Successful real estate investing is about using multiple strategies in a portfolio
The biggest mistake investors make in real estate is thinking that it’s about using just one strategy. That kind of thinking leaves investors exposed to all the risks in one property type and area.
From there, it's not long before something goes wrong and bankruptcy awaits.
In this video, I’ll show you four real estate investing strategies I’ve used to make hundreds of thousands. I’ll show you how to put these four strategies together to not only make more money but also reduce your risk in investing.
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Why You Need to Diversify in Real Estate Strategies
I’ve been in real estate, first as an analyst and then with my own portfolio, for more than 20 years and I can tell you that property has the potential to make you rich like no other investment.
Stocks aren’t going to do it. First of all, you need money to get started so most people are kinda stuck right there. Then, the best you’re going to do is seven to ten percent annual returns. That’s going to grow your nest egg but it won’t make you rich, not like most people think of rich.
I’m a big fan of creating your own online assets and starting a business but that’s not investment. You might make a lot of money but it’s going to be on the back of 80-hour work weeks.
You can do these, invest in stocks and start a business, but if you want to be truly rich, real estate needs to be a part of your portfolio.
Now most people think of real estate investing as one strategy, maybe they buy a book on rental real estate or they watch a show on house flipping. Let me tell you folks, if you aren’t taking advantage of multiple strategies in real estate investing, you’re just setting yourself up for failure.
That’s not something you’re going to hear most of the time because most people are trying to sell you their course on one particular strategy but if you are going to protect yourself from the risks and grow your money, you need to be investing in different real estate strategies.
In fact, I’ve been active in four real estate strategies and it’s what I’m going to show you today. Each strategy has its advantages and disadvantages but the secret is integrating them together. When you do this, you’re going to diversify the risk, you’re going to be reducing the risks in each and make your wealth grow more consistently.
I’m going to detail each of these four real estate investing strategies; rental property, house flipping, wholesaling and real estate crowdfunding. I’ll be sharing my first-hand experience in each from how I got started and how much you can expect to make.
Four Profitable Real Estate Investing Strategies
What I want you to get out of this video is this, first that you need to be using two or more of these strategies. One just isn’t going to do it. You’re going to get caught in the next crash and it’s going to eat up your cash flow and you’ll end up in bankruptcy.
The only people that get rich when you do that are the ones that swoop in to buy up your assets on the cheap when it happens. So make sure you watch each of these strategies so you know which ones you want to use.
Our first investing strategy is going to be real estate crowdfunding and there’s a reason why I want to talk about this one first.
A lot of people haven’t heard about crowdfunding yet or maybe they don’t have all the facts so I want to get this out there. Real estate crowdfunding is one of the best opportunities for property investors since real estate investment trusts were created in 1960.
Real estate crowdfunding is the social media revolution come to investing. Developers and professional investors submit their projects to online platforms like EquityMultiple. They apply for either debt or equity financing, so for a loan or to sell ownership in the property. These can be anything from a huge commercial development to a simple residential flip.
The platforms have teams of underwriters and analysts that look over these deals, doing the due diligence on developers and the properties. They look at the developer’s record, they look at legal ownership of the property and look at the financial projections on the project. If everything passes this inspection, and only about one in 20 are usually approved, then the project goes on the website for investors to see.
As an investor, you look through projects on the platform and can invest as little as $5,000 in most. This is one of the biggest advantages in real estate crowdfunding and why I think all real estate investors need to be using it. That means for less than maybe twenty or thirty grand, you can get exposure to every property type, that’s office, warehouse, retail, storage, even hotel and exposure to properties in different markets.
You see, all of these other real estate strategies we’ll be talking about focus on one property at a time or a few properties. You might be able to buy a few rentals but unless you’ve got a couple million to put down, it’s probably going to be a handful of houses in one area.
That leaves you hugely at risk of any number of problems. From economic problems in the area like unemployment to problems with the specific property type.
What happens when apartment developers decide to build thousands of units and destroy rents in the area? What happens when an overzealous local housing official decides he wants to make a name for himself, shutting down landlords because he’s got an eye on the Governor’s mansion some day?
I’ve seen it happen. If you’re not diversified with money in different property types and in different areas, you’re not a real estate investor, you’re a real estate gambler and you’re gonna lose money.
Not only does real estate crowdfunding diversify your risk but it’s the most passive form of investment among the four we’ll talk about. You get professional management of the property through that developer and the platform manages all payments, first your investment then the payments from the developer back to investors.
How to Invest on Real Estate Crowd Platforms
Investing on crowdfunding platforms is pretty quick and straight-forward. I’m going to be covering what to look for in properties and some tips in another video in this series so watch for that. Just remember, you want to invest across the five property types and in different regions of the country.
Real estate crowdfunding isn’t the hands-on investment we usually think of but it’s great at diversifying and creating that passive income. Both of those advantages are really going to be important as we talk about these other three strategies.
My First Real Estate Investing Experience
Next we’re going to talk about property rentals, easily the most common type of real estate investing strategy. There are more than 120 million households in the U.S. and only 75 million of them are owner-occupied. That means over 43 million people that need a roof over their head and are paying for it every month.
