Aside from finding your purpose having a Target is the first step to becoming a real estate investor. Since we are an action oriented organization we don’t spend much time on the “Why”, we spend our time on the “How To”. To get the the “How To” we have to know where we’re going. This article will focus on the Big 3 types of real estate investing; Wholesaling, Fixing & Flipping & Landlording.
Let’s start where most new investors do – Wholesaling. So let’s define wholesaling. There are 2 different schools out there on the definition of wholesaling;
1. Assigning a contract
2. Buying & reselling with little or no work
When just getting started most people don’t have millions of dollars of there own, a crowd of private lenders to back them or tons of construction experience. This is why most new investors set out to wholesale. Assigning a contract is the lowest cost and least involved way to make money as an investor. Here’s how it works; you find a good deal on a house, the seller signs a purchase agreement allowing you to sell that contract to an investor with the cash or credit to actually close on the property, the investor buys the contract from you and everyone is happy. Seems easy right? It is really that easy! You just need this list of thing below all orchestrated in perfect timing;
- Seller willing to sell cheap
- Purchase agreement
- Buyer willing to buy the contract at a higher price than you locked it in for
To be a successful (Contract Assignment) wholesaler you need a steady flow of motivated sellers, a list of investor cash buyers, and a little training on how to do a paperwork. Becoming an active member of the REIA of Macomb will help you find all of these pieces to the puzzle.
Next is the “Buy & Sell” wholesaler. This version is a little tougher but typically offers much higher profits. This type of wholesaling requires you to actually purchase the property from the seller. Then you either clean it up a bit and start showing it to your buyers list or don’t even touch it and send it out. At the same time you should be advertising it many different way to the public including; bandit signs, yard signs, social media, Craigslist, newspapers, fliers, REIA Clubs…and the list should never end.
When you actually buy the property it’s easier to make a profit because your new buyers don’t typically know how much you’re making and it’s psychologically easier for them to know you’re profiting. When your just assigning a contract they know the exact amount you’re making and some people have a problem with that, even though their buy number should be their buy number. Keeping them in the dark always makes for an easier sale & higher profits.
Now on to Buy, Fix & Flip. This style of investing can reap you your highest profit amount but it will take the most time for you to accomplish. Typically a medium to large rehab will take 6-12 weeks for an experienced investor and that number can double or even triple for an inexperienced one! This form of investing requires you to have much more capital at risk as you are not only buying the property like above, now you’re adding 30, 50 and sometimes 75k more to the deal. Some investors even tear down old and rebuild new which can grow to upwards of over $1,000,000 in certain Metro Detroit neighborhoods. The long and short of this type of investing is you’ll be adding value to the home therefore selling it at the top of the market for the area leaving whatever’s left in the middle for your profit. Here’s a short list of what you’ll need to help you succeed;
- Construction experience
- Enough cash for a 6 month project
- Intimate knowledge of the area’s style & finish requirements
- Real estate agent to sell once you’re complete
I’ll end this portion on availability. IF you are going to buy, fix & flip there will be a big time commitment on your part if you ant to have success. No more sitting around after work watching Dancing With The Stars or the Lions every Sunday. There are a lot of moving parts and you’re the captain of the ship so you’ll need to be there to keep it on course.
Lastly is Landlording which could also be classified as Rentals. This is another type of real estate investing that can make you a millionaire over time. To break it down simply is you buy a house with cash or credit (you want the lowest interest rate possible to help you achieve a better cash flow), you fix it up to rental housing standards both cosmetically and mechanically, lease it to an tenant, and 30 years later the house is paid off and your tenant(s) did it for you. Again there are many different pieces that I’m leaving out as this article could go on for days. The best tips I can give you are to make sure your’e not over leveraged, your rentals are in decent areas to attract good tenants, you treat your rentals as a business by staying on top of maintenance & the tenants, & if you’re not a good manager of people hire a property manager. I know investors who’ve decided to go the property manager route and they have a lot less headaches but what’s most impressive is the property managers almost always get higher rental rates than we can achieve on our own as landlords.
Going back to “Getting Started”, after speaking directly with thousands of real estate investors I always ask the successful veterans “if they could go back in time and give themselves one piece of advice what would it be”? The number 1 answer undoubtedly is to have a strong network around them and to develop their Power Team. Investing in real estate is a huge undertaking because there are so many moving parts. It would be like building a car one pice at a time. Can it be done? Of course. Would that person be able to churn out hundreds of thousands of vehicles per year? No way, it takes a team. Get involved in the REIA of Macomb and start building your investing business.