Historically, real estate has been the biggest producer of millionaires throughout the world. However, people have also been known to crash and burn in this venture. So what are some strategies to get the better end of this deal? The secret lies in figuring out your strategy before you step into the real estate frenzy.
You have to fully understand why you want to get into real estate. Make your goal SMART (Specific, Measurable, Attainable, Relevant, and Time-bound). Having a generic plan won’t give you clear action steps. Be realistic about your startup money and fall back options. We’ll look at time, skills, risk factors, and finance with respect to overall goals to have a clear understanding of various strategies.
Goal: Beginner with a lot of time, focus on skill-building, and starter finances with low risk.
Strategy: Rental Property
Investing in a property that you can rent out partly or wholly is a great first step. You can learn to manage tenants and probably live in the house yourself. This strategy is a great way to have a steady income and gives time to understand the intricacies of managing a building and build relationships with contractors, plumbers, and the like. You can hold on to the property for a few years and resell or refinance it to redeem your startup amount.
Goal: Run a real estate business full time, possess skills, and just enough finance with low-medium risk.
Strategy: Fix -n- flip
This strategy has always been a formula for short term success. One could invest in a fixer-upper, get the repairs done in a few months, and sell the place with the appreciation value included. It works especially well for markets that are booming and are projected to see a growth trajectory. The key to this strategy is if you are handy with DIY projects or have a great relationship with contractors and laborers.
Being the middle man has never been so rewarding. In this strategy, you would scout the property and find the best buyers for it. Putting your sales skills into it can help you earn without investing a lot of money into it.
Goal: Building wealth skillfully with fallback finances and long term perspectives with low-medium risk.
Strategy: Buy and hold
This strategy is used to drive up appreciation value and get the best out of income tax rebates, amortization charges, and rake in steady rental income. Buying property and holding it can be short term (up to five years) or long term (more than five years). This strategy is usually applied to properties that have the best prospects and are hassle-free.
Strategy: Rental debt snowball plan
This plan popularized by financial author Dave Ramsey theorizes that the best way to be debt-free is to pay the minimum on all your loans except the smallest one. This way you will “snowball” your payments and knock each debt down instead of paying the minimum and incurring charges repeatedly. Your rental income can be used to supplement this Snowball payment. Another option would be to go into the deal with full cash and be debt-free.
Goal: Become a financier. Immense skill, strong finances, time investment to research legalities with huge risk.
Strategy: Hard Money Lending
Lending money at interest rates to real estate investors and securing the loan with collateral is the modus operandi of this strategy. It does come with a lot of risks but is a very lucrative option if done wisely. The legal implications have to be researched, and accordingly, contracts will be drawn up.
Goal: Less hassle more research, starter finances with medium-high risk
Strategy: Real Estate Investing Trusts (REITs)
Much like investing in mutual funds, this allows the individual to buy shares in real estate without having to own and manage the property. However, due to the evolution of technology, this strategy is susceptible to fraud and lack of transparency.
Real estate consortiums or syndicates come together with different members who pitch in to invest in the property. The profits are divided on a pro-rata basis. With a firm agreement, there is a reasonable amount of success that can be seen in this venture.
These strategies give the highest chance of success in the field of real estate. Risks associated with real estate like unprecedented pandemics and natural disasters are always going to be apparent.
If you think a rental income with a fixer-upper is a good starting point, consult an expert at Relotz. A guiding hand complements experience, and when it comes to real estate, knowledge goes a long way before regret.