Real estate investing doesn’t come with a map, and the road to riches is often winding. There are things you can do to put yourself on the right path and ensure your best chances for success. Your Investor type reveals how you can advance your investment strategy to the next level. There are different distinct types of investors which are:
- REIT INVESTORS.
Investing in a real estate investment trust (REIT) is the most passive form of real estate investing available. With this method, you'll invest similarly to the way you'd invest in the stock market. Here, you'll buy shares of a real estate investment company and receive dividends when the company pays out its profits.
- BUY-AND-HOLD INVESTORS.
Buy-and-hold investing is the classic example of real estate investing, where you buy up an investment property and rent it out for consistent monthly income. Overall, this is a relatively active form of real estate investing. You do have to do the groundwork of marketing for a tenant, vetting all the potential applicants, and being on call to handle maintenance issues.
- WHOLESALING.
On the other hand, real estate wholesalers will act as a middleman between a property owner and an end buyer. Here, the investment strategy is to find an underpriced real estate deal. Then, to quickly sell it for a higher price to an interested buyer without rehabbing it first. In this scenario, you get to keep the difference between the price you paid for the property and the price you sold it for as a profit.
- FIX-AND-FLIP INVESTORS.
In this scenario, the investor will do their best to find a real estate deal that's undervalued for the market. Then, they'll fix it up and market it for resale at a much higher price. Once the buyer is found, the investor gets to keep the difference between the initial investment and the final sale price as profit.
The simplest definition of a real estate investor is someone who buys, and usually renovates, property to sell or keep as a rental for the purpose of building wealth. For those of us who come from the corporate world, we tend not to think of our jobs as opportunities to build wealth since we typically have little control over what we do and how much money we make doing it. In fact, for many of us, work is something we must do just to get by. But it’s when we start to wonder what else is out there and discover the benefits of investing in real estate, like being in control of your day-to-day and having an unlimited income potential, that the light bulb finally goes on. And, once that happens, it’s hard to turn off.
Unfortunately, the day-to-day work of being a real estate investor is not always as easy as the job description makes it sound—especially when you’re just starting out and don’t have the training or support you need to get off the ground. So, before you jump right in, here’s a closer look at the specifics of what you’ll be jumping into:
(A) You will have to source leads: The foundation of becoming a real estate investor who can successfully make a good living is built on your ability to source great leads. And, since the single deal that yields career-making returns is only the stuff of television, you’ll need to find motivated sellers on an ongoing basis. There are several ways to do this, from buying lead lists to attending foreclosure auctions. But the leads with the highest rates of conversion are those that come to you. For that, you’ll also need an effective set of marketing tools designed to reach homeowners in financial distress or other “ugly situations” who are ready to sell.
(B) You will have to run numbers: To ensure there is a good probability of realizing decent returns on any potential investments, you’ll have to run the numbers so that you’ll know what to offer the homeowner. Otherwise, you risk paying too much for a property that yields nothing and regret. And only a professional real estate investment analysis and valuation tool that accurately calculates rehabilitation costs and helps you determine the After-Repair Value (ARV) of a home or multi-family property can help make this part of the job easier. Should you skip this step, or estimate incorrectly, you could end up with a money pit—and, out of a job.
(C) You will have to close deals: In order to make money by investing in real estate, you’re going to have to spend money on buying properties. So, after you run the numbers and feel confident that they make sense, it’ll be time to make an offer and then, make good on that offer. To fund your purchase, you may have to get a hard money loan since banks and other traditional lenders rarely loan on the kind of fixer-uppers that investors buy. And, it’ll be critical to have a lender in place and ready to move since, to be competitive, you generally need to close fast on the deal.
(D) You will have to add value and perform repairs: Even if you buy the property at well below its market value, to get the most bang for your buck it’s important to add value as well as perform repairs. And this holds true whether your exit strategy is to resell your investment property as quickly as possible or keep it as a rental. Properties do typically appreciate over a long enough timeline. But, if you go above and beyond the basics and perform a kitchen renovation on your investment property, for example, it’s possible to increase the value of the home more quickly. That can add up to potentially higher market rents and a higher selling price, provided you stay within budget and renovate according to your target market.
(E) You will have to rent or sell your property: After renovations are complete, you’ll have to invest some time in marketing your property. If you decide to hold your property as a rental, you’ll need to find tenants. But, if you’re trying to make money by flipping houses, you’ll have to find buyers. Either way, it’s not a bad idea to hire other experts, like a property manager to handle the rental or a licensed real estate agent to assist with the sale. Otherwise, you may find you’re overwhelmed with everything that has to be done—including the work you must do to line up your next investment.
