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:
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.
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