One of the great things about the real estate business is that there are so many ways to be successful. One investor can have success in an area that another may have never even considered. When you are just starting out, one of the ways to jumpstart your business is by focusing solely on a niche. As you develop and are more comfortable, you can expand your workload and look to take on as many different income streams as possible. Just like with a stock portfolio, the more diverse your business is, the less vulnerable you are to fluctuations. If you are looking to expand your business and make it as diverse as possible,e you should focus on these three exit strategies:
1. Wholesale: The ideal real estate portfolio has a mix of short, medium and long term income streams. One of the ways to generate short term income is from wholesale deals. There are many established investors who will ignore or reject wholesale deals that come their way. Like anything else in business, you need to weigh the benefits with the time associated. Wholesaling is definitely work and does require a good amount of time, but the more you do it the easier it is to excel at. You may have first crack at a deal that isn’t the best fit for you. Instead of simply passing and moving on, there may be a way to earn. By wholesaling the deal to a fellow investor, you can earn money on a deal that you wouldn’t have otherwise. Sure, this requires a little time and effort on your part, but it is well worth it. Yes, the returns on the average wholesale deal will not be near the returns of a rehab, but it is still money. In passing it up, you are essentially throwing money away. Closing just a few wholesale deals a year can equal the same as a rehab deal. The added benefits are the increased number of contacts you will make and the access to new deals that may come your way. Wholesale deals aren’t for every investor, but for short term income they are certainly worth taking a second look at.
2. Rehab: It is no secret that rehabbing is currently the most popular form of investing. With this popularity, however, comes increased competition. While rehabs may be your primary focus, you should look at other areas as well. You need to maximize the return on every rehab you get. This doesn’t mean you can’t take a deal with a little less profit margin, but the deals you work on need to have your undivided attention. Every expense will impact your bottom line. If you are only closing a few deals a year, one mistake on one transaction could set you back. The profits you make on the deals you do close should be allocated wisely. You need to use this money to create deals and grow your business. Making a nice profit on a deal is useless if you don’t put your money to good use. Take a little bit from every deal and reinvest it in your business. This will have the greatest impact on your business growth. A little bit from every deal will really go a long way.
3. Buy and Hold: The third way to expand your real estate business is through rental properties. A strong rental portfolio can completely change your long-term financial picture. You should be able to see positive cash flow every month, but not enough to change your business. Where the real benefits are is with long-term equity and appreciation. It will not happen overnight, but if you get to the point that you pay down your mortgage now, you are staring at almost 100 percent profit every month. This cash flow can be used to purchase other properties or pay down other mortgages. Additionally, you can realize positive appreciation. This equity will give you multiple financing options before you pay the property off.
As good as rental properties are, they may not be for every investor. Being a landlord can be difficult and stressful at times. You also need to find the right property in the right location. If you do find one, it can completely transform your real estate business. Not only will you have additional income streams coming in on a monthly basis, but you set yourself up nicely for the future transactions.
Developing a mix of all three of these areas takes time. It may take years before you get to this point. The most important thing you can do in your business is to treat it like a business. Too many investors only think about the current deal they are working on. With every deal that comes your way, you should consider what it will do for the short and long-term health of your business. It will not happen overnight, but once you get to the point that you have multiple streams of income coming in, your business almost runs itself. Instead of trying to tackle all of these areas at once, start by taking baby steps. Educate yourself on what it takes to be a successful wholesaler or how you can be a more efficient rehabber. By expanding a little bit from deal to deal, soon enough you will get to where you want to go.