FINALLY… The name of the sailboat I just spent a week aboard in the Virgin Islands. It takes teamwork and a smart captain to handle the ocean and its temperament. There were “rollers” (high waves) and definitely a sense of being off balance as the boat rocked to the side and I held on tight. Experience, a willingness to learn every day and a childlike wonder made it a safe and fun voyage. I did have to take out the acupressure sea sick bracelets and managed to safely navigate getting in and out of the dinghy on all the shore trips.
Sailing is not much different than real estate investing. If it was easy, then everyone would be doing it, or finding the quickest way to make money to live the life of their dreams.
To make good money in real estate you need some expertise. And it is even easier if you also have some capital, although I know many people who have made it on a shoestring, myself included. Let’s face it, this is a business which can be done on the side, part-time, or as a full time career.
The 3 Best Strategies for making money in Real Estate Investing are:
1. Buy A Property – Fix it up to add value – Sell at a profit
This strategy works if you can find a great deal, maybe a distressed property. Although in today’s market inventory across the US is low, particularly in starter homes. Also, multiple offers are extremely common, even on properties that need repair.
So, it can be a challenge to find a great deal. You need an experienced Realtor who understands rehab to help you calculate the numbers. In addition, you need the Realtor’s experience in figuring out the ARV – After Repair Value.
If you are buying a rehab property, the cost of repairs and labor are not the only cost. In addition you must budget for holding costs which include closing costs, utility costs, the cost of funds (be it bank or private money), and the cost of taxes while you are working on the project. This is in addition to the actual labor and materials. In addition, a biggest mistake I often see is the investor fails to build in his/her profit.
Most first time flippers go over budget and time to get the rehab job done. So, before you do the deal, be sure you add in all the costs, allow for overruns and plan for profits. If there is still money left after all these costs, then do the deal.
2. Buy A Property – Fix it up – Hold the property as a rental
This strategy is similar to the one above because it has all the risks of investing in a rehab. The good news is there is another option on the back side. Keep the property and rent it out.
Now, this approach has challenges too. The big one is property management. I have seen many tender-hearted people become landlords and fail at property management. It can tough to be nice and also get the rent payment. Remember, this is a business and must be operated as one. Rent is due on the first of the month, no exceptions.
It is very important to know how to figure out the cash flow analysis on a property. This is a formula that any investor should be familiar with. It comprises the rental income minus the expenses. Don’t forget to include vacancy factor and maintenance expense, along with taxes and insurance, and of course a property management fee (the standard is about 10%).
3. Buy Turnkey Rentals – Already a tenant – Existing cash flow
By far, the easiest and quickest method to a cash return on investment is the turnkey strategy. Turnkey rentals are about the only way to do hands-off real estate investing, which doesn’t require your time or skills.
Be careful to make sure that the company you work with on turnkeys is reliable, has experience, and most importantly is managing the property in-house. They should have a track record of successfully supplying turnkey properties to investors.
No matter which of these strategies you choose, there is work and are lots of details to manage that help ensure you are handling the business of real estate investing for the greatest return. Some of the details are protecting your investment with the right insurance, inspections, financing, title companies, closings, screening and picking the right tenants, move ins, managing rent collection from those tenants, and finding an attorney and tax accountant to handle your investing.
Real estate investing can be overwhelming. Make sure you are working with professionals to guide you through the process so your investing becomes a passive activity.