A real estate investor comes in many forms and it is someone who includes a real estate asset to their investment portfolio. They can be individuals operating at a small scale, or massive hedge funds operating across the country…and anywhere in between.
The team at The San Diego Home Buyer operates in several real estate arenas such as buy-and-hold, fix-and-flip and wholesaling. These methods, plus others, are solid investments helping you build your personal wealth bringing profit either instantly or in the long-term, depending on your strategy.
Real estate investors must be diligent and organized with their finances and debt. Most keep credit card debt to a minimum and make their monthly payments as to avoid and damage to their credit report to offset down markets, low cash flow or working capital.
So let’s take a look at these methods and how they work.
Buy-and-hold
Bob and Janet knew their strategy for retirement. Bob worked for a local tech company and Janet in graphic design and together would invest some of their money in rental properties.
About 25 years ago, they bought a few houses and immediately rented them out. They’ve always been rental properties, and when tenants would move out, Bob and Janet would make the small repairs to get the property up to code for the next renters.
Over time, the couple grew older and the repairs became bigger and more cumbersome.
Bob and Janet were faced with a decision — keep renting the properties out and make the major repairs that were needed or sell the home.
After talking to real estate agents, Bob was interested in hearing from an all-cash buyer. He called us. And we spoke.
After hearing our proposal, Bob decided to forego renting the property and making the repairs. Instead, he sold his home to us and netted more than he would have with the real estate agents. A lot more!
Bob and Janet didn’t have to do any of the repairs or pay to have them done because our in-house construction team did those. When asked why he sold to us, Bob said because it was fast and easy.
Fix-and-Flip (or flipping)
If you watch HGTV, you’re probably familiar with a number of shows centering on the fix-and-flip investor, also known as “flipping houses.”
These are individuals or real estate companies who will buy underappreciated homes, invest thousands of dollars to fix up the place, the put it on the market and sell for a profit.
Like their buy-and-hold counterparts, fix-and-flippers can finance the purchase or pay cash. Through financing, many opt with an adjustable-rate mortgage to keep the monthly payments lower than a traditional 30-year loan. This allows for lower costs to maximize profits upon a sale.
A cash purchase, however, is faster to process and close, allowing for the money saved in the initial closing process to be invested in renovations and upgrades.
In short, you take your initial investment and keep the difference from the sale price. There is potential for high returns for a short-term strategy. Typically, flipping houses takes a few months to buy, renovate and then sell to a new homebuyer.
However, the challenges include overinvesting in the renovations or paying more for labor costs than originally budgeted, which eats into your profit margins or results in losing money on the deal.
Wholesale
Real estate wholesalers work fast, as in same day fast.
The process from buying and selling is done instantly for those experienced individuals or real estate companies with solid contacts.
The strategy is straight-forward as real estate wholesalers find underappreciated properties, enter into a contract to buy the property for “X”, and then turn around and sell the property to a real estate company for a profit, without making any renovations or adding any value.
While wholesalers will typically sell the property the same day, this requires a robust real estate network who can find leveraged sellers and willing buyers.
