There are two truths about real estate that every investor understands.
Real estate moves in cycles
Real estate rarely loses value
What does this mean for residential investors? Even during the worst of times for real estate, smart investors can find great deals and make a profit – the key is knowing how.
BRRRR – Buy, Renovate, Rent, Refinance, Repeat: This strategy helps residential real estate investors quickly acquire property and build cash flow with little money down. This is done by purchasing a property in which renovation will significantly increase the value of the property. Once the property is purchased and renovated, the investor rents out the property in order to earn profits and build up equity. Then, the investor refinances the property and uses the money recouped from the initial investment to buy another property.
Fix and Flip: This strategy helps residential investors increase their cash-on-hand, allowing them to invest in more or larger properties. Like the BRRR strategy, the investor purchases a home that needs renovation. However, instead of renting and holding the property, with the fix and flip strategy, the investor sells the property for a profit – the difference between the purchase price with renovations and the new value of the home.
Partnerships: This strategy relies on the differing strengths of partner investors. In this way, no one investor needs to have all the pieces to the puzzle. Partners can bring the following to the table: available cash, renovation experience, landlord experience, financial connections, property management experience, and more.
Wholesaling: This strategy is one in which the investor acts as a middleman for the purchase of property without ever owning the property. In this strategy, the wholesaler creates a contract with a seller for one price and finds someone to buy that contract at a higher price, keeping the difference as a profit. With this strategy, the investor never owns the property, does no renovations, and carries no associated costs.
Lease Options: In this strategy, the investor takes advantage of buying and holding but also have a predetermined exit strategy. With a lease option, an investor purchases a property, rents it out, and gives the renter the option to purchase the property at a specified time. When the lease option expires, the renter can either purchase the property or the investor can sell it to someone else.
Wholesale Lease Options: This strategy combines wholesaling and lease options. Here, the investor finds a renter for a lease option deal and flips that agreement to a buyer of the property. Like wholesaling, the investor never takes possession of the property and makes money via finder’s fees.
Some people jump in feet first, buy a property, and begin renovations, figuring they’ll learn as they go. The problem with this method is that your learning process will often cost you a lot of money as you lose potential. Easily made mistakes that turn a good deal into a losing deal plague new investors who don’t have enough knowledge or experience.
This is a great way to start to understand real estate investing. You can get some great tips from those who have been there and done that. Once you’ve read a book, you can then buy your first property and see how it goes. The problem with this method is that although you will have a good beginner’s understanding, a book can only go so far. You are still likely to encounter things the book never mentioned and find yourself knee-deep in problems that cost you profits.
This is the best method for learning how to flip homes because hands-on learning gets you involved in the process with someone who knows what he or she is doing. If you have the chance to learn about home flipping in this manner, you are much more likely to see good returns on your investment.
As a new real estate investor, you may wonder where to start. Should you be looking at neighborhoods? Should you be finding funding? Should you be learning about renovations? The answer is that although you need to start focusing on all of these things, the best way to do that is to surround yourself with the right people who have the answers to your questions.
