Investing in real estate is more
complex than simply buying and selling homes. To help
new real estate investors to decide which strategy might
work for them I put together 5 rock-solid strategies. It
is up to you which strategy you feel more comfortable
with.1. Buy and Hold
This real estate investment
strategy is commonly known as rental properties.
Becoming a landlord is easier than you think. You buy a
property, you advertise it as “for rent” and you sign a
contract with your new tenant. That’s where the love
story ends. You need to know a lot about your duties and
your rights as a landlord or you will find yourself in
trouble.
Screening your prospect tenants
is your first line of defense. Protecting your property
from damage is your first duty. I might paint a little
bit dark picture of being a landlord. But dealing with
tenants can be the most frustrating job you ever had. Do
yourself a favor and visit a bookstore or library and
get as many books on landlording as you can get. Armed
with this knowledge you will be able to create a
positive cash flow and a long term relationship with
your tenants every time you put the “For Rent” sign in
the yard.
With the buy and hold strategy
you basically have 3 income streams going at once.
Amortization; while paying your
mortgage you also lower the amount you owe.
Appreciation; while owning the
property it increases in value.
Tax incentive; as a landlord
you will be able to deduct your investment cost over
several years. (See you tax advisor for professional
advice).
Based on this information you
can easily see that even if the rent doesn’t cover 100 %
of your mortgage payment you will still be able to
create a positive cash flow.
2. Flipping
This is the art of “buying” and
“selling” real estate investment without actually taking
ownership. In a flip situation real estate contracts get
assigned and the person who assigns the contract to
someone else typically gets a commission for their
services. That’s how you can make money with real estate
without credit checks or no money down. Because you
never take possession of the property, you don’t need to
apply for a mortgage.
You only need 2 things to be
able to flip a home. First, you need to find an
attractive property that will sell very quickly. Second,
you need to find a buyer within a very short period of
time. Typically 2-3 weeks. Then you simply flip the
contract to the new buyer and you will collect your
commission at a so called “double closing”.
This sounds complicated at
first, but with a little bit practice you will be able
to create a nice income from this. By the way, this is
the preferred concept of most real estate “gurus” who
appear in late night infomercials.
3. Rehabs
Rehabs are the most risky form
of real estate investments. You hunt for a cheap,
run-down property and you hope that your preliminary
remodel cost estimates will leave enough room for a nice
profit. Well that’s the theory. Most real estate
investors are failing with this type of strategy.
You either didn’t get the
property cheap enough to make a profit or the damages
are more extensive than estimated which will offset the
cheap purchase price. To make matters worst. If during
the rehab phase of typically 3-4 months the market is
going south all bets are off. Trust me, I made my share
of experiences with this and I told myself, never again.
4. Commercial Real Estate
Investment
What comes to your mind first
when you think of commercial real estate investment? Big
factory complexes, shopping malls or maybe huge office
buildings. Well, my answer is much simpler. Anything
bigger than a 4 unit apartment building, some call it
fourplex, is considered commercial. The great thing with
commercial real estate is that the value of the property
is determined by the rent income it generates and not by
how crazy people are going with bidding on residential
real estate.
Theoretically there’s no such
thing as sellers or buyers market for commercial real
estate. I wrote a complete article about the pros and
cons of commercial real estate. So I keep this brief.
Personally I love commercial real estate. Of course,
commercial real estate is more or less off limits for
beginners, because commercial real estate lenders want
to see some form of prior experience in real estate
investments. However, if you got some experience, go for
it. As an added benefit; the competition is far less.
5. New Construction
This is the most affordable and
easiest way of real estate investment. Getting into the
earliest phase possible of a new development is a sure
thing to make money. Keep an eye on the market and you
will be able to sell your new home before construction
is finished. The construction companies don’t like this,
so they limit the number of homes an individual can buy.
Even so, keep one or two homes constantly under
construction and you will make some nice profits. Of
course this works only in a sellers market. Stay away
from this strategy in a buyers market or when you see
big changes in the local real estate market.
Sincerely,
Peter Dobler
(c) 2005
Peter Dobler is a 20+ year
veteran in the IT business. He is an active Real Estate
Investor and a successful Internet business owner. Learn
more about real estate investments at
http://www.suncoastrenttoown.com
or send a blank email to
mailto:suncoastrenttoown@getresponse.com
