Real estate is renowned as the industry that creates millionaires. But, it has also left its share of struggling dreamers in its wake. Real estate investing, in its many forms, can be appealing for the large potential income on a single deal and the passive income that can come from holding properties.
Investing in real estate can even be done without using any of your own money. This makes it the ideal place for the ambitious person without much capital to get them started. But, the large sums of money involved make this an equally risky endeavor for the beginner with a lack of reliable information.
Instead of understanding every aspect of the different forms of investing, it is best to know which kind of investing you want to do and focus on how to do that. If you want to flip homes, you don’t need to know how to deal with tenants. Explore the different methods you could take to get involved and decide which is best for you.
Wholesaling has a reputation for being one of the best strategies for new investors. A single deal can yield a profit of $10,000 or more if you find the right deal. This strategy relies upon finding motivated sellers who will sell their home well below its value. As a wholesaler, you make this initial purchase contingent upon a second sale to another investor at a higher price. The wholesalers profit is in the difference between these two transactions.
Essentially, wholesaling comes down to being a middleman between the seller and investor. The key is in finding deals below market value and having a network of motivated buyers that are prepared to purchase with cash.
Flipping involves purchasing a home, rehabilitating the property, and then reselling it at a higher price. This is also known as rehabbing. Seasoned rehabbers sometimes have multiple projects going on at the same time. If you are able to find a distressed property in a desirable area, improving the property can provide large profits.
One of the biggest keys to becoming a successful flipper is in having systems in place to make the process go quickly and smoothly. The quicker you can have a home refurbished and back on the market, the better it will be for you as an investor. If you hold a property too long, taxes and changes in the market could eat into your profits.
The primary obstacle to flipping is the cash needed for the initial purchase. Working with banks would disrupt your process. Having cash available – whether through your own capital, a partnership, or a hard money lender – is an essential first step for a person looking to flip homes.
Buy and Hold
Buy and hold may be the easiest route into real estate investing. This is the approach for the person that is more interested in steady income over a long period of time. Technically, you could even get started in this form of investment by renting out space in your own home.
Traditionally, you will find more success with this strategy by acquiring property in desirable places. You want your property to be easy to rent, otherwise you will lose money while holding onto an unoccupied property. College towns and city suburbs are popular locations for this kind of investing.
While this is more of a passive form of investing, it should not be confused for easy. Having proper legal documents created for the renting agreement and understanding the rights of your tenant cannot be overlooked. Having bad tenants or regular turnover in tenants can become huge sources of stress.
Who you know
No matter what method of investing you get involved with, the network of people you have to help you with your process will influence your level of success. Especially with wholesaling and flipping, you need to have a network of connections that are ready to work on deals and complete them as soon as possible. The speed with which these jobs can be done will often dictate how successful they are.
In some cases, you can find veteran investors that are interested in helping new investors by teaching them how to get started and thrive. Often, these experienced investors will be cash buyers looking to purchase deals that wholesalers find to turn a larger profit.
There are many Real Estate Investors Associations that meet regularly in different regions. These are great places to find investors at different stages of their investing career that can help you learn how to proceed. The biggest constraint for new investors is the learning curve.
Understanding the process, contracts, and legal requirements around investing strategies is essential and a mentor can be a tremendous asset. Staying up to date with laws and strategies is important for any investor but learning them is the first step. For a new investor, there is nothing more important than understanding the process and taking action.