I recommend if you are serious about real estate you should go to your local Real Estate Investor Association (REIA). It is a great place to network and meet successful investors. You only have to go to a handful of meetings however, before you are pulled in six different directions, because each month the speaker has a great new way to make money in real estate.
There are a thousand ways to make money in real estate!
Not really, but it can sure seem that way sometime. It can be confusing, especially if you are brand new to hear all the different methods and techniques. It is hard to focus when you are pulled in half a dozen different directions.
There are two basic kinds of strategies; ways to find properties, and ways to profit from them. The ways you profit from real estate are often called exit strategies,- what are you going to do with the property once you own it. It is easy to confuse strategies of how you find deals with exit strategies. The most successful investors generally focus on one or possibly two exit strategies. They refine their formula and build systems to where they can repeat it efficiently and profitably.
Let’s talk about those exit strategies. There are four basic ways to make money in real estate:
1) Deal-maker:
This can be a bird dog, wholesaler or real estate agent. The basic concept is simple, you find great deals and make money by passing these deals on to others. This probably has the least risk and can be done with the least amount of money to start. While the concept is simple, this is also work. It is not passive income.
2) Add value:
You can renovate a single family home, reposition a commercial property or change the use of an existing property to a higher and better use. Renovating properties will generally, earn you larger chunks of cash than wholesaling, involves more risk, and takes more money. It too is real work. It is definitely not a passive investment, it’s a job.
3) Buy and hold:
Being a landlord whether single family homes or commercial properties gives you current cash flow and future appreciation. Long term this is probably the place to be in real estate. This can take a modest amount of money or a ton of money depending the level you want to achieve. You can minimize the capital required by using creative strategies to acquire the properties. There is definitely risk in holding rental properties however it generally less work than the first two strategies and can be truly passive if you are investing in commercial properties.
4) Lender, Tax liens, and other real estate instruments:
You can hold notes and mortgages, be a hard money lender, be a “money partner” in rehab deals, buy tax liens, tax deeds, or ground rents. There are probably more approaches I haven’t thought of. This group of strategies pretty much requires that you already have money. I invest in tax liens and I have some friends that swear by notes and mortgages.
That’s it folks. Pretty much any exit strategy can fit into one of these categories. You can combine some of these but it still fits into one of these strategies. As I said above, the most successful investors focus on one strategy. You need to figure out which category best fits your resources and interests. In future posts I’ll talk about some of these in more detail.
Until then, happy investing.
Ned
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12 responses so far ↓
1 Susan (1 comments.) // Nov 5, 2008 at 5:06 pm
Renovating is great, especially if you can get a good handyman or someone to do the work cheap.
2 Property Qwest Blog - Real Estate News and Housing Data (1 comments.) // Nov 6, 2008 at 1:58 pm
Hi Ned,
Nice post. Real estate investing definitely takes work and constant fine-tuning.
It’s always amazing to me the amount of people who don’t take a greater interest in investing when there are multiple strategies that are proven, time honored, winners.
Bad rental experiences and these type of down markets (granted this is worse than most) ultimately, in my opinion, instill fear and keep people away. Obviously a shame because most will never get to experience the many benefits (there already are and will continue to be amazing upside opportunities).
Nothing is easy but, with education, hard work, a willingness to make mistakes and an ego (or lack there of) that allows you to learn from your mistakes, real estate investing offers unbelievable avenues for the average American to generate true wealth.
Again, thank you for your thoughts.
3 Ned // Nov 6, 2008 at 2:59 pm
Susan and Property Quest, thanks for stopping by and commenting. PropertyQ, I stumbled your post on Housing predictions.
Ned
4 MLRebecca (1 comments.) // Nov 6, 2008 at 6:26 pm
Thanks for the advice! This is something I’ve been thinking about doing for some time now. A lot of blogs that center around real estate investing seem to suggest that it’s good to start investing in real estate while you’re young. Admittedly, I do not know a lot about real estate, so I really appreciate this post. Perhaps I will stop by a local REIA as you suggest.
5 Tony Sena (1 comments.) // Nov 7, 2008 at 1:37 pm
Buy and Hold is definitely the way to go in Las Vegas. Prices have dropped considerably creating awesome investment opportunities in the Las Vegas Valley.
6 Ned // Nov 7, 2008 at 8:53 pm
Rebecca, networking at a local REIA is a great way to learn and get started.
Tony, Thanks for stopping by. I have seen your name before. We must have commented on the same blog somewhere. Keep me in mind if you have any steals on large multifamily stuff.
7 Blog for Beginners (4 comments.) // Nov 8, 2008 at 11:54 am
I happen to own 2 real estates for both rental income and capital appreciation. Though the common approach here in my area is to flip it for profit.
Thanks for stopping by and leaving a comment on my site. So here’s my courtesy visit. I’m glad to know another great blogger. Keep in touch, Ned.
Yan
8 26th Carnival of Making REAL Money - December 10th, 2008 // Dec 7, 2008 at 11:56 am
[…] Carey presents How do I Make Money in Real Estate? posted at Baltimore Real Estate Investing Blog, saying, “Thank you for hosting the carnival. […]
9 Sire (53 comments.) // Dec 13, 2008 at 1:55 am
I’ve always had the intention to buy the worst house in the best neighborhood and to just hang onto it waiting for the value to go up whilst renting it out. The trouble is that all my spare cash was tied up in my business.
10 LMarjory // Jan 16, 2009 at 4:06 am
Great post and great information. To any one interested in investing..why not act on that interest? I understand the most likely answer to that question is because of “lack of funds” but there really is truth in saying that hard work goes a long way. If you are a beginner, well, really no matter what your background read Rick Vazquez’s book “The Real Estate Millionaire”. I could not have thought of a better way to explain all the strategies. It s written metaphorically and talks about a pizza delivery driver that sets out to find millionaires in his hometown, hoping to duplicate their actions and behaviors in an effort to create wealth in his own future. The subject revolves around creating financial stability with real estate investing… Great read for anyone interested.
11 Ned // Jan 29, 2009 at 3:30 pm
LMarjory,
I think you are talking about this book.
It sounds interesting and I will check it out. I noticed that there is also a complete investor start up package. People may find that is a good place to start. Amazon has it here
The Pizza Delivery Millionaire Investment Start Up Package
If anyone else has these I would be interested to know your comments about them.
Thanks for stopping by and commenting.
Ned
12 Marlene (1 comments.) // Apr 11, 2012 at 4:05 pm
I Ned. I stumbled on your blog while searching for “good areas to invest in Baltimore City.” I like the content. You offer a variety of information that’s easy to follow.
Keep In Touch,
Marlene