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Each investor will have their own criteria for making a strategy choice. But as I’ve said many times, it’s best to choose a strategy that will be supported by the underlying market fundamentals. The fundamentals are the circumstances that you cannot change about a property. For example – the location of the property is a fundamental issue. You can’t change it. Interest rate activity is also a fundamental that has a widespread impact on the market. If interest rates are rising, it may be more difficult to sell, and when interest rates are low, as they are today, your cash flow from rental could be higher. So a key part of the decision making process is looking at the fundamentals.

Let’s compare a scenario in which we are going to decide whether to keep the subject property and rent it for monthly cash flow, or whether we’ll just sell it outright for a cash profit.

Here is a fundamental question: Where is your financing coming from?

Are you a qualified buyer who can get a long term loan with alow interest rate? Or are you a credit challenged buyer who cannot qualify for a low cost mortgage, but can get a hard money loan for 6 months? One buyer may get cheaper money, with a long time frame for repayment, but another buyer may only qualify for a short term hard money loan at 12% interest, that must be paid back in 6 months or less.

In this case, the fundamental money issue would determine that buyer one, who can qualify for cheap money, might prefer to hold the property for rental because his financing costs are low; he has a long time frame to work with, and his cash flow will be much better with that cheap money. Holding for rental or a lease-option strategy could yield tens of thousands of dollars in net cash flow over time, and eventually, when the property is paid for, the investment becomes a money printing machine.

On the other hand, what if you can’t get that cheaper bank loan, and have to go with a private, hard money loan. This loan is usually via a private, sometimes professional lender, who is willing to loan about 65% of the After Repair Value, to buy and fix the property. But this loan comes with a 12% interest rate, and 5 points at closing. (a point is 1% of the loan amount)

This money is not cheap, and you have to have it all paid back within 6 months. If you can’t get the long term financing, you must sell the property as quickly as possible, in order to pay off the hard money loan. So, the likely choice of exit strategy would be to “flip”, i.e. resell the property, to another buyer as soon as possible. If you negotiated a good price for the property, you should be able to sell it for a quick profit. The amount of cash profit will depend on how good of a job you did figuring out what the property will be worth after the repairs are completed. This is the After Repair Value.(ARV)

Let’s say the ARV of the property is $100,000. A hard money lender will loan you about $65,000 to buy and repair the property. You are a good negotiator, and you buy the property for $45,000, then allow $20,000 for the repairs. (including all holding costs as well). If your total investment is $65,000 and you then sell the property to an owner occupant buyer for $85,000, you’ll pocket a gross profit of $20,000. If you can do that before your loan deadline you’re good to go.

As an alternate, you can get the property under contract for the same price, then find an investor who wants to do the rehab himself. You decide to accept a quick cash profit of $5,000 and sell your $45,000 property to the other investor for $50,000 just two weeks after getting it under contract. That is $5,000 in two weeks, versus $50,000 from cash flow over 10 years.

The choice depends on the fundamentals that control the specific situation. When deciding whether to hold for rental or to flip quickly to another buyer for quick cash, this decision is often determined by your access to financing. Other investors may have access to both cheap money and hard money. In this case they may choose to hold the best properties for rental, while flipping the less desirable properties to another investor.

Creative financing strategies are also very popular these days, because millions of former homeowners now have a bankruptcy or foreclosure on their credit. Many others have a wage garnishment for other debts. Since the recession began, more than 7 million people have fallen victim to unemployment or reduced income. These folks still have options as well for buying a home to live in or a home for investment. It’s all a matter of knowing what strategies are best for you, and that decision is based on what fundamentals are in play. These choices are different for each person, but there are choices and opportunities out there, for anyone who takes the time and makes the effort to discover what they are.
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Donna S. Robinson is a real estate investor, author and investing coach located in Atlanta, GA. Follow her on twitter at donnaconsults, Facebook.com/RealtyBizConsulting and watch her videos on youtube. Her latest book, Basics of Real Estate Investing, is now available for Kindle on Amazon.com

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Investor number one: Gene

A down home country boy from north Georgia who is about as smart as they come. I selected Gene out of literally dozens of investors I could have chosen because Gene is one of the most successful investors that I’ve ever met, and has one of the more unusual investing strategies that you seldom hear about.

Gene told me this story himself during a casual visit to his office a few years back. Gene’s main strategy is keeping up with what state and local governments are planning to do, especially as it pertains to development of new projects.

Back in 1975 Gene was at a Department Of Transportation meeting when they decided to put an extension of an expressway system right through his small town. Through this public process, which anyone can attend, Gene discovered exactly where the new exits would be located for this expressway. Though the area was totally undeveloped, and at that time had virtually no value for immediate commercial use, Gene raised $86,000 and bought 100 acres surrounding the area where one of the planned exit ramps would be located.

During the ensuing years, Gene kept that land and paid very low property taxes, and waited for the expressway and the exit ramps to be built. It would be about 15 more years before the area became highly desirable for commercial use. But it eventually did. Today Gene prefers to offer 100 year leases to commercial clients, and has gas stations at this exit, restaurants, hotels and several other businesses, with land left over for new clients. If someone wants to buy an acre of this land, Gene’s asking price is $1,000,000 per acre. Not bad for an original investment of $860 per acre.

The main keys to his success are the ability to be very foresighted about what would happen in the future, and the patience to take advantage of it. In the years since that original purchase, Gene has duplicated this model many times over and owns a wide variety of commercial properties with tenants that include every one from mom and pop businesses to oil companies to fortune 500 retailers. He is a buy and hold guy all the way, and prefers to hold and lease rather than sell outright.

