Over the past few days I’ve been thinking about the different ways real estate investors can achieve their goals and dreams in the fastest way possible. I get asked this question frequently by students who are just getting started in the real estate investing business. As I thought about the different strategies of how real estate goals can be achieved, I came up with the three most common ways most investors use today.
First of all wholesaling is what I hear about the most. The problem as I see it with wholesaling is two-fold. First, wholesaling real estate is to me just like having a job. Once you get a property bought and either “pre-habbed” or if you assign your purchase agreement you are creating the Hamster On the Wheel way of doing business. You buy the property, you fix the property then you sell the property. At that time hopefully you get a check. You use some of the money you get to pay for your living expenses and if there is any money left you might use the excess to pay for a portion of the next deal you do.
Second, because most wholesaling deals are completed and sold within a 12 month period of time the investor will pay the highest income tax rate in this country. When you pay high taxes that money is gone forever and unavailable to benefit your family and you can’t use that money to live on or to re-invest. The smart investors I personally know believe that paying the least taxes the investor legally owes is always their goal. Wholesaling will not allow the investor to ever create true wealth, only a stream of income to live on.
Another investor strategy many investors use is buying houses, fix those houses and then sell those houses for the highest retail price they can get. This is a great strategy and has created high incomes for many investors. The problems I see using this method is not all investors who want to use this method of investing can qualify for the money that is needed to buy and rehab the properties. Without the ability to borrow affordable money will limit many investors. If you are one of those who have the ability to borrow affordable money, that is great, I am happy for you. Keep doing what you are doing. Those who can’t get affordable financing usually are forced to borrow high interest, short term either private or hard money loans. These loans have a short payback period of one year or less in most cases. If the properties the investor buys and rehabs are in a less than desirable area and the investor is unable to sell or refinance those properties within the short term payback period those investors could lose their properties and any profit they had planned on and needed badly.
My favorite way to create wealth from real estate is to buy and hold long term income properties. I can hear some of you say,” I DON’T WANT TO BE A LANDLORD!” If that is the case with you, you can hire property managers to deal with your tenants and any problems that might arise. The key is to get started today building your portfolio of income properties that will immediately start paying for themselves and hopefully give you some cash-flow every month. As time passes your tenants are continually paying for each of your income properties from the rent you get every month.
The key is to buy each property so they pay for themselves and cash-flow from day one. Think of building your wealth portfolio as if you were planting a garden. Anyone who has ever planted a garden knows you must plant a seed before you can eat your favorite vegetable. Once planted you must water and keep the weeds away from your plant until it provides you with the bounty you have been waiting for. Creating real estate wealth is not much different than planting a garden. If you don’t start buying income properties you can never get the wealth you are seeking. Why not start today looking for a property you can put into your wealth building retirement portfolio that shouldn’t cost you a penny if bought and financed correctly because the tenants who give you rent every month are the ones actually creating wealth for you. Once each income property is completely paid for you will have the wealth you sought provided you have a big enough portfolio of these income properties. Another benefit that income properties give you is, rental income is the least taxable form of income of any type in this country. Get started today building your portfolio that will eventually give you the wealth and life-style you are looking for.
Until Next Month,