Real Estate is a very powerful Investment opportunity and very powerful way to make money. Tonight I want to talk about focus. That’s right when you are looking to get into Real Estate Investing you have to pick one particular strategy that you want to focus one. There are probably 3 or 4 strategies.
The first thing you want to do is decide if you want to be a Passive or Active Investor. And that is usually a decision made based on your current situation. Do you have enough money to start being an Active Investor, meaning are you able to go out and buy your own properties, and do you need to bring in Joint Venture people.
Or are you just someone who has lots of money and just wants to go out and finding out ways to put that money to good use and partnering with someone else. So a couple of criteria used to determine where you are starting and then you look at the strategies:
Buy Rent and Hold
What that is, is you go out and buy a property and then you bring in tenants and rent it out. You then hold that property for anywhere from 5-20 years. I know some people that have held the same property for 20 years, I have held properties for 15 years.
The challenge to doing that just as a caution, as the properties get older they get harder to maintain so it might be time to sell them. It’s similar to owning a car, this is why people starting leasing a car after a while the maintenance gets high so you go in and get a new one, same with a property. My recommendation is buy rent and hold for about 10 years. The nice thing about that is you don’t have to worry about the upfront cost and hassles. This a long term strategy.
Fix and Flips
This is a bit more risky but it gives you a short term cash flow. This is you going out a property that is run down or needs cosmetic repairs. You go in and do the renovations that it needs, could be new roof, new bathroom and so on. The thing about that it’s that there are a number of things that you can do but they vary in cost and vary in return on investment. For example; a bathroom can cost you anywhere from a couple of thousand dollars for replacing appliances right up to $15-$20,000.00 cause you are going to redo the entire bathroom. Same with a kitchen it can vary from anywhere from $5,000.00 to $60,000.00 depending on what it needs.
Again when doing a Fix and Flip you got to remember you are doing for the maximum return on the Investment so don’t get caught up in what you want and what vs what you think the market will bear. Because, you could as a result of a Fix and Flip actually price yourself out of the market. Meaning, you put so much money into that you are never going to get back because the neighborhood just doesn’t justify those kind of returns.
Rent To Own
This is where you go out with a partner and buy a property and you put in a tenant in there and that tenant rents that property from you with the expectations that they will buy it from you in 3-5 years depending on the term. The nice thing about this strategy is that it’s very low maintenance because the renter is actually living in that property with the expectation of buying it so they will take care of it a lot more than typical renter who is going to leave eventually.
The other nice part about that is that you have a build in buyer so at the end of the contract they come in and buy the property from you. Now, the reason these people can’t buy the property in the first place is because they have bad credit. So you have to work with them over the term of the Rent To Own to repair their credit and hopefully at the end they can buy the property.
This is a very good strategy because of what I said earlier where it’s like leasing a car. You buy a property and hold it for 3-5 years and even better in this case cause the tenant is going to maintain the property and repair it if they need it, then you sell it and start all over again. Very low maintenance and very good returns. Those returns can vary, I can give on a Joint Venture anywhere between 15-20% return.
On a Fix and Flip they are much higher if you are not making 20-30$ even 40% return you should not be doing it. Because its high risk, you never know what you are going to get once you get inside the home. The other problem with Fix and Flip is once you are done you want to sell it fast and depending on the market it may stay on the market longer so you have all those carrying costs.
So those are the 3 basic ways to get involved in Real Estate Investing, I mean there are other ones like Assignments, Holding Mortgages or doing some kind of Bird-Dogging. But for the most part those are the keys ones that you should consider when going into Real Estate Investing. What you want to do is pick one of those strategies and stick to that. However, if a good opportunity comes along that you have to incorporate one of the other strategies you can’t pass it by then maybe that’s where you start branching off into one of those other strategies.