Investor number two: Mary

I had to get at least one of the ladies in here. I chose Mary because she too has a very unique storys as well as a creative approach to real estate investing.

Mary’s parents emigrated to the U.S. after barely surviving World War II in eastern Europe. After losing everything they had during the war, they arrived in the U.S. with nothing, to start a new life in America. Mary was born some years after their arrival in the U.S.

Today she is a highly successful real estate broker, who has her own realty company in addition to her investing activities. Mary owns apartments, buys and sells single family houses and has a typical investing business. But she did a deal once on a mobile home park that was very clever and something that you don’t hear about every day.

The mobile home park was one that had a reputation for drugs and trouble. The previous owners had allowed the park to run down, and because several of the tenants were involved with using and selling drugs, most of the better tenants had moved out, leaving the park half empty as well. But Mary is a bold investor who knows the real estate business inside and out. She saw something in that park that no other investor saw.

After closing on the park she promptly informed all of the current residents that there would be a crackdown on drugs and drug dealers. Using the legal tools at her disposal, she quickly rid the park of all those who had been identified as problem tenants or involved in drugs. Then she cleaned up the park to make it more desirable for future occupants.

Mary also had a creative idea up her sleeve that was truly a stroke of brilliance. While doing her due diligence on this park, she discovered that each of the individual mobile homes also had their own septic tank. Many communities of this type have several units sharing one tank, but in this case, they all had their own.

Because of this fact, Mary was able to get each of the units in the park rezoned as individual residences, with each lot partitioned into an individual parcel. As a result, Mary was able to offer the units for sale with owner financing. People could come in and buy their own unit instead of renting.

It worked like a charm and Mary sold the units off to owners instead of renting to tenants. The result was a higher cash flow per unit, while avoiding headaches and costs of maintaining the units. A run down, drug infested park was transformed into a major cash cow. Mary never stops learning, and considers all of the strategies that may be employed when looking at a potential investment.

In my next article, I’ll feature two more professional investors who have been wildly successful.

Donna S. Robinson is a real estate investor located in Atlanta, GA. Follow her on twitter at donnaconsults. Her facebook page is facebook.com/realtybizconsulting Her latest book, Basics Of Real Estate Investing” is now available on Amazon.com

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Real estate is a profitable vehicle for any investor who is dedicated to learning about all of the different types of investments, option, risks and potential rewards that come with real estate investing.  There are many different ways to invest in real estate.  Here are some of the more common ones people use to get started.

Rental property 

This is one of those rare real estate investments where you can make money even if you pay top dollar for the property.  The reason is you are going to hold onto this property for the long term.  You’re only requirement is that the property generates a positive cash flow.  This means after you sum up all of your expenses on the property like financing costs, taxes, insurance and a vacancy rate, the amount you are collecting in rent surpasses this figure.

This is one of the classic “get rich slow” methods of real estate investing.  You are making a small amount of money each month from the property in rental income, and you are also slowly building up equity in the property over time as you pay off the financing.

Pre-construction investment 

Also known as buying property on “spec”, or on the speculation that when the property is finished it will sell for a much higher price than you have invested in it.  Pre-construction investments are mostly made on new condominium projects where investors fight to buy the units before they are built assuming the price will come up once construction is complete.

I have known investors who have purchased several condo units in a facility being built and put $5,000 down on each unit as a down payment.  Before the property was even constructed, they “flipped” their contract to an end-user buyer who was willing to pay them as much as four to five times their down payment just to get in on the deal.  The major problem with this type of investing is it normally only works when a market is going up regularly.

In a down market like we are experiencing right now, it’s  much harder to make a quick buck although there are still some good deals out there, the tricky part is identifying which places are going to be seen as desirable to live in and experience market growth in the next 12-24 months.

Flipping houses 

House flipping or condo flipping has come on leaps and bounds in the last few years thanks to the popularity of many popular home improvement and house flipping shows on cable networks in the last few years. Even so, flipping has caused many investors to lose a great deal, as many have no real idea of what it actually takes or costs to renovate and flip a property.

People tend to think “I saw it on television and I can do that”, and then before they know it they can get themselves in heaps of trouble.  Investors have to remember, television doesn’t show you the whole picture.  You have to be aware of all of the hidden costs like marketing the property, closing costs, plus carrying costs if the home doesn’t sell right away, etc.  You need to make sure you are buying the property at a significant discount to cover yourself completely.

Buy and hold

As mentioned above, real estate almost always gains value over time (eventually!)  Even the worst properties in the baddest neighborhoods will probably accrue equity if given enough time (so long as the neighborhood isn’t knocked down!).  History has shown us that even  when a large market correction occurs like has happened now, properties do eventually recover and increase in value.  The secret is to make sure the property is at least covering it’s own costs while you wait for the equity to build up in it.

Lease options

Not everyone has perfect credit.  For those who have credit issues, finding a lender to purchase a home can be an impossible task.  These people need time to get their credit repaired.  They are however, perfect candidates for lease options.

With a lease option, you can expect to pay above market value for the property, and you’ll also have to come up with a non-refundable down payment. The whole idea behind this is that you’re paying for the privilege of rebuilding your credit score faster, while working towards the ultimate goal of home ownership.

For anyone in a bad credit situation, lease options present a solution to their lending problem and buy them the time they need to get their credit score ready to go to a traditional lender.