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Real estate investing

20th November 2020

There are several ways for real estate investors to reach the goal of positive cash flow. The path to financial freedom begins with choosing the right real estate investing strategy.

For every unique real estate investor, there’s a unique path to lasting wealth and financial freedom.

Your job is to take it all in and really understand your goals, what’s motivating you and where you fit into this epic landscape.

Here, we’ll outline 3 Core Investing Strategies, Types of Properties, and Contrast Commercial and Residential Property to help you get a sense for how the market works and what makes sense for you today and tomorrow.

3 CORE INVESTING STRATEGIES

It’s clear real estate investing is a great way to achieve lasting wealth and financial freedom.

While there are countless ways to make money as an investor, the majority of successful entrepreneurs focus on three key strategies:

1. Real Estate Wholesaling

When you “wholesale” a property you find a “motivated seller,” negotiate a great deal, and get the property under contract. Then, instead of closing on the property, you find an end buyer usually a rehabber or landlord and sell them the contract.

That buyer then takes the property to close, at which time you’re paid a fee for your time and for negotiating the deal. This fee can range anywhere from $500 to $50K depending on the terms of the deal.

As a wholesaler you rarely take ownership of a property but, instead, make money flipping the contract, not the property itself.

There are a few different benefits of being a wholesaler. For one thing, you can make money pretty quickly. Negotiate a deal in a week or two and you could be cashing a check in a month’s time.

This method is also useful if you have limited capital or a low credit score. Because you’re not actually purchasing a home, nobody’s checking your credit or expecting 20% down.

However, as with any other investment, wholesaling doesn’t come without its risks. Income isn’t a guarantee and you always face the possibility that you’ll struggle to find a buyer.

To prevent that scenario, you’ll need to develop a solid list of potential buyers.

2. Real Estate Rehabbing

As a “rehabber,” you’re simply buy an investment property, making major or minor improvements, then selling it for a higher price.

A typical rehab deal (or “fix and flip”) can take anywhere from a few weeks to several months, and in 2017, the average rehab deal yielded gross profit of $68K.

If you enjoy working with your hands, real estate rehabbing might be your ideal investment. It gives you an opportunity to engage in physical labor before earning a quick profit. You also may enjoy the amount of control you keep over the entire process of rehabbing a home.

However, anyone considering real estate rehabbing should be aware that the costs can add up pretty quickly when you’re fixing up a home. This is especially true if the changes you’re making aren’t DIY and you need to hire outside contractors.

3. Cash Flow Investing

As a “cash flow investor” you’re buying and then renting out a property for ongoing cash flow, either to a long-term tenant or short-term vacation renters.

The benefits here are obvious if you can find renters, you have a direct stream of month-to-month income. Plus, as with other real estate investments, the value of your property is bound to rise over time.

If you go this route, remember that you’ll be responsible for making timely repairs and handling any emergencies that crop up. You’ll also be in charge of finding renters or tenants to make sure your property is filled year-round.

WHAT TYPES OF PROPERTIES SHOULD YOU INVEST IN?

Before digging too deep, it’s important to understand the diverse property niches that exist in the marketplace. While strategic property niches can vary by area and market conditions, most investors tend to focus on one or more of the following types of properties:

Property Type #1: Single-Family Homes

Single-family homes are the most common type of property in a given marketplace. Three in five properties in the U.S. are single-family homes.

Your exit strategy (how you plan to make money on a property) will likely dictate whether or not you get involved in single-family homes and the types of properties you go after. Typically, most investors focus on more affordable or distressed single-family homes in desirable or up-and-coming neighborhoods.

Property Type #2: Condos & Townhouses

Condos and townhouses are units that exist within a larger complex (like a community or building). In higher-priced markets such as urban epicenters and popular suburbs, these can be good initial investment opportunities.

They’re cheaper, easier to come by, and always in-demand by entry-level retail buyers who want the community without the hefty price tag. Keep in mind these properties often come with a host of additional expenses and considerations, such as homeowners association fees or board approvals. Be sure you’re crystal clear on what it takes to invest in, rehab and flip these properties.

Property Type #3: Duplex, Triplexes and Quads

These properties are similar to single-family properties because they’re residential. However, because they’re two to four-unit properties, there’s often significantly more cash flow potential.

Not only is there a revenue upside to these properties, but if you’re planning to finance them, many banks and lenders will offer more favorable loan terms. If you’re planning to tap into that all-important leverage to finance your first or next deal, this property niche could be a great go-to.

Property Type #4: Apartments

For most new real estate investors, apartment buildings with 5 to 100 units are good bets. In these cases, you won’t likely be competing with big developers or holding companies. At the same time, you’ll have enough units to generate meaningful cash flow, often from day one.

While these investments can be more expensive if you’re planning to rehab or buy and hold, many banks and lenders will happily consider a first-timer if the numbers make sense. In every market, people are looking for affordable rentals. If you can be that solution, lenders will be ready, willing and able to help you connect the financial dots.

Property Type #5: Commercial Spaces

Commercial spaces can be anything used for business or commercial purposes, such as retail spaces, office buildings, industrial parks, warehouses and more.

While many new real estate investors steer clear of these properties, done right they can be tremendous investment opportunities. For example, a retail space may come with a solid 15, 20, or even 25-year lease.

Lock down that space as a landlord and you’ll have a steady income stream for decades.

In many cases, you’ll even be able to cook up a “net lease” which requires tenants to pay rent as well as property taxes, maintenance and insurance. This instantly helps you generate positive cash flow quickly and easily. Again, it’s important to understand the ins and outs of these properties as well as local and state regulations and policies going in, including usage specifications, codes and taxes. Working with a real estate investor-friendly agent and attorney can help your due diligence for finding the best investment opportunities.

I hope this will help you plan the best strategy to invest in real estate.

Comment Below and Let me know, and of course feel free to contact me any questions you might have about getting started.

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