real estate

Real Estate Investment Methods

REITs – One real estate investment vehicle is a Real Estate Investment Trust or REIT. A REIT is somewhat like a mutual fund for real estate. Essentially it is a company (can be public or private) that owns and manages several income producing commercial and multi-family residential properties. REITs give small investors a chance to invest in large properties in which they would not be able to get the funding for.

Flipping – Flipping consists of buying properties that are undervalued and re-selling them after a short period of time for profit. The method used in the majority of flips is to buy distressed properties that need a fair amount of work and renovating them to increase the value. This is the fastest way to make a lot of money in real estate investing but unfortunately is the most risky and requires the most up front capital. This method was used by most real estate gurus in the 90’s and early 2000’s to create their real estate empires when the housing boom was at its peak and home values were increasing hundreds of dollars every day. This has unfortunately slowed down due the current state of the real estate market and must be used with extreme caution because it is also the fastest way to LOOSE a lot of money in real estate investing. It is very important when flipping to plan your budget correctly and also have your “power team” in place to help you (both of which I will explain in the tips section below).

Renting – Renting is a buy and hold method of real estate investing in which you buy a property and find tenants to live there a pay the mortgage for you. The method for finding rental properties is very similar to that of flipping. You want to find distressed properties to buy to keep monthly payments as low as possible as well as renovate the property so that you can charge the highest feasible rent. This will maximize your profits. The benefits of having rental properties is that you benefit from the short term gains from your rent payments being more than your mortgage as well as from long term gains from the appreciation of your property and the from the equity gained by the tenants paying off your mortgage for you. It takes longer to accrue money than the flipping method but it is less risky and if anyone wants to buy the property you can easily sell it as if it were a flip.

Live and Collect – The Live and Collect method is not recognized as an investment vehicle to most people, but I find it to be the most feasible to the average person and even if you do not have the time or resources to become a heavy investor this will still work for you. It is a very slow moving process but can be profitable along the way and will be extremely profitable at the end of the process. This process begins by buying a distressed property and fixing it up. The way this differs from the flipping and renting is that you actually live in the house and make the renovations over time. After you have gotten the property to a point to be able to be sold for profits, you sell the property and roll the gains into a property that is a little better. Note you can afford a better home now because you have a larger down payment from the gains in the previous house. You continue this sequence and eventually you will be in a very nice expensive home with no mortgage because you will have paid cash for it. Live and Collect is definitely the least risky and takes the longest to develop, but if you have low start up capital and do not have the time to put in to be a hardcore investor this is the choice for you. The key to this being successful with this method is being disciplined by not spending your gains but reinvesting them in your next property. Some other perks of this method are that the gains that you get from selling the properties are not taxed because you are rolling them into another property and by the end of the process your net value will be through the roof. The second you take the gains out and use them for something else the money will be taxed.


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