One of the biggest issues we investors are faced with when we first make the decision to invest in real estate is “which strategy should I choose?” It’s a complicated issue as there are literally hundreds of different strategies to choose from.
I feel uniquely qualified to speak to this topic since I have tried several different investing strategies during the course of my investing career. I learned two important lessons: 1) Don’t give up on real estate investing just because a strategy didn’t work out and 2) Real estate investing strategies are not “one size fits all.”
When I first began investing in real estate in 1994, the first strategy I tried was tax lien investing. I liked it because I could get in with very little cash and tax liens in my county paid 16% at that time and that sounded pretty good to me.
It went pretty well. I rounded up some friends at work and we pooled our cash to invest in the liens. We “won” four tax lien certificates at auction and invested about $2,500 for all four. Three of the liens redeemed at the expected 16% but I have to tell you that my cut of the profits was pretty tiny. Too tiny in fact.
On to residential lease options.
I went to a lease option bootcamp and one week later I had signed up two properties. A condo 40 miles from my house and a house 43 miles from my house.
When I found myself zip-tying bandit signs to a telephone pole at 11pm 43 miles from home in the snow by the (rapidly approaching) light of a cop car, I decided that there had to be a better way.
On to rehabbing.
I think you get the idea.
Here’s what I wish I had done before I chose a strategy: taken an inventory of my skills, financials and time. I think I would have avoided a lot of wasted time strategy hopping. Here are some questions you should ask yourself before selecting or considering changing strategies.
Am I a strong negotiator?
Am I handy with a hammer and nail?
Am I a good networker?
Can I deal with forms, applications and red tape?
Do I have good organizational and follow up skills?
Am I a good manager?
Do I have good credit?
Can I qualify for conventional financing?
Do I have any cash for repairs and/or holding costs?
Do I need fast cash or a tax shelter?
Can I conduct business during normal business hours?
Do I have more than 20 hours a week to devote to this business?
Here are some potential strategies:
Fix and Flips
Subject To/Lease Options
Buy and Hold
Private Money Lending
Here’s how to use the list:
If I had a ton of time, poor credit, no cash and wanted to invest for fast cash I would choose wholesaling. I would not choose buy and hold.
If I had no time during the day, good credit and lots of cash I might choose private money lending or note buying since I can do that for the most part on the weekends. I would not choose bulk REO or short sales since they require speaking with business people during the business day.
Really give some thought to the strategy you choose to make sure it aligns with your skills, time and financials. You’ll be happier. I promise.