When it comes to real estate investing, I hear a lot of opinions about what works (and what works the best). Some make a lot of sense, and some make very little. Some sound like they make a lot of sense, but really make very little sense. Due to Barbara encouraging me last night (thank you!), I will share some quick opinions (keep in mind, I am doing this very quickly before going away for some weekend R&R with my family (if it is with the family, is it still R&R? - LOL), so it is not meant to cover every aspect of any one type of real estate investing, but just to give you all a little food for thought (means it is only what pops into my head, and not necessarily well thought out, so be forgiving). Wholesaling property is a great way to get started in this business. You can learn how to find deals, determine what constitutes good deals, tie deals up with a contract, and usually you assign your interest in them to investors with the cash and/or rehab experience that you don't have, yet. If you wholesale deals to the right people, they would probably be willing to spend a little time teaching you some of the ins and outs, do's and don'ts, in the process, thus speeding up your learning curve. You can make money fast, with little or no money at risk (wholesaling is hands down the fastest way to a payday). You can also find out right away whether or not you have the ability, and the consistent persistency, to be able to find serious bargains in real estate. Many of you already know, finding serious bargains in real estate can be easier said than done. In regards to wholesaling, I happen to know someone who is buying a serious bargain every month or two in and around Lakeland, Florida, so if you find great deals in Lakeland I can tell you who to call!!! Second, flipping. I am flipping a house every month or two in and around Lakeland, Florida (coincidence? LOL) right now, and attempting to quickly accumulate serious cash that way. A few things to be aware of with flipping: seasoning is required by many lenders when you try to sell (I am finding many that want 90 days in the current market; I have heard that some lenders want a lot longer than that), be careful not to get yourself personally tagged with IRS dealer status, give yourself a big cushion on your cost of estimated repairs (I still do that and I have been doing this business for almost 10 years), be prepared for a likely big hit at tax time... However, the main issue I see with flipping is this... Most flippers are not truly investing, but are working a JOB flipping houses. They flip a house, live off the proceeds, flip another house, live off the proceeds, and never accumulate any wealth. In order to eat, these people have to keep flipping houses. That is a job, and not an investment, although it may be a job you like better than many other jobs). When you flip houses, you need to be accumulating a war chest of cash, and not be living Just Over Broke (my personal opinion)! Third, long term investing (rental property). I made the bulk of my personal wealth holding a lot of real estate over the past ten years, while the market was rocketing higher. The catches: most people underestimate how much of their cashflow needs to be designated for vacancies and repairs. Many people with positive cashflow spend it as they make it, then when a major repair is needed or a vacancy occurs, and they don't have anything saved for it, they claim rental property doesn't work and tell how it will make you broke (even experienced investors allow this to happen sometimes; ask me how I know this!). The upside is rental property, done correctly, has multiple profit centers: positive cashflow, paydown of mortgage (tenants buy you houses), tax advantages, and appreciation over the long run. Keep in mind, rentals are great, but you must have patience, and the mindset to put up with occasional babysitting (if you manage them yourself). They are generally a great way to build wealth for the long term (history proves this, as it is the way many, many people have accumulated great wealth). Consider which method of real estate investing will best help you achieve your personal goals... What is your return on your money in any given activity? As an example, I have some properties that I own free and clear, and people tell me how great that is. Wrong! They provide great cashflow, but I recognize that my return on investment this way usually sucks. As an example, one of my free and clear rentals is a $70K rental property. It rents for $650/month. Taxes and insurance suck up $200/month. Of the remaining $450, about $150/month covers vacancy and repairs (averaged over the long term). My average cashflow over time is $300/month, or $3600/year. On $70K, that is barely over a 5% cash on cash return on my money (obviously that doesn't factor in appreciation, tax benefits, etc.). If I can leverage a property like that, by getting a mortgage, and still have positive cashflow, I might do quite a bit better. However, if I invested that same $70K in flipping, I could buy one cheap house, fix it up, and sell it for a $20K profit. If that takes me 4-6 months, I might do it 2-3 times in one year. If I keep those profits growing and working for me, have I sky-rocketed my returns compared to rentals? Absolutely (if I am not living off of that money)! That begs the question, why would I ever keep property long term? Well, flipping only works when I bust my butt hunting deals, buying, fixing, and selling. Most of my long term keepers require little of my time and attention from day to day. Furthermore, my long term keepers, done correctly, keep chugging along making me money day in and day out, whether I find a good deal lately or not, whether I am working hard or gone on vacation for a month (the test for passive income - does it make you money while you sleep?). They also give me a good, stable base to support me through good and bad, and, over time, they continue to grow my wealth, even if very slowly at times. So I find a mix that works for me. If I get too many good deals at once, I can still wholesale a deal here and there. So, wholesaling, flipping, and rental property are all important, and all have their place... You just have to figure out what works best for your personality, which will best help you meet your personal goals, and which most suits your current financial situation and level of experience.
'And the day came when the risk to remain tight in a bud was more painful than the risk it took to blossom.'
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