How to Create a Real Estate Strategy
by Jared Newman
There are numerous ways to generate wealth from real estate. To determine which strategy will be the most profitable for you, it is worth considering how you can leverage your experience and strengths.
If you have experience in construction and are looking to take risks for high rewards, then you will pursue a different strategy than if you have experience in property management and are more interested in a passive investment that will provide more reliable returns.
Three of the most notable real estate strategies are listed below. Regardless of which strategy aligns with your interests the most, Conventus can help you with financing!
1. The Fix and Flip Strategy
a. Right now, there are a plethora of TV shows like HGTV's "Fixer and Upper" that have made fixing and flipping become known as one of the most popular real estate methods. It is a great way to make money if you have an understanding of construction as well as a contractor you trust to do the work. You also need to be willing to make a significant time commitment since this strategy requires moving as quickly as possible during the rehab process to fix the property and sell it, so you can move on to the next property.
b. The first step is to find an area where there are plenty of properties that need some tender love and care. It would be best if you can find a property in your own city, so you can oversee the rehab process. That said, there are many areas around the country where opportunities exist.
c. After Hurricane Harvey hit Houston in August 2017, the city was stuck with hundreds of flooded homes that were in total disrepair. With properties available for pennies on the dollar, it did not take long for investors to swarm the market. In October 2017, 6,381 single-family homes were purchased, a 7.5% jump over the same time last year.
d. When you are looking for a property to fix and flip, run the numbers and ensure you'll gain a profit after buying the property and rehabbing it. It's key to find a contractor who will give you a reliable estimate for the rehab budget.
e. Once you have a property and a contractor lined up, you should be set to go! Hopefully, there aren't many snags in the rehab process and you can flip the property for a nice profit. Then, it's on to the next flip.
2. The Rental Strategy
a. While the fixing and flipping strategy sounds exciting and can produce large profits quickly, if you don't have the time to commit or the contractor to do the work, then there are other strategies you can use. The rental strategy is a more passive and less risky approach to real estate, but it should produce consistent income each month. With this strategy, you can find a property that is already in good shape that you can buy and rent out to tenants.
b. Be certain to run the numbers to ensure you will generate a profit after making monthly debt service payments and the expenses for the property. If the property is in solid condition, that should help lower your expenses.
c. If you have the time, you should also try to manage the property yourself, leveraging your realtor's contacts. Otherwise, you may find yourself paying up to 10% of the monthly rent to a property manager. For that reason, it's best to buy a rental property near your primary residence, so it will be easier for you to manage the property. One popular way to start is to buy a duplex where you live in one unit and rent out the unit next door.
d. Investing in a rental property will require more patience because it will take longer to make a significant profit, but it is an excellent way to diversify your investments and build up equity. Once you've rented out a condo or single-family residence, then you may feel more comfortable buying a multifamily building, which should increase your profit margins.
3. The BRRRR (Buy, Rehab, Rent, Refinance, Repeat) Strategy
a. Made famous by real estate community website Bigger Pockets, the BRRRR strategy is a great way to quickly build a portfolio of properties. It might seem like a challenge to take on five steps, but this strategy is more or less a combination of the first two strategies, so it shouldn't be too complicated.
b. You can start by buying a property that needs repair and fixing it up. Instead of flipping it, you can hold on to it and rent it out. Next, once you have demonstrated the property is bringing in income, you can obtain a cash-out refinance to buy another property and begin the process over again. Soon enough, you'll have more properties than you ever imagined!
There are hundreds of ways to make money from real estate, but these three strategies have been proven to work. Come to Conventus for your financing and we will provide you with more advice and hopefully a head start to the establishment of a strong real estate portfolio!
About Jared Newman
As a Loan Officer/Processor at Conventus, I love learning as much as I can about lending and real estate. With the goal of becoming financially independent, I am curious to see how other people are using real estate to achieve that goal!
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