One of the toughest things for a new real estate investor to figure out is which real estate investing strategy is right for them. There are so many choices; so many different strategies that it can be confusing in the beginning.
You first have to decide whether you are looking for investment opportunities in residential real estate, or in the arena of commercial investing. I feel very strongly that everyone should choose residential real estate in the beginning. Generally speaking, there is more risk in commercial real estate, and it can be a very difficult field for new real estate investors to navigate. You will most likely need a whole lot more money or a big credit line to get started.
If you choose residential real estate, then there are still more choices to be made. Do you want to invest in single family homes or multi-family properties? Personally, I believe that single family homes are where new real estate investors should begin no matter what your investing strategy is. You can move onto apartment buildings and other things when you have more experience.
How Do You Choose A Strategy?
I have found that folks generally fall into one of two groups. They either came from a family that had a real estate background, or they have absolutely no experience in this field.
If they had a parent that was a landlord and they had a “mom and pop” type of business that got repair calls every night at dinner, then you’re very likely going to find someone that wants nothing to do with rentals. These folks come into real estate investing with very strong opinions on the subject. They are often very clear on what they don’t want to do.
On the other hand, if they have never had experience with real estate investing, they probably won’t have a clear idea of what they do want to do. Most folks that I know fall into this category. They try one or more investing strategies before they finally settle on one that is a fit for them. Personally, that’s what I did.
When I was growing up my dad was a contractor. He used to drag me around to job sites almost from the time I was in grade school… and I loved it. When I decided to go into real estate investing, rehabbing was my first choice. I loved rehabbing, but one of the weaknesses of a newbie real estate investor, is learning to buy the properties cheap enough. Let’s face it most of us aren’t the best negotiators when we are just starting out. You always need to remember that you make your money the day you buy the property. If you pay too much initially, chances are you won’t make money on a rehab.
So You Want To Be a Buy and Hold Landlord
I had also decided to be a buy and hold landlord. I knew this was they way to build long term wealth. But personally I never liked this strategy.
I hung in there for about 4 or 5 years before I declared that” life is just too short to be miserable”. I have a good friend that has had as many as 100 or more rentals at one time. This is what he said to me; “Sharon, what you have is a painful hobby. If you want to do this as a business, you need at least 25-50 houses”. It was at this point that I sold my rentals and never looked back. I have to say that I have a number of friends that love being a landlord, but that wasn’t me.
Your Strategy Will Ultimately “Choose You”
The real estate strategy that I ultimately fell in love with was wholesaling. I took a look at what I was good at and that was marketing. I turned my knack for marketing into finding motivated sellers and building my buyer’s list. I also love that you can earn big chunks of cash with wholesaling. Looking at a long term plan for my business, I knew that I could eventually outsource a lot of this work. I also knew that I could develop profitable streams of passive income on the internet that didn’t involve tenants and toilets.
In the end, I really believe that a strategy will choose you. There will be one or more that you just can’t wait to get up and work on each day. With a little trial and error you will discover which one is right for you.
Sharon Vornholt has been investing in real estate since 1998. She is an experienced rehabber, landlord and is now a full time wholesaler and internet marketer. She also has a popular blog for real estate investors that you can find at: LouisvilleGalsRealEstateBlog.com.
Some great points are shared here. Since all real estate investment are not the same, it's important to determine what type of investment fits one's strategy. Nice and interesting blog!
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Hi Bernie -
I agree completely. It's much easier with a manager. But for most investors that only have a couple of properties, it just isn't feasable from an ecomomic standpoint. I think that you can add duplexes and triplexes into the single family mix in most cases.
I personally know several investors that manage large portfolios themselves - 100+ properties. One of them is at the 200+ number. He has both
residential and commercial properties of all types.
In both of these cases, they manage the properies "in-house". One person actually set up a separate corporation for the management company. While his rental business pays management fees, they are being paid to his "other" company.
What both of these investors did was hire a single office person for the administrative end of their business. They are able to do it this way because they both have good systems in their business. In both cases, they have other staff members for the repairs, rehabs etc.
I can't imagine any idividual managing more than a handful of rentals on their own and having a life. That's why I recommend using a property management firm to handle the grief. Also, I would recommend expanding the beginners approach from single family to duplexes and triplexes. They are little different from a single family residence.