On top of price appreciation, you can easily make 15% to 20% a year with property rentals. And the scenario for the buy-to-rent strategy is only getting better. The percentage of people renting touched a 50-year high last year as fewer people are buying. Demand for rental units is outpacing construction so rental rates are growing twice as fast as other income growth.
The first house I ever bought was a rental, this small 560 square foot two-bedroom. I bought it for $33,000 in 2002, the year I got out of the Marine Corps from another investor. I put that deck on there, finished out the basement and immediately refinanced it for $55,000 to buy other properties.
Rental property carries a certain appeal, right? Here you have this asset that is growing in value and someone is just paying you every single month to use it. Here I was making about $43 a month after all expenses and mortgage payments on this house.
Now that might not sound too spectacular but consider a 6% appreciation added another $300 a month and the tenant was paying down another $152 a month on the mortgage principal.
So here I was making just under $500 a month or $6,000 a year on a house that cost me $33,000 in the first place. That’s an 18% return and remember, I cashed out after fixing it up so I essentially had no money in the house. I paid cash with money saved in the Marine Corps and then refinanced to cash out.
Rental property has the advantage of being a slow-and-steady approach and is less management intensive than the flipping strategy we’ll talk about next. It’s obviously more work than crowdfunding but find good tenants and it can be next to nothing in terms of month-to-month management.
The disadvantages to rental property investing are that it can take a big down payment to get started. If you can’t put down 20% on a loan, you’re going to be paying PMI insurance which is just money down the drain. Even a 3.5% down-payment with an FHA loan is going to be over seven grand on the median home value.
Three Tips for Rental Real Estate Investing
There’s also that risk we talked about earlier, that you might only have a few houses in one area so you’re exposed to the property type and the regional risks but I’ve got three tips to help you be more successful in rental property investing. These are three things I picked up on over more than a decade of buying-to-rent.
First is you have to get the house at a price where you have instant equity. That means paying less than the real value of the house. Now don’t roll your eyes, I know everyone wants to get a deal on an investment but do you know the negotiating tricks to do it?
Go into every price negotiation knowing exactly how much the house is worth. You do this by comparing it to home sales in the neighborhood within the last year, not other homes on the market but actual prices of sales. You also put together a list of homes that sold for less than the house’s value on a price-per-square foot basis.
Basically, you’re getting a list of all the sales and then cherry-picking the ones that sold for cheaper. You’re going to use this shortened list to start your negotiating, saying that compared to this list you have, the house is only worth X amount of dollars.
You also want to go into the negotiations with other things you can bargain on besides price, like all taxes or closing costs paid or repairs. This is just going to give you ammunition to get a better deal. They go up on price and you hit back with more from your list of demands.
Using just these two ideas, I regularly bought houses for between 15% and 20% less than what they were worth. You have to be ready to walk away if you can’t get your price. In fact, a successful real estate investor is going to be walking away from more deals than they take.
Second is start out with duplex or triplex if you can. This is called the house-hacking strategy because you live in part of the property and rent the other units out. Since you’re living there, you can get access to low money down loans like FHA loans and it makes managing the property a hundred times easier. You’ll learn a lot that first year as a landlord and that experience is going to be worth it when you buy more properties.
Finally here with rental property investing is buy only in a neighborhood where you would want to live. That old saying about location, location, location isn’t just a funny cliché. Don’t go buying in neighborhoods nobody wants to live just because you can get a house on the cheap. You’re going to be spending all your cash flow repairing the house when tenants destroy it and people will go all of a few months before they stop paying rent.
It’s just not worth it. Spend a little more for quality houses in quality neighborhoods.
How to Flip Houses for Profit
Our next real estate strategy is house flipping and this one is a fun one. In fact, I made most of my money flipping houses and it was an amazing experience.
I bought this 1,460 square foot three-bedroom as a foreclosure in 2010. It had sat empty for two years and it was just outright nasty. We’re talking asbestos shingles outside, plaster walls that had more holes than wall and the electrical was almost a century old.
But then again, I got the place for $25,000…so yeah, there’s that.
I took it all the way down to the studs, ripped everything out and started over. I updated the electrical, new plumbing, tiled the floors and walls in the bathrooms. The moldy bathroom got a custom dual-sink and subway tiles. That nasty kitchen with ripped up vinyl got a marble tile floor, backsplash and oak cabinets.
By doing most of the work myself, it cost just $50,000 to completely remodel before selling it for $117,500
That’s a profit of over $42 grand and we used the homestead exemption to save on taxes. Not only did we make that money but working on the project with my wife brought us closer together and there’s just something about building a house up from scratch like that.
We almost didn’t want to sell it.
So the advantages in house flipping are that huge potential for profit. This isn’t that weak ass six grand a year from rentals, this is five-figure profit in a few months but you have to put in the work. That’s the disadvantage, that to really make the big money, you have to treat it more like a business than an investment.
