What Investment Strategy Is Best For You?
By Paul Esajian on July 4, 2018
One of the great things about investing in real estate are the various ways of doing it. Although quick flips and rehabs are currently in vogue, they are far from the only way to make money in real estate. Without getting too detailed there are at least a half dozen ways of investing that can work for you. Some will be better than others, but there are options outside of flipping that can be effective. If you keep an open mind to what is out there you will eventually find your niche and run with it. Contrary to what you may here, there is no right and wrong way to invest your hard-earned money. It is ok not to swing for the fences on every deal and look for alternative ways to be involved in the business. Here are six types of investing strategies that you should consider.
- Rehabs and flips. There is no question that flips and rehabs are currently the most popular form of real estate investing. There are dozens of TV shows, blogs, YouTube channels and book dedicated to this niche. It seems like every night you can find a new house flipping show. With increased popularity there is also increased competition. More rehabbers are entering the market than ever before. You can still find deals, but you will have to fight five other investors for them. If you are successful you still need to navigate the process of the rehab and ultimately get the property sold. Rehabbing affords you the possibility to hit it out of the park, but there are risks associated and the process certainly isn’t easy.
- Rentals. There is perhaps no greater long-term investing vehicle than a buy and hold rental property. Some of the wealthiest people in the world have make their riches through buy and hold rentals. They use the residual cash flow to fund other projects and wait on appreciation to sell if the market shifts. On a smaller scale you can one an individual single-family rental and build your way up to larger commercial buildings and apartment projects. Like any other area of the business there are times when renting is difficult but in the long run it can be a great way to generate income and long-term revenue.
- Wholesale. Wholesaling can be something you do to earn on the deals that aren’t a good fit for you or a way to build a reliable book of business. A wholesale deal is one where you get the seller to agree to a price and pass the deal off to someone in your network. They assume the deal and you step out of the way. In most cases, you earn as soon as the contract is assigned, regardless of what happens the rest of the transaction. For some, this is a great way to get in and out of deals with little to no overhead. On the flip side, you may pass up a lion share of the profits. There are more wholesalers today than ever before and many make it their primary focus in real estate.
- Tax lien. If you are persistent enough you can truly make any niche of the business a success. Over the past decade one of the fastest growing niches is with tax lien investing. As the name indicates you simply pursue properties that have outstanding tax liens. When a homeowner is delinquent on their taxes the town or city will place a tax lien on the property in the attempt to receive payment. Since tax liens are in first lien position, eventually the town will take ownership of the property and conduct an auction. There are a few nuanced rules and guidelines, but tax liens are a guaranteed way to earn money. If the homeowner finds the money to pay the lien after the auction you earn a guaranteed return from the government. If they don’t come forward and contest you take ownership of the property. In the right market tax liens can be an ideal niche to explore.
- Commercial. Owning rental property isn’t limited to single family or duplex properties. There are many investors who make their income through large commercial properties. By definition a commercial property is any property over four units, including mixed use businesses. While they may seem more difficult to maintain because of the extra units, they aren’t as intimidating as they may appear. Having multiple units on the same physical location has several built-in advantages. Additionally, there are more rents coming in, so you are less dependent on one tenant or cashflow. With commercial properties the lending guidelines are more stringent, but the upside is higher as well.
- Land. Another, less popular, niche to explore is raw land. Land can be difficult to finance, but there is typically less competition. With raw land there are several hoops to jump and legalities to deal with, but it can be worth your time and effort. Once you take ownership, you can build whatever your budget allows. If the parcel is right, you may even be able to build multiple properties.
Never get pigeonholed into a specific type of investing. You should also have your primary income source, but don’t be afraid to investigate other options. You never know when you will find a niche you fall in love with.