A lot of different people use the term real estate investment and mean a few different things. It is a slightly broad umbrella. Even when I'm talking about my exact activities I mean a bit different than what others may. There are 3 rough categories of what investing in real estate can cover and I'm certain I will go into plenty of detail on each of them eventually. Right now, though, we're looking at big top-down ideas of wholesaling, rehabbing, and buy and hold strategies.
Rehabbing
Television sets our expectations for a lot of things. Did you know that juries in a court of law are demanding stricter evidence because of cop dramas? Well, the big sexy thing you see on television about real estate investment is Rehabbing. The basic premise is that you find a property for cheap, you fix it up, and you sell it. It's a pretty simple proposition, it's easy to follow, and people get it. Find something damaged and broken down, repair it to be at least as good as everything else in the area, and find a buyer. As long as you have the connections to get this job done and the ability to do it on budget it's a "straightforward" idea to execute: Buy, Fix, Sell.
Rehabbing is where many (most?) real estate investors focus their efforts. It has a reasonable margin of profit, you're dealing in concrete goods that even if things go sour you can usually find someone else to buy it for as much as you did and get out with only your time wasted, and the net gains are commonly in the mid-10s of thousands of dollars range for only a few months worth of work. You could get an impressive middle-management job in a tall building downtown somewhere and make that sort of cash in the same time frame... If you only did one property at a time. The ultimate goal is to be managing multiple projects at any given time. As Andrew Carnegie (that's "car NEG ee", to all you non-Pittsburghers, not "CARN uh gee") said in one of my all time favorite quotes: "I would rather have one percent of 100 people’s efforts than 100 percent of my own." Eventually a successful rehabber will (usually) position themselves as the head of a competent team that can work with little or no supervision. There are exceptions to this, but blood, sweat, and tears only leaves you bleeding, dehydrated, and upset.
Wholesaling
Wholesaling is the fancy term in commerce for "middle man". A wholesaler in all markets that I'm familiar with finds a seller, finds a buyer, and orchestrates a sale between the two of them while getting paid for his time and efforts. Most books go through warehousing and fulfillment after publishing; That is a wholesaler. Many grocery stores have the same arrangement; They buy food from a central location that carries all of the goods they need and buy it in one package deal. The wholesaler has contracted with individual farms. Real estate wholesaling is the same scenario.
Performing a wholesale is an exercise in mutual benefit. Many rehabbers are busy putting repairs to buildings and dealing with buyers. Many have a larger team that needs to stay busy more often. A wholesale deal benefits anyone doing the actual work by finding a cheap deal, and getting the original buyer and someone who intends to repair the property together and is paid in the middle. Wholesaling is a useful venture for an investor because it's easier, it requires less work, and the risk is much lower. The key to wholesaling is having or making seller connections that other buyers don't have. All you have to do is have a property that has a lot of profit in it for the right person, take a little bit of that profit for your efforts, and sell it with plenty left over for the next person. You make less money doing wholesales, but they're safer and smaller. They're a good way to get started. Wholesaling will be the focus of my ventures initially.
Buy and Hold
Also referred to as "cash flow properties", a buy and hold is exactly what it sounds like: Owning a property and renting or leasing it to someone who needs it. Very often this involves being a landlord directly, but the larger players use management companies who take a small percentage to administer them. Again Carnegie knew his stuff here... Having a team do the work for you allows you to do more work. Yes, absolutely, your profit percentage will be lower. Would you rather have $1,000 dollars in your pocket every month and be managing those properties yourself, or would you rather have $800 dollars each month with all the time in the world, and the ability to keep duplicating that result?
Once you have an established bankroll that you can tie up in financing of one sort or another, you can go into a buy and hold strategy which allows you to see a cash on cash return that well exceeds the safe investments of 1-2% of CDs or even the juicier 8-10% of mutual funds or stocks. (I am not a certified financial planner. I do have nearly a decade of financial experience, but do not take anything I write here as legally binding and authoritative advice. There are always risks and you should discuss all of that with your financial professionals of choice.) The best properties can easily yield 20%+ returns. The benefits of a buy and hold property are a regular passive income. You have to do very little to maintain the cash coming in, and as long as you make the right choices initially the costs to you for upkeep will be well below your profits.
No comments:
Post a Comment