The prospect of becoming a real estate investor has become synonymous with both excitement and trepidation. However, it doesn’t take long to realize the gravity of its respective benefits. While it certainly requires a degree of commitment that many may be unfamiliar with, its rewards are limited only by the imagination. Investing in real estate is, for all intents and purposes, what you make of it. Not only can it provide you with limitless potential, but it also offers a number of unique vehicles in which goals can be realized. You are awarded the opportunity of investing your money the way you want to. Having said that, which real estate investing strategy is best for you?
Assuming you have already taken the step towards becoming a real estate investor, you are probably already aware of the benefits that coincide with such a career choice. However, fewer are aware that there are several ways in which an investor can have their money work on their behalf. There are many investment strategies in which investors can choose from. It is only a matter of choosing the right one for your particular situation and business.
Pursuing the right path for your investing endeavors is not to be taken lightly, as it will determine when and if you get paid. Therefore, it is incredibly important to choose a path that compliments your personal goals and the manner in which you wish to achieve them. Investors are ill advised to follow a path that they are unfamiliar with. You must make informative and knowledgeable decisions before committing to a particular investment strategy. That is where this article comes in.
This article was developed as a means of introducing you to the options that will present themselves over the course of your real estate career. Understanding the pros and cons of each will help you decide which path you should take. As long as you maintain a willingness to learn and grow as an entrepreneur, the path you choose will likely prove favorable.
Finding Proper Motivation To Get Started
Before committing to a particular investment strategy, investors are advised to establish a purpose. Having a reason to succeed is perhaps the most important characteristic an investor can exhibit. Determination is a powerful ally. Having said that, your intentions are only as strong as your desire. You must provide your investing career with a meaning that will push you to strive for greatness. There are plenty of reasons someone may want to succeed, but successful investors find a reason that they need to succeed. What’s yours?
At the top of most lists is money. It is, after all, one of the main reasons people consider real estate investing as a career choice. However, we implore you to dig a little deeper. While money can go a long way in improving a dire situation, it is nothing more than a material object. Conversely, what if money was left out of the equation? Consider your other options. Perhaps you want to be able to spend more time with your family or pursuing activities you enjoy. Maybe you have a desire to get out of the rat race and leave your 9-to-5 behind. Regardless of what you need, if you manage to keep sight of why you are doing something, you have a much better chance in seeing it through.
Uncovering Your Investment Strategy
There are several factors that warrant your attention when deciding on an investment strategy. Aside from your long-term goals, you need to evaluate the local market, available funds, and of course – your competition. Maximizing your comprehension of the following factors will ultimately help you pick the best real estate investment strategy for your business:
Understanding Your Competition
Those relatively new to the investing world, and even veterans for that matter, may resent their competitors. After all, real estate is a numbers game. Every other investor is, therefore, just another obstacle to overcome – right? Wrong! While technically competing for the same thing as you are, the presence of other investors can be used to your advantage. Competition can literally benefit your investing strategy. In understanding your competition, you can give yourself a competitive edge. You just need to know how to capitalize on the opportunities that present themselves.
Take the time to understand your competitors and research what it is they are doing in your local markets. Conversely, it is equally important to know what they are not doing or avoiding. As I am sure you have heard before, keep your friends close and your enemies closer. At the very least, it will give you a different perspective. Done correctly, you will be made aware of certain trends that you didn’t even know existed. For instance, if you discover that your market is saturated with rehabbers, you may want to consider wholesaling. You can use what you know about your competition to enhance your presence and even gain their business! Your goal is to ultimately create circumstances that your competition must react to, not the other way around.
Funding is essential to any investment strategy and will serve as the catalyst to the majority of your deals. Therefore, you need to know where you stand with funding prior to commencement. Understanding where your funds are coming from will establish the parameters of your upcoming project and provide you with a starting point. Essentially, available funding will dictate which strategy you implement.
Are you the beneficiary of a lot of cash on hand or are you on a tight budget? Are you going to be using stocks, options, or even a 401K? Knowing the difference between these options will help identify which investing strategy you should consider. Research these individual funds and know how each will contribute. On the other hand, if none are available, you may need to enlist the services of an investment partner or private money lender.
