In case you missed Part 1 of creative real estate investing, here is the link.
In case you missed Part 2 of creative real estate investing, here is the link.
These last strategies of creative real estate investing include flipping and the buy and hold strategy. They are considered more advanced in my book, just because they usually require a little bit of skin in the game to make them work. With that being said, if you’re going to play with the big boys, the rewards can be huge. In high cost areas, it’s not unheard of to make profits of $100,000 in short amounts of time flipping properties. Rental profits can also exceed a $2000 per month in profit per month and a big windfall if you sell the property. Here’s the last of the strategies:
Flipping–I’m sure you’ve seen the shows on TV where investors will go in and buy a distressed property, fix it up, and sell the property for a profit. Why do they do this? Because it works. Flipping is essentially buying a property at a discount, making improvements to the property, and eventually selling the property for an increased profit. It’s usually done as quickly as possible so as to minimize the holding costs associated with the property. If you have cash to buy a property outright, or if you can qualify for a mortgage after a substantial down payment, or if you can partner with someone who has cash, then you can be a house flipper. Profits are made in this when one buys the property. The lower price you can pay for the property, the better off you’re going to be.
These properties can be pre-foreclosures, foreclosures, probates, distressed properties, motivated sellers, or just about anything you can find a good deal on. Once the property is purchased, repairs or improvements have to be made in timely matter. There are holding costs like mortgage payments, taxes, and insurance, that will cut into your profits if you take too long to repair the property.
When the property is repaired, it is resold at a higher price. Sometimes it is listed with a Realtor who may discount their fees because you give them volume, or perhaps you sell it by owner. Either way, the goal is to make as much money as possible.
Buy and Hold—Often times, this is the strategy that many people think about when they think of real estate investing. It is often associated with sophisticated investors because it produces passive income. The only problem with the buy and hold is the money you have invested is often large.
Buying a property is always the most important part because again, just like the other methods, this is where you make your money. It’s no different when you are purchasing a rental. Your goal is to get the best price you can. Think objectively and don’t get emotional about making offers to get a good deal. Let the numbers tell the story, not the look of the property.
Once you are able to purchase the rental property, you’ll want to make income every month. If you’ve paid all cash, that shouldn’t be a problem. But if you’ve got a mortgage, make sure the rent coming in more than covers the monthly debt service (mortgage payment, taxes, insurance, maintenance, etc.). If it doesn’t then you didn’t do a very good job running the numbers to make sure the property would work for you before you bought it. Always, always, always buy and hold a property for positive cash flow.
Eventually, you can refinance the property and make more purchases, or you can sell the property for a large windfall. Profits in this type of investment are usually realized monthly with your cashflow as passive income. Imagine if you could put together a whole string of buy and hold properties, all generating income, while you do whatever it is that you do? That’s the lure of the buy and hold strategy.
And that’s it! The strategies that I’ve gone through in this three part series can be used on all different types of properties whether you’re talking about single family residences like condos, or if you’re talking about multi-unit apartment buildings. The best advice that I could give to you is do research, get a mentor or someone that knows what their doing, and take action. Most people sit on sidelines and get analysis paralysis. Don’t be afraid to get out there and take a little risk.
If you need any help with financing a real estate deal the traditional way (with a mortgage) in California, please reach out to me. I hope you’ve enjoyed my 3 part series.