Plenty of fancy words have been written about real estate
investment strategies. But I want to cut to the chase in
this article. No matter how fancy the language is,
investment strategies boil down to two objectives:
Buying real estate to accumulate cash.
Buying real estate to build equity and wealth.
Which strategy to choose depends entirely on you—your
needs, your personality, and so forth. Frankly, either
choice is fine as long as you choose one early in your
career, commit to it over the long term and do everything
you legally can to make it successful.
In this article, I'll look at the cash accumulation
strategies and the pros and cons of each. I'll treat the
build equity and wealth strategy in another article.
The Cash Accumulation Strategy - Let's assume you're
relatively new to the real estate market and need methods
for pursuing a cash accumulation strategy. Below are
several methods you can try:
Bird Dogging - In simple terms, you find good properties
for investors and charge them a finder's fee for doing so.
This is strictly a cash strategy.
Advantages: It doesn't require any cash on your part or
previous knowledge. It's also the fastest way to earn cash.
In addition, it's a great way to "learn the ropes" of the
local real estate market.
Disadvantages: The money you earn per transaction is the
least in the market. It also takes considerable time and
effort to locate suitable properties.
Flipping - Flipping is the art of buying a property,
waiting for the right moment, and then selling it for a
quick profit. In basic terms, you're get control of the
property with a binding purchase contract. Essentially,
it's a speculative strategy; that is, you're gambling that
the market value will rise to the point where you can make
a fast profit before you close on the deal. This strategy
is most effective in areas where the demand for housing is
so high that there's a limited supply, causing prices to
rapidly rise.
Advantages: With this method, you'll get negotiation
leverage and good profit potential. You can put little
money down and get great gains. Also, it can be a good life
if you enjoy an entrepreneurial life style and a lot of
freedom.
Disadvantages: Volume can be low, depending on market
conditions so your income can fluctuate. Although flipping
is entirely legal, it received bad press due to con artists
making a quick buck by duping customers. So, you may need a
very thick skin in terms of other people's opinions of you.
A second disadvantage occurs when too many speculators get
into the market. When that happens, prices drop quickly,
and you end up stuck with the property and no immediate
profit. A third possible downside is that interest rates
can rise, thus dampening the demand for housing. A final
disadvantage is hidden property problems. If you don't
pursue careful due diligence, you can end up with expensive
repair costs that eat up your profits or even cause a loss.
Buy and Sell As-Is - This method is simple: buy a property,
leave it as-is, and then put it back on the market but at a
higher price.
Advantage: When done right, you'll find that the profit
margin is even higher than with the flipping method.
Disadvantages: This method takes time and, due to that
fact, volume may be low.
Buy, Improve, Sell - With this method, you purchase a
property, make cost-effective improvements, and then sell
it at a higher price.
Advantage: Margins are even better with this "rehabbing"
method than with the previous methods.
Disadvantages: With this method, you have a much bigger
investment of time and money than the previous methods.
Key Point: Choose the strategy that best suits your
situation and your personalit
----------------------------------------------------
Jack Sternberg is a nationally recognized expert on real
estate investment and the creator of the renowned "Buyers
First Program" who's been in the business for more than 30
years. Sternberg's deals have totaled over $750 million and
he's been to the closing table more than 1,500 times. For
more, visit http://www.askjacksternberg.com
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