Those with limited funds will most likely want to consider wholesaling as their initial investment strategy. This real estate exit strategy requires less funding than most and will allow you to build upon your private/hard money lending platforms. Wholesaling will also establish instant credibility for your business, as rehabbers will be made aware of your willingness to collaborate on deals that benefit all of the parties involved. It will be hard for them to ignore the fact that you are providing potential deals at a great price. This will inevitably allow you to establish a working rapport with others in your local market.
The investment strategy you choose will greatly depend on the amount of time you intend to invest. Accordingly, there are hundreds of ways to make a profit in the real estate industry, all of which have different criteria. Some strategies will require 40 hours a week, whereas others may require the same amount of time over the course of an entire year. One of the biggest advantages of the real estate industry is the ability to pick which one suits you best. If you want to work full-time, go for it. If not, invest on your free time. However, whichever you pick will greatly impact your strategy moving forward.
If you currently have a career that you absolutely love, you will probably want to consider investing as a part-time strategy. There are a lot of viable part-time investing strategies that have proven to be very lucrative. Part-time investing strategies include, but are not limited to, the following:
- Serving as a private and/or hard money lender
- Invest in mortgage notes
- Partner in a larger piece of property
- Buy and-hold property
On the other hand, if you are viewing real estate as a means of leaving the rate race and quitting your 9 to 5, you are probably considering it as a full-time career. If the time comes for you to become a full-time real estate investor, make sure you are ready to dedicate yourself completely. Full-time investing will require you to live, breath, and sleep real estate. However, at the same time, your activities will revolve around producing a higher level of income. With more time invested in this industry, you will be able to consider rehabbing as an investing strategy.
Despite all of this advice, current market trends are perhaps the most influential indicators as to which investment strategy you will choose. Your path is dependent upon the direction of your local market. You need to listen and understand which direction your market will allow you to go. When it comes down to it, it is really about supply and demand. You need to determine where your market stands and choose the investing strategy that compliments it.
The Investor Lifecycle
Investing in real estate provides you with endless opportunities to be successful. Subsequently, it can be as passive or as dynamic as you want it to be. Your own personal investment strategy will most likely depend on where you are in your investor lifecycle. Are you relatively new to the industry? Are you comfortable completing high yield deals on your own? Would you consider yourself a veteran? Are you ready to retire? To determine where you are in your investor lifecycle, consider the following:
Type One: Active Investor
The first stop on the investor lifecycle is that of the active investor. As its name suggests, active investors are working in order to receive income. At this point, you are fully committed to the hands-on approach. Typically, active investors are those who are relatively new to the game and low on cash reserves. They are also recognizable by their need to generate income as soon as possible. These investors prefer wholesaling, pre-habbing, or rehabbing properties to generate profits.
Type Two: Hybrid Investor
The hybrid investor will serve as our second stop on the investor lifecycle timeline. Hybrid investors are similar to those of the active investor category, but introduce the element of passive income. The very nature of passive income encourages a less hands-on approach. Investors at this point will allocate a portion of their active investing profits back into their long-term passive income strategy. In doing so, they are creating wealth that will last for years, as opposed to months. We encourage you to grow your passive income portfolio if the opportunities present themselves and your active profits permit doing so.
Type Three: Passive Investor
Most people will strive to become a passive investor as quickly as possible. With passive investing, your money goes out and does the work for you. With active investing, when you stop working, so does your money. With this final phase, you welcome financial freedom into your life and are able to participate in the activities you want, instead of working day in and day out.
Long-term wealth comes from smart, secure real estate investments. They can be extremely profitable when the right decision is made at the right opportunity. One of the best ways to become a passive investor is to get involved with the right private lending options. There are many benefits to becoming a private lender. If you approach it the right way, you can eliminate many of the risks and truly establish your financial strength.
Determining where you are in your investor lifecycle will help you pick which real estate investment strategy suits your business. Furthermore, if you aspire to reach a certain point, it will inform you which strategies will help you get there. Again, there are several strategies, ranging from wholesales to rehabs, which can be used to generate wealth. Picking one will ultimately determine the path of your career. Keep in mind that your acquisition strategy will change as the market changes. Do what the market tells you to do to create your most profit- able strategy as well as the least amount of risk.