There are 4 types of real estate investors, what one are you?
No matter what type of real estate investment style you focus on you will fall into one of four categories. Generally the category you focus on first will depend on your end goal, current financial situation, and mind set. Let's take a closer look at each of the four areas so that you can determine where you want to begin.
This category is generally where investors begin if they have no money and bad credit. Another way to look at this strategy is wholesaling real estate or assigning the deal.
In this strategy you would find below market deals, get it under contract for as low as possible, figure out the after repair value, the renovation costs, and assign the deal to your list of potential buyers. The buyer is typically a flipper.
This is a great strategy to build your list of contacts, learn how to analyze deals, and make some great money with very little start up capital and no credit required. Depending on the potential profit in the deal you could assign it for $5,000, $10,000, or even more. The better the deal the more you make.
This is a great strategy for beginners. But the challenge is that you must continually work to find and market deals. There is no growth from appreciation or residual income. You only get paid once per transaction.
Ok, so you have probably seen several shows on T.V. that feature this strategy. Essentially you will find properties that are run down, poorly manage, or the seller has an urgent need to sell quickly for less than market value. For this strategy you will need access to a lot of cash and or know how to use creative financing strategies.
You will buy the property, renovate it, and once that is complete you will sell the property as fast as possible with as much profit as possible. I have personally flipped property for profits of $20,000 on the low end to well over $100,000 on the high end. But most of your deals will yield a profit of $20,000 to $40,000. ( If done properly) It's a great strategy if you know what you are doing and have a great team of contractors that can do the work properly, on time, and on budget. This strategy is for investors that have a bit more experience and a higher risk tolerance.
When done correctly you can earn good money quickly. But the challenge is that you have now sold your asset and in order to get paid again you must repeat the entire process. There is no long term wealth creation or residual income when retailing real estate.
Coaching tip: Here is the formula that I use to quickly determine if a property meets my buying criteria. First you must find out what the (A.R.V.) after repair value is. You can get your real estate agent to send you (comps) comparable properties that have sold in that area within the last 6 months. Once you know your A.R.V. you subtract 25%. This covers all your closing costs, carrying cost, and provides a reserve safety cushion. Next you subtract your renovation costs and that will provide you with your maximum purchase price or (M.A.O) maximum allowable offer.
A.R.V. - 25% - Renovation cost = M.A.O.
#3 Buy and hold
This is a great strategy for long term residual income and wealth creation. Most of the deals that I do fall into this category. With this strategy you will look for great properties in areas that have a strong economic future.( Refer to THIS BLOG POST for more details on how to determine if you are investing in an area with a solid future)
With this strategy I prefer multifamily properties. But it can also be used for single family properties, student rentals, vacation rentals, and commercials properties. The key here is buying a solid property that has both good cash flow and equity from the start or you know how to create both quickly.
After the acquisition I'd suggest you have professional property management in place to ensure that both your tenants and your real estate assets are properly serviced and well maintained.
To get an idea of property management services check out www.wamproperties.com
Coaching tip: My favorite strategy is a hybrid of flipping and buy and hold. It combines the best of both strategies. When done correctly you can refinance and get paid quickly while still keeping the property for long term wealth creation and residual income. This is one of my favorite strategies to teach my coaching clients as it delivers great results and allows you to scale quickly.
You become the bank! Yes, that's right; I bet you never considered being the bank. This strategy is generally reserve for experienced investors and high net worth individuals with cash to lend out secured against real estate.
The nice part of this strategy is that when you do it correctly it is very safe and requires very little of your time...
Do you have RRSP'S that are not earning very much or losing money? Did you know that you can lend your RRSP's to fund mortgages just like your bank does? I bet your bank has not shared this valuable information with you. My guess is that the reason they do not inform you of this strategy is because they want to earn all the money and interest secured against real estate.
Think about it. Banks make billions by lending money secured against real estate so why can't you? It's not hard. I currently lend out my RRSP's that earn me a nice consistent 10% return like clockwork. And it's all within my RRSP'S.
Coaching tip: Banks make this strategy seem difficult or impossible to do. It takes a bit of effort on your part to get it set up. But once it's set up and you know how to wisely lend money and become the bank it is a great strategy to build wealth.
The more real estate strategies you know the better investor you will become. Think of it this way if you only had one tool in your tool belt it would be difficult to renovate your home; however if you had all the tools required at your disposal and you know how to use those tools; renovating your home would be a lot easier.
The same applies with real estate investing and your education. The more you know the better off you are. Remember someone can take your materialistic items but they can never take your knowledge.
Coaching tip: Many believe "Knowledge is power". That is only part of the equation and if you buy into that theory you will continue to struggle and not understand why. The truth is "The correct knowledge implemented consistently is power". The magic is in the constant implementation of a worthy idea. Over time it begins to compound and you will surprise yourself with what can be accomplished. The challenge is that it is very slow in the beginning and in a society where everyone wants instant gratification many people give up. But not you. Never give up. Continue taking action and implement what you learn.
Until next time always remember
" The More You C.A.R.E. The Less You Work"
Your real estate-based wealth coach,
P.s Whenever you are ready here are a few ways I can help you earn more money, create more freedom, and scale your real estate business
1. Join the C.A.R.E. community and connect with other real estate investors that are taking massive action. It's our new Facebook community where smart real estate investors connect, learn, and grow! Grow your wealth, Freedom, Impact, & portfolio! CLICK HERE to join today.
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3. Work with me and my team privately. If you would like me to help you avoid costly mistakes and grow your real state business so that you can have the finances and time to fund your desired life let's chat. CLICK HERE to grab a complimentary strategy session. This way we can chat and get to know each other better. This is not a sales call I do NOT work with everyone. I want to see if we are a good fit and help you. If you decide you want to continue to work with me and you meet my criteria we can explore what that may look like. Because I am actively running my real estate businesses and value my free time I only work privately with a small select few every year. BOOK YOUR SESSION HERE.