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How to Be a Real Estate Investor
Mapping your way to get started with successfully funded, high profit real estate investment deals
People typically want to be a real estate investor because they have a desire to make money and create a lifestyle – and REI can be done with great results. It’s a matter of determining not only the destination but also the journey – how you’ll get there from where you are today. You can ask any successful investor – the journey (especially in real estate investing) is just as important as the destination. There are many important milestones along the way – and you have to expect detours as well.
So let’s take a look at a what the real estate investing journey might look like. There are a lot of different ways to be a real estate investor and make impressive money in real estate investing.
Here are some of the most common:
- Wholesaling – also known as Property Locators, this involves quick flipping contracts direct from the owner/seller to another investor. You act as the middle man and earn a fee.
- Fixing and Flipping – bringing a distressed property up to market standards and reselling for profit.
- Buy and Hold – purchasing property for the expressed purpose of holding it to generate passive income.
The Big Picture of Real Estate Investing
Because these three are the simplest to understand, we’ll focus on them and how each is a unique journey that can take you to the same destination – making money and building wealth in real estate investing.
Let’s take a look at the three major factors involved in investing – money, skills and time – and how each plays out for the investor in each niche.
| Wholesaling |
Money: Wholesalers are marketing machines – they’re trying to find as many deals as possible as frequently as possible. Although wholesaling doesn’t require funding per se, the wholesaler does need cash for marketing and finding motivated sellers.
SKILLS: Must be good at ferreting out good deals, negotiating with sellers (and kissing lots of frogs) and marketing deals to a buyer’s list of cash investors.
TIME: Wholesaling can be done on a part-time basis – it takes a good marketing system to be able to execute multiple deals each month. This is a wash-rinse-repeat business model.
| Fix and Flip |
Money: House flipping requires short term cash for the acquisition of the property and then plenty of cash for the renovations. Typically a flip is completed and sold within a six month period – for some it will be more; for others it will be less – it’s critical to plan your funding accordingly.
Skills: Must have solid market and end buyer knowledge, a good team to execute the legal, construction, and marketing and most important – the ability to assess and manage a home renovation.
Time: House flipping whether you are a DIYer or manage a crew is a big time commitment but the payoff can be excellent. Flipping houses is also a wash-rinse-repeat business model in order to keep cash flowing in.
Buy and Hold
MONEY: The buy and hold investor /landlord needs access to long term cash. While the wholesaler and flipper is making chunks of cash on sales, the buy and hold investor is building wealth through rental income pay down of mortgages and also long term appreciation of the property.
SKILLS: Landlords first and foremost must have good tenant screening skills and procedures. They also need to have good skills at “running the numbers” to make sure the property is cash flowing and how to make adjustments
TIME: Landlording is considered “passive income” but any experienced landlord will tell you it’s not passive. Turnovers, repairs and other demands of owning rental real estate make it very much an active strategy – it just may not be daily activity
As you’re creating your real estate investing road map, it’s a good idea to consider:
- How do the deals you are looking at fit into the big picture?
- What is it that you want them to do for you?
- How do they fit into your ideas of investing your time, money and skills?
If you have a lot of money but not a lot of time – buy and hold could be your thing.
If you have more time than money – wholesaling could be the ideal gig for you.
Exit Strategies for Real Estate Investing
Having clear exit strategies is critical for any investor in any niche. Understanding and applying strategies that meet short-, mid- and long-term goals helps make determining your exits even easier. Experienced investors in all asset classes know that you have no business getting into an investment unless you’ve got a clear path out.
So what’s the end game for the deals you may be looking at right now?
- Are you buying and holding? What’s your monthly income going to look like? How long will you keep the property and why? What will you do with the proceeds when you sell?
- Are you fixing and flipping? How long until you can cash out? What’s the cost of your funding? What’s your expected profit? What will you do with the proceeds? Is this something you want to do again and again?
- Are you Wholesaling only? How much in wholesale fees would you like to earn? How many leads do you need to make enough offers? What market will you target? What will
- you do with the money you make and are you willing to wash, rinse and repeat to keep the fees coming in?
If you are a fix and flip or buy and hold investor, you need access to funds to get you where you want to go. If you don’t have a clear exit strategy that demonstrates expected returns and timelines for repayment, don’t expect an easy road to funding.
In an upcoming post, we’ll cover the types of funding and loan features that can best facilitate your exit strategy and big picture plan. Match those to lenders that offer the loan products are the foundation of the financial workings of your deal.
Back Up Plans for Real Estate Investors
It doesn’t matter what business you’re in, it’s always smart to have a plan B. If there’s one thing that’s certain in life and in real estate, it’s that things change. Your goals may change, market and neighborhood dynamics can change, and unforeseen events can put your plans into a complete 180.
Savvy real estate investors love deals that have multiple potential exit strategies. Lenders love when they pledge capital to fund a project that has multiple exit strategies. It dramatically reduces risk, and increases odds of success.
What are your exit strategies and alternate options in case you can’t flip that house on the schedule you planned? Or that long term hold is impacted by outside factors?
10 House Flipping Detours When Things don’t go as Planned:
- Wholesale the property as-is
- Clean it out and sell it as a handyman special
- Bring in a partner
- Rent instead of selling it
- Lease it out short term via Airbnb
- Convert condos to rentals, or rental to condos
- Renovate instead of wholesaling it
- Offer seller financing or lease options
- Rezone the property to match highest and best use
- Refinance
Important Considerations for Successful House Flipping and Landlording
Consider where you really want your real estate investing to take you. It takes time, skills and funding. Map out where you want to go, how you want to get there, along with some potential alternative routes, possible detours, and shortcuts. Different strategies get different results and the steps in each is very different – but knowing this can help you determine the kind of investor you want to be and can drive your funding decisions from the first to the last property you ever purchase.
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Walter Unger CCIM, CCSS, CCLS
I am a successful Commercial / Investment Real Estate Broker in Arizona now for 20 years. If you have any questions about Commercial / Investment Properties in Phoenix or Commercial / Investment Properties in Arizona, I will gladly sit down with you and share my expertise and my professional opinion with you. I am also in this to make money therefore it will be a win-win situation for all of us.
Please reply by e-mail walterunger@ccim.net or call me on my cell 520-975-5207
Walter Unger CCIM
Senior Associate Broker
Kasten Long Commercial Group
5110 N 40th Street, Suite 110
Phoenix , AZ 85018
Direct: 520-975-5207
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