What is your real estate investment strategy?
I’d like to briefly outline real estate investing strategies and the skills you need to succeed in each. Here is a list of the most popular real estate investment strategies:
1.Buy and hold
2. Repair and flip
3. Foreclosure
4. Leasing option
5. Commercial/Multi-family
6. Before the foreclosure
7. Successions
8. Rehabilitation
9.Seller-Financed Notes
10. Short sales
11. Subject to
12. Tax lien certificates
13. Wholesale
Some of the skills needed for these strategies:
1 time
2. Money
3. Credit
4.Knowledge
5. Patience
6. Maintenance and repair skills
7. Communication skills
8.Computer skills
9. Research skills
10. Organization skills
11. Networks
12. Short-term strategy
13. Long-term strategies
14. Negotiation skills
We will briefly go over the first 4 strategies now and the others in later articles.
1. Buy & Hold: Buy & Hold is probably the oldest way to invest in real estate. Hold a $200,000 property for 30 years and it will be worth over $1,000,000. Buy & Hold gives you income, capital, appreciation, deductions, leverage.
The rule of thumb 100/10/1 applies to finding a cash flowing property. (Look at the data for 100 properties, make offers on 10, and buy 1.) You want to find a property that is below market, rent it out to creditworthy tenants, hold it for a long period of time, and sell it later at a profit or pass it on to your children. Once you learn how to pick good tenants, owning is pretty easy. MAKE SURE the property is cash flowing. I’m living on my first investment. The one I call “My investment gone bad.” Be sure to check the credit of your future tenants and 2 to last owner for a reference. Always raise the rent every year, even if it’s only $10.
Some of the Skills You Need: Time, Money, Credit and Knowledge as well as Repair Skills, plus money for vacant and upgrade times.
2. FIX AND TURN: Similar to rehab, fix and flip requires less work because there are minimal repairs/cosmetics such as new paint and carpet. When this job is done, the house is put on the market for a quick sale and quick profit. You need a network of buyers to sell quickly.
Some of the skills you need: money, credit, maintenance and repair, networking, and negotiation skills.
3. PRE-FORECLOSURE AND FORECLOSURE:
Pre-foreclosure takes a long time. You deal with the banks and they can take months to make a decision. You are dealing with emotional people in a terrible situation and you have to be patient to earn their trust. He spends a lot of time on a lot of deals and most never close them.
Foreclosure occurs when homeowners have financial problems and are unable to make the payments on their home. The banks recover the property and put it up for sale through real estate agents. You have to be very careful because these properties may not be a bargain. Sometimes there are multiple offers and people lose their minds and offer more than the property is actually worth! And then you find out that they need to make repairs and buy a new refrigerator and dishwasher.
You need: time, money, credit (maybe) and a lot of patience to deal with bank bureaucracy and the emotional people you will be working with.
4. LEASE OPTION: This strategy is actually around 4 contracts. You acquire a property by offering to rent it for several years (first contract) with the option to buy it at a fixed price at the end of a period of time, usually 3-5 years (second contract) from the seller.
Then, you find a tenant to rent (third contract) the property with the option to buy (fourth contract) at a fixed price within a certain period of time. On a monthly basis, the plan is that you are paying the seller less than what the tenant/prospective buyer is renting to you and you are pocketing a small profit each month. Usually, the tenant also makes an option payment (down payment) to you.
When your tenant decides to buy, they will also exercise their option to buy from the original seller. Since you negotiated a lower price with the seller and a higher price with the tenant/buyer, you make a nice profit. Sometimes your tenant doesn’t buy, losing the option payment and giving you the opportunity to re-rent the property for a higher price and start the process all over again. Your tenant also takes care of small repairs and maintenance, since it will be his house one day.
You need: Time, Money, Credit, a lot of knowledge to be able to structure this strategy.