How Does Real Estate Investing Work?
Real estate investing works best with a
strategy. In determining how you would like for real estate investing to work
for you, it is important to first determine the results that you desire from real estate investing. Are you looking to build wealth or to create quick cash or both?
Depending upon your desired results, you can choose a short term strategy, a long term strategy or a combination of
How does real estate investing work to make quick cash?
Quick cash can be created with a short
term real estate investing strategy, which includes quick turning or flipping property.
Quick turning property (buying and selling right away) can provide big and quick cash if you buy right. Typically, the property is put under contract at a low price and then marketed at a higher price to include
a profit. The property may be sold with or without improvements depending upon your strategy. Quick
turn deals can easily generate from $2K to $30K plus depending upon the deal and whether it is a wholesale or retail quick
Wholesale Quick Turn
Wholesale quick turns involve finding a deal below market value and quickly selling the
deal at a wholesale price. By selling wholesale (below retail), you are giving
your buyer, typically another investor, the opportunity to make a profit. If
you negotiate the right deal upfront and turn the deal quickly, you can make good money this way.
Wholesaling is often a method
of no, or little, money down deals. This is a way that real estate investors get around the need for financial backing for
Let’s say that you find a motivated seller, who is willing to sell you
their house at $100K. You put the property under contract with the seller
for $100K and then find another buyer who wants the deal and is willing to pay $110K.
You would then assign your contract with the seller to your buyer for a fee of $10K.
Your buyer actually closes and purchases the property from the seller; and at closing you are paid a $10K assignment
fee. An option is another method used to wholesale. You can put an option on a property and then sell your option to another investor for a profit. In fact, with assignments and options, you never even have to purchase the property
to make money.
Retail Quick Turn
Retail quick turns involve finding a property well below market
value and getting it market ready for retail sale. With retail quick turns, your
target buyer is a home owner rather than an investor. You may purchase a property that needs a little work, a lot of work,
or possibly needs no work at all because you purchased it from a motivated seller at a discount. Once the property is ready, you market and sell it at a retail price.
How does real estate investing work to build wealth?
Wealth is created through longer term real
estate investing strategies, which involves buying and holding property. In this
scenario, the investor buys a property and then rents it to a tenant or leases it to a tenant with the option to buy.
Renting involves finding a property,
getting it in rent ready condition and marketing it for rent. The rental real estate investing strategy offers a number of
profit opportunities. Cash flow is created when the monthly rental income exceeds
the mortgage and other expenses. Long term wealth is created through appreciation
of the property, the tenants paying down the mortgage, and tax advantages.
Imagine having 10 houses paid in
full and rented for $1,000 a month for a monthly cash flow of $10,000. If the
houses were only worth $100K each, you would have $1 million in assets plus a $10K per month cash flow before expenses. This financial position can be fairly easily accomplished in your own timeframe. Some people buy one or two houses per year and others buy a number of houses right
Lease options are created by offering
a property for lease (usually for twelve months or more) with the option to buy.
There are a number of profit centers with lease options to include income
from the upfront option fee, monthly cash flow from the lease, profit from the sale when the option is exercised and tax advantages.
In conclusion, the answer to the question,
“How does real estate investing work?” really depends on how
you want real estate investing to work for you. Whether your goal is to build
wealth, leave the 9-5, an early retirement, financial
freedom, or quick cash, you can obtain it through real estate investing. There are numerous benefits to investing in real
estate such as buying at a discount and creating instant equity, equity created through tenants paying down a mortgage, appreciation,
cash flow, leverage and tax benefits. Determine your strategy –long term, short term or a combination of the two and
make real estate investing work for you.
Spivey, known as The Real Estate Investor’s Resource, is an active investor, speaker and coach. Through her training and coaching programs, she helps new and experienced investors create profitability,
productivity and prosperity. Nancy serves on the board of directors for the Georgia
Real Estate Investors Association, the largest investor association in the U.S.
For a free copy of the eBook, The Science of Getting Rich and a list of Nancy’s Private Rolodex Resources,
sign up for her free ezine,The REI Resource, which is loaded with free tips, resources and tools that will help you create profit, productivity and prosperity
in real estate investing!
© 2007 Nancy Spivey