What are the different real estate investing strategies?
In this guide we are going to cover the different real estate investing strategies that you can choose from or mix and match as you grow your business.
My favorite is the BRRR Method which fits into the rental property category.
The basic 3 categories are:
- Wholesaling Real Estate
- Rental Properties
- Fixing & Flipping Houses
Strategy #1: Wholesaling
A wholesaler finds investment properties that can be fixed up and flipped or fixed up and held as rental properties. Therefore, a wholesaler’s first step is to make friends with both types of investors, fixer flippers and landlords.
As a wholesaler you’ll build up a buyers list of cash buyers who we just mentioned so that when you come across a property that can be fixed and flipped or fixed and held as a rental, you’ll have cash buyers to turn to that will purchase the property from you.
It has to be all cash because it complicates things when dealing with lenders. Most deals are done by contacting sellers directly and leaving real estate agents out of it.
This allows the seller to save money on commissions and allows you to negotiate a better purchase price.
For example, if a seller has a $100,000 house owned free and clear, he would have to pay a 6% commission to the real estate agent plus closing costs leaving him maybe $90,000 left.
As a cash buyer going straight to the seller, you can negotiate a sale price of $95,000, $5,000 below the market value the seller was selling for with a realtor.
Then you can turn around and sell your contract to your cash buyer list for $100,000 so you make a $5,000 profit.
Or in other words you sell your contract for $5,000 assignment fee and the cash buyer now has the rights to purchase the house from the seller for $95,000.
This strategy allows you to use none of your own money.
Strategy #2: Fix and Flip
You’ve probably seen one of the many HGTV shows where they buy a property in awful condition and fix it up beautifully then resell it for nice profit. This is fixing and flipping homes.
You can make large sums of money in short periods of time if the deal goes right.
The downside is your income depends on volume of flips and most people can only do one to two flips per year so profits have to be large enough to be worth the time committed.
Wholesalers often argue their strategy is better because you can flip several contracts to cash buyers per year and make more money with less risk than a fixer and flipper who takes on all the risk of owning the property and making the repairs and trying to resell it for a margin well above cost.
Strategy #3: Rental Property
This is the way to build long term wealth but requires a lot of capital as you have to purchase the property, fund repairs, and fund any holding costs until the property gets rented out to a tenant as well as repairs caused by ignorance and carelessness of the tenant.
You build wealth in rental property through 4 ways:
- Cash flow that remains after all expenses have been paid from the rental income collected
- Equity forced into the property by purchasing it below market value and fixing it up for less than the spread, leaving profit aka forced equity.
- Equity from paying down a loan. Every payment includes part principal and part interest.
- Appreciation – when the property value increases over time due to inflation.
The 5th way that you build wealth is through tax savings. Other asset classes hit you hard in taxes but in real estate there are ways to defer or reduce taxes paid, leaving more money in your pocket to invest and compound over time.
Here is an inside look at one of my rental properties:
Overall, determine what niche you wish to pursue and select a strategy that interests you and fits well with your skill set and knowledge of real estate.
If you want to increase your knowledge and skills, join our highly regarded real estate investing boot camp that trains you via video modules for 30 days on a large variety of topics and strategies.
I highly recommend it, you’ll receive far more value and resources than what I’m charging members to join.
If you’re ready to join us here is the link: 30 Day Real Estate Investing Mastery Bootcamp
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