6 STRATEGIES FOR REAL ESTATE INVESTING: WHICH ONE'S FOR YOU?
As I mentioned in the opening, there are many strategies or ways to make money in real estate. I won’t attempt to cover them all here but I’m going to go over 6 popular ones. Once you know the various strategies, then you can choose the one that resonates with you and delve into that one to get started.
So, with that said, let’s get started.
Strategy #1 – Wholesaling
This is the strategy that a lot of beginning investors start with because it doesn’t take a lot of money to get started and it doesn’t take that long to learn how to do it. In a nutshell, wholesaling is finding a distressed property (distressed meaning, in need of repairs or the Owner is motivated to get rid of the house for any number of reasons), then, after finding the property, negotiating a price with the Seller that is (ideally) 30% – 50% below market value, getting the house under contract, then finding a Buyer willing to buy the “contract” from you for a price higher than what you put it under contract for. You make the difference between the “contract” price with the Seller and the “assigned” price to the Buyer.
Strategy #2 – Fix and Flip
This one is pretty simple, though not always easy. You buy a house in need of repairs (again under market value), fix it up, then sell it at market value or as close to it as you can get. You have to have a little money to do fix and flips, either your own cash or loans. Not only do you have to purchase the home, but you have to cover the cost of repairs. Some investors who prefer this strategy start with “house hacking” where they actually live in the house while they’re repairing it, then when done, sell it and start over.
Strategy #3 – Tax Liens
Some people swear by this strategy. For me, it wasn’t all that great but I did end up getting one deal when I tried it (I think the second time), so I thought it was worth covering here.
In a nutshell, tax lien investing is when people don’t pay their annual property taxes, the local tax assessor’s office puts a `lien’ against the property. If it goes unpaid, after so long, the property goes to sale in a tax auction in that county. Investors can buy those liens for the cost of the taxes owed. HOWEVER, you don’t get the properties right away. There’s a REDEMPTION PERIOD in which the Owner(s) have a certain amount of time to redeem their properties.
The way an investor makes money is when the Owner does redeem the property, they have to pay the investor their money back plus the interest that’s accrued which could be as high as 12%-18% typically. If they don’t redeem the property, then the investor gets it for the amount of taxes paid.
It can be a great long play type investment if the investor is not in a rush to make money. Redemption periods can be 1-3 years depending on where you are. BUT, you can also go for adjudicated properties where the redemption period is already up but I’ll get into that later in the future edition dedicated to “Tax Liens”.
Strategy #4 – “Subject To”
This can be another strategy you use when you don’t have a lot of money upfront to invest.
According to the Biggerpockets.com, the definition of “subject to” investing is… “a method of purchasing properties while leaving the sellerʼs loan in place. In essence, it allows you to not have to get new financing for the property. You are buying the property that is “subject to” the existing debt. The beauty of “subject to” investing is that you are not assuming the mortgage. All you are taking on is making payments on behalf of the original seller. This scenario provides the buyer with no personal liability/little risk.”
So, then, you ask why would anyone do that? The buyer is helping the seller get out of a situation where they are in over their head dues to life changes such as a job loss or transfer, getting divorced, or just being financially strapped. This will give the seller instant debt relief and gives the buyer a house they now control to rent out without having to finance it themselves.
Strategy #5 – “Buy and Hold”
This is another term for buying rental properties. You are buying, not to resell, but to hold for a period of time or indefinitely as a way to receive passive income through renting. Some investors choose to “buy and hold” single-family homes only and amass a portfolio of single-family homes over time as a way to build wealth. Some invest in apartment buildings or commercial properties. You can pretty much apply any strategy to either type of property but with “buy and hold”, most times it means collecting rents.
Strategy #6 – REIT’s
REIT stands for “Real Estate Investment Trust” and is, basically, a company that owns and manage a portfolio of real estate properties and mortgages. You can buy shares in a REIT much the same way you buy stocks in other companies. Then, you’re paid dividends annually or quarterly whichever way it’s set up for that particular REIT. This is another way to invest in real estate without putting up a lot of money. You can invest in some REIT’s for as little as $500.
So, that’s basically, six strategies to wrap your mind around. As I said, you can do one or do more over time. Try to pick one that would make the most sense for where you are right now in your life. We’ll get further into details in the following editions but if you can’t wait, you can research them on your own. There’s plenty of info out there on each of them. Good luck and I wish you massive success in whichever one(s) you choose!