Three Tips for House Flipping
I’m not going to leave you hanging though, I’ve got another three tips you can use with house flipping to get you started and help you make as much as possible. The same tips for renting work here as well, getting the right price and buying in the location that’s going to make it easier to sell.
First is learn to do the value-added work yourself. This means starting with either electrical or plumbing because that’s going to be your biggest cost. I always hired out my plumbing but did all the electrical myself.
This one is going to save you a lot of money. You’ve seen these guys that show up to fix the plumbing, right? There’s no reason you can’t learn to do this yourself. Then I’d recommend learning tiling, also very easy to do and you can learn this with free weekend classes at Home Depot or Lowes. Then there’s easy stuff like painting and carpeting.
Second here is don’t be afraid to take a little longer, especially on your first project, if you can do more of the work yourself. I have a friend that only works weekends on his house flips. It takes him five months but it’s almost all sweat equity. This is going to allow you to do a little on-the-job learning at first to save money and your next flip will be twice as fast.
Finally is leave a lot of room when deciding how much loan you can afford. The number one reason people fail house flipping is they can’t afford the payments when the flip takes longer than expected.
Those house flipping shows are more entertainment than reality. Don’t kid yourself and think you can get a project done in a week and you’ll find a buyer immediately. Even flips that go off without a hitch usually take three months from buying the property to closing on the sell.
How to Get Started in Real Estate Wholesaling
This next real estate strategy is a really interesting one and one of my favorites for getting started without a lot of money. In fact, you can make five or ten grand a month here just on the weekends.
We’re talking real estate wholesaling which is like extreme flipping. Here you contract with a seller to buy the house, say with a closing in 30 or 45 days. You then spend that time lining up a buyer that is going to take the property off your hands at a higher price on the same closing date.
So you might actually own the house for all of ten minutes.
The earnest money you collect from the buyer covers the money you put down with the seller so you can use this strategy with just a few grand to get started. If the closing is done on the same day, you might not even need the down payment.
I don’t have as much experience with real estate wholesaling, I’ve done one deal but love this strategy for its potential. This is really one where you don’t need those remodeling skills like in flipping or renting and it’s an instant payoff.
You only have a month to get everything done though so wholesaling can be intense and that can be a disadvantage because if you can’t find a buyer then you’re still left holding a contract.
Three Tips for Real Estate Wholesaling
Just like the other real estate investing strategies, I’ll share three things I’ve picked up that help make real estate wholesaling successful.
First is you have to be active in a lot of real estate investor groups. This is where you’re going to find your buyers so this is one of the most critical pieces. Apart from this, that need to line up a buyer in less than a month, it’s just basic real estate investing, right?
You can take your time finding deals but then when you pull the trigger on that deal, you need to be ready to go to work.
So find a few Facebook investor groups, preferably ones that are local to your area and there are almost always a few. You also want to find the traditional real estate investor groups in your area and be active in their events.
You can usually find a few through local agents and I would say give it a few months at least to get to know people, what investors are looking for, before you start looking for deals to present them.
Of course, here negotiating that deal so you have instant equity in the property is critical. These investors you’re pitching, they aren’t newbies, they’re going to know the property value just as well as you. If you aren’t able to close on a property at least 20% below what you think you can get out of it, don’t even think about it.
Remember, you’re not going in and doing any repairs or anything to this property. You’re basically just the middleman passing it from seller to buyer so there has to be room in the price for your work.
In wholesaling real estate, more than any other strategy, walking for dollars becomes more than just valuable but necessary. When I say walking for dollars, that’s not just an expression. It means you’re walking or driving around neighborhoods looking for houses that might be ‘for sale’ but not on the market yet.
So we’re talking properties that have been vacant and the landlord is tired of the rental game or properties that are too much to manage for the owners. And they’ll be all the signs like overgrown lawns or maybe siding that needs replaced.
Why this is important is because you’re contacting the owners and buying these houses without the competition of the market. The house is worth one price on the market but since it’s not on the market, it’s really not worth that much to the owner.
It’s worth a little less because they’re paying the property taxes, they’re paying the insurance and all the little expenses but not getting anything out of it. So you can usually get these houses for that 20% discount or better.
Finally with wholesaling, you absolutely need a backup plan. Whether you can find a buyer or not, you’ve got this house under contract. I know investors that will walk away from their earnest money rather than actually take the house but that just seems like a wasted opportunity to me. If you’re serious about growing your wealth through real estate then you’re using a couple of these strategies so you’ve got this house at a 20% discount or better, turn it into a rental property if you can’t find a wholesale buyer.
Now if that’s going to be your backup plan, you do need to have the down-payment available. Usually you’re going to need this to get your financing approved anyway but make sure you are ready to take this house if you need to.
You don’t need to use every one of these strategies. I love real estate crowdfunding and rentals and those are really the strategies I use right now.
I made a lot of money flipping houses but it takes time. So don’t feel like you have to use all four real estate investing strategies but use at least a couple to build that diversified portfolio that is going to help you grow your wealth.
We’re going to be talking about building that portfolio, putting all these together in our next video. I’ll show you how I use real estate crowdfunding and REITs to make my property investing more passive and share more tips on what will make you more successful.