both the funding and education side of things. We look forward to working with you to build your wealth through real estate!