For those of you that have an interest in real estate and are looking at the various ways to get started, I am going to go over the 3 most common real estate investing strategies used to dive into real estate. This is not a comprehensive list by any means, but it will give you an idea of how most people get their start. I will break down the 3 most common real estate investing strategies and explain it to the best of my knowledge.
3 Most Common Real Estate Investing Strategies
Flipping– also called buy and sell. This strategy is very popular and most people have probably heard of it. There are tons of TV shows where people buy a foreclosed property that needs work, they renovate and re-list the property usually in a very short time frame.
Essentially flippers buy houses well below market value so they have enough money to fix them up and sell them for prices comparable to other houses in the neighborhood. They buy foreclosed homes, home from tax auctions, foreclosure auctions or straight from the seller. These investors are looking to make a significant profit in a very short period of time.
Most of these investors try to resell the property in a month to earn a large lump sum of cash up front. They then move on to the next property and keep going along this path of flipping houses for profit. I you haven’t heard of this real estate investing strategy, just watch some HGTV and you will see it.
Renting-also called buy and hold. Another one of the most common real estate investment strategies out there. This is the type of investing that we do. You buy a property and you rent it out to someone else. The beauty of getting started in rental units is that there are so many ways to get started with rental units. It is really a wonderful thing. Hear me out.
Most people are concerned about starting real estate investing because they don’t have the money to invest. There are ways you can invest with low to no money down. You just have to be creative. I did a post recently on how to finance your first investment property so that may help you out if you need some ideas. but for now I want to give you some ideas on how to start in the rental business.
If you are young and don’t mind moving around a bit, consider buying a duplex (2 unit building) or triplex (3 unit building) and live in one unit. Find tenants to live in the other unit(s). They essentially can help you pay the mortgage on that property. Since you are living in the property, you may only need to put 5% down since you will be living in the property.
You can also save up the extra cash flow from the property for a down payment on your next investment property. Another great part of real estate investment strategies is that they are very versatile. You can live for free and use the extra cash flow from the property for future investments. Can I get an AMEN!
The great thing about rental investing is you have the monthly cash flow (rent) and you still have the investment, which is the house/building. If you buy low enough, you will have appreciation of the property so when you do to sell, you not only made monthly income in rent, but you will also make money from the increase in value from the property. What a nice bonus, huh?
Wholesale investing– This is one of the real estate investing strategies that I had never heard of until I started listening to Bigger Pockets Podcasts. They are amazing by the way. I love listening to other investors talk about their real estate investing strategies because there aren’t any that are the same. Okay, back to wholesaling.
Essentially wholesalers find deals for other investors, get the house under contract and sell or assign the property to another investor. This is kind of complex to understand, but basically these people get creative at trying to find houses that may go into foreclosure before they even get to that point.
Stick with me here. I am going to try to explain this a little better. So basically, wholesalers work as scouts. They are the people out there looking for run down houses in good neighborhoods and sending mail to these houses asking the owner if they want to sell their house.
They also may put signs up along the side of the road with something like “Are you looking to sell your house quick? If so, call this number…”
These are marketing tactics to find real estate deals before they hit the general market for all investors to see. These wholesalers then compile a short list of buyers (flippers) who might want to buy a house at a good deal to flip.
Wholesalers fees will vary, but one statistic that I read indicated that wholesalers will generally make between $5,000 to $10,000 per deal. They find the deal, negotiate with the owner and then add $5,000 to the price when trying to sell or assign the house to the another investor. I have heard stories where they have made more than that per deal also. Can you imagine doing multiple deals in one month?
So what is the benefit to all of this work you ask? You don’t need a lot of money to get started in this type of investing. You may need to put down 10% of the money needed upfront, but you will get that money back and then some and it may only take a couple of days if you know an investor who is looking for a property.
Investors who flip often have a way to find cash and close on these deals with their wholesalers quickly. I am talking around 15 days or less. Wholesalers generally have a short list of go to buyers in mind when getting a house under contract. They know what their investors like and they find these deals for them.
There are tons of other ways to be involved in real estate investing. Crowdfunding deals is becoming popular now. You basically put up some money and you get a return on it once the investor can refinance the property or sell. There are also ways to put your money in as a private investor. So if you have a friend who wants to get into real estate and they ask you for money towards the deal, you can put in money and make money. You agree upon the percentage you make back from your investment. Like I said, there are tons of ways to get into real estate.
If you are interested in jumping into real estate, just get to know your area in which you want to invest and talk to someone who has been investing for a while. Ask them which real estates investment strategies they have used. If they have been in the game long enough, they likely have done several. Ask them which real estate investing strategies they liked the best and the least.
Go over the good and the bad of real estate investing with them. Know what strategy you want to start with and just go for it. Review your deal with your investor friend to see what they think. Partner with a seasoned investor. There are tons of ways to get into investing, you just have to start if you are interested.
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