The real estate market is a dynamic one. Because it keeps changing, it’s easy for investors to suppress quickly. Many opportunities promise better profit-making options with different strategies. However, most investors who jump on the “next big thing” are the only ones who lose.
Mastering a real estate niche works much better than trying a hundred different ones. Still, it’s important to choose the real estate investment strategy that will work best for you, your personality and your situation.
The three most common real estate investment spots
A successful real estate investment career begins by choosing and focusing on one of three main real estate investing strategies: buy and hold, sell wholesale, or fix and flip. Trying to “do it all” can make you very thin and can actually lead to failure. In addition, each strategy offers different benefits and requires different skills that will appeal to each investor.
1. Buy and hold
Buying and holding real estate niche is exactly what it sounds like. You buy a property (house, office building, land, whatever) and rent it. Typically, these features are retained for at least a few years if not for decades.
So, what is the advantage of this strategy?
- Monthly Income: Hopefully, the rent you pay for a positive cash flow each month will outweigh your expenses.
- Regular Income: Of course, the rent is empty every once in a while, but in most cases, you can rely on a fixed monthly income.
- Income tax benefits: Depreciation can be a wonderful thing – so nice that it can lower your combined gross income to zero.
- Asset extraction: This is a great strategy for raising assets over time as you repay the loan and appreciate the value.
What about the downside?
- Tenant: Dealing with tenants can be a real challenge.
- Management costs: Don’t like tenants? Then there will be management costs and management headaches.
- Maintenance: You need to maintain these features – and it costs money.
- Capital Demand: Most of the time, you will need some capital to get started. Banks or other lenders will rarely lend 100% of the property. Also, some reserves are required for the maintenance problems mentioned above.
This strategy is for a fee to find a property and easily return it to another investor.
Here are the professionals:
- Low capital requirements: You don’t need more money for this strategy, because you probably won’t close the property. This fact makes it great for those who start with little or no money.
- No tenants: A pain that you can avoid.
- No contractors: You don’t fix it, so you don’t have to worry about finding, hiring and paying contractors.
And the disadvantages of this real estate niche:
- Feature Search: It’s not as easy as it often makes.
- Marketing: You just have to be more discriminating with the help you render toward other people.
- False leadership: You will need to explore many dead ends before you can find one that works.
- Talk: You need to have or develop appropriate negotiation skills to deal with both the seller and the buyer. It can actually be pro for anyone.
- Buyers: You must have some credible buyer before you can get the property under contract, or you may be stuck with it.
- Tax results: The $ 5,000 fee you collect is considered active income and you will pay self-employment and income tax on it.
3. Fix and flip
Finally, there are fixes and flips, where an investor buys a property, fixes it and sells it to a retail buyer (hopefully) for a nice profit.
- Cash portion: The biggest advantage of this strategy is the amount of cash you can earn. It’s not uncommon to leave with $ 20,000 or more at the end of the day.
- No tenants: That’s enough.
- Pride: It’s fun to transform an ugly house and put together such a big project.
- Large capital requirements: You will need money to buy, fix and hold for a while. This can mean quite a bit depending on the scope of the project
- Retail Buyer: Retail buyers can be very desirable and selective and it takes the right kind of personality to deal with them.
- Waiting: You can wait a while for the right buyer to arrive and thus, for your payday.
- Contractor: You have to hire, manage, (probably) fire, and pay the contractors.
- Project Management: A property rehabilitation has many moving parts that you need to keep adjusting.
- Tax results: Your income will again be considered active, and thus, the IRS will seek its share.
- Contest: Depending on the market, competition for these features can be intense.
Over time as you learn more about the real estate business and gain some experience, each of your strategies should do something. But usually, our personality and circumstances direct us to focus on one over the other.
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Choosing a real estate niche
So, how do you decide which niche to start with? Let’s go through seven steps to find the right real estate investment strategy for you.
1. Don’t fall into the trap of “shiny things”
Books were a valuable asset to investors in the old days. They told you where to invest and what not to do, but they quickly became redundant. Today, the Internet provides a lot of up-to-date and relevant information.
But the information comes with a caveat: Overload. There is so much information online that it becomes impossible to extract trustworthy people from unbelievers. Second, there are many courses and boot camps that promise to change your career overnight. These are the “shiny things” people are chasing because they promise to be life-changing. While they may seem more lucrative and profitable, don’t get caught up in their fancy words. It may seem difficult to stick to your plan, but it’s always a smart thing.
So, instead of going around falling for what pops up from time to time, follow a strategy, and master its underlying and external until you perfect it. Focus on what works and get rid of what doesn’t work.
2. Decide on an existing strategy
Although there are many business strategies on the market, only a few will work for you. What works should match the needs of your managed markets, match your time commitments, and most importantly, your finances.
Based on these parameters and your level of skills, experience and comfort, determine an existing market strategy. And once you’ve figured out which one works best for you, move on to the next step.
3. Know that it will work
It’s hard to be sure that only one strategy can work, but it will. A proven market strategy exists because it is an effective and profitable one. Over time, as you master each of these strategies, you can get better at it. Because you know how the market behaves, you can plan exactly what kind of deal to accept, how much to save and how to get in less cash.
Many investors make the mistake of making emotional decisions based on the values of fear and greed. These persuade them to adopt many strategies and you can stick to it and rise above that feeling.
4. It sticks
Once you identify a market and a strategy, take it, use it and work on it. Use strategy and master its ins and outs. Keep improving it at every opportunity to present yourself. Once customers identify you for your specialization, they are bound to come to you, which makes a lot more commercial sense in the long run. They say that mastery only comes after 10,000 hours of doing a job.
5. Get the right people
Getting the right kind of team together can make all the difference in the world. When you’re building a superstar team, make sure all members share the same perspective regarding your real estate strategy. Create a team that promotes mutual support over the competition.
6. Work with human skills
Your interpersonal skills are what customers are looking for in you. Your drive and determination should present itself as a powerful motivating factor for your customer. Your oral and written communication skills also need to be strong. These will help build a clear understanding between you and your client and the people you work with.
Good negotiation skills are also a must for any business and thus, an important skill set here. Finally, arrive on time, respect the schedule and listen more than your customers say. These skills can build you up as a better real estate agent, so combine them with the conviction that your strategy choice is right.
7. Give it time
If you are planning to get rich quick with real estate, you should know that the markets do not work that way – no matter which real estate niche you choose. You need a lot of patience to learn, to experiment, and to learn more. Only then can you wish to build a career from real estate. So give it time, learn on the go and take on projects that match your strategies.
Once you have decided on your strategy, the next step is to master your real estate niche. Show other real estate agents, brokers and potential buyers that you specialize in your niche. Learn what you can about it – and then explore what you don’t know yet. It adds to your credibility and many more people want to work with you.