Behind that commitment is, as described by insiders, a team of diverse minds, hearts and talents driven by passion for real estate and trust of multiple clients.
What is the best way to make money investing in real estate? Ideally they would be need to be deals that are less than $75k. Should I buy foreclosures or get a loan from the bank? Do I flip the property, or buy it and rent it out?
Note: I am not clear on the background (time commitments, risk tolerance etc.) of the OP. Hence, I will provide a generic answer. Here it goes:
There is no “best way” to make money in Real Estate. Here’s a simple analogy to help you understand.
What you are asking is like walking into a Chinese buffet for lunch and asking “Which item in the buffet will fill you up?” Answer: Everything will fill you up.
It depends on your preferences, and whether you are vegetarian, whether you are allergic, how full you already are, and so on.
In real estate, everything makes you money. Also everything makes you losses.
Here’s the secret to making money in real estate.
Learn one or two strategies and get good at them. Get really good at them.
And you will make money.
Typically, these are the 4 constraints that will impact your ability to decide on a strategy.
1. Knowledge – The how tos and the art of investing. Includes underwriting, analysis, negotiation, finding deals and so on. It’s about knowing what deals to NOT do, that will impact your ability to make money in the long run. E.g. when flipping, you need to buy a property max at 70-75% of its After Repair Value (ARV). Else, you will likely break even or not make any money.
2. Capital – How much capital you have access to. You will approach real estate differently if you have $1 million cash versus $10,000 cash in your bank account.
3. Time – How much time you can allocate to investing will determine the type of deals you can find and do. With time on your hands, you can find your own deals and maximize your returns. If you have a family and busy with life, find realtors or wholesalers, give them your investing criteria, and they will find deals for you to invest in. However, there is an expense associated with using middle men. Your returns will be lower.
4. Risk tolerance – Short term risk, long term risk, do you need to make money tomorrow or are you ok with waiting 10 years?
Finally, here’s the pros and cons of a number of investing methods from my experience. I have written these in increasing order of capital (money) required since capital is the biggest constraints for most new investors.
1. Wholesaling: You are finding an undervalued deal. E.g. you find a $100k property and negotiate with seller and get it under contract for $80k. Before the deal closes, you sell the contract to another investor for $85k, and pocket $5k at closing. You do not get to own properties. You need to be a hustler.
Knowledge required: High
Capital: Low ($3-5k only)
Time Commitment: High
Risk: Very low
Pros- Gets your feet wet in Real Estate. And make risk free money
Cons- Not a consistent source of income, you don’t get to build long term wealth, not passive income.
2. Creative investing: Doing funky things with real estate finance. Such as buying on terms, vendor take backs, mortgage wraps, rent to own and so on. This is one of the most lucrative ways to invest in Real estate. You become owner of properties with little money down. And you build long term wealth.
Knowledge required: Very High
Time commitment: High
Risk: depends on how the deal is being structured / financed
3. Flipping – You buy run down properties, and flip them for a profit. You make large chunks of cash when you are able to fix up and sell property. I don’t have a construction background so I always partner with contractor buddies for these deals.
Knowledge required: Low-medium (one excel sheet is all you need with some rules of thumb. Look at the flipping calculator on bigger pockets.
Time commitment: Med
4. Buy and hold: You buy rental property and hold on to it. What I have heard from realtor friends is that the wealthiest people they know are buy and hold investors. You are leveraging the banks money and making money on appreciation in the long term. Prep for a 15-20 year hold. You can always refinance and cash out periodically. However, you have to be OK with vacancy periods, tenant headaches and market downturns.
Always strive to buy cash flowing offmarket properties. These will typically not be on MLS. (Sorry for the realtors who might disagree – but I am YET to buy a property on MLS which has made me money)
Knowledge required: Low-Med
Time commitment: Low
Risk: Short term risks are high. Over the long term, the risks are low
5. Foreclosures – Quite lucrative in the US. Not so much in Canada. Key is to find the foreclosures in excellent areas of town. Low crimes, good schools etc.
Knowledge required: Low-Med
Time commitment: Med
Risk: Short term risks are high. Over the long term, the risks are low.
Disclaimer: Some of the creative techniques may or may not be possible depending on the laws in your state or country.