Inspired by the Breakthrough real estate investing podcast hosted by Rob Break and Sandy Mackay
If you’ve been thinking about investing in real estate, then you’ll love this informative series of blogs on getting started as a real estate investor.
One of the first decisions you will have to make as an investor is: are you a passive or an active Investor? Active investors take the time to learn the often laborious process of renovating while passive investors typically never have to step foot inside a property.
Passive investors know how to source good investments and make high returns and that’s all that they have to know. Understanding your preferred investment strategy will save you time and money as you build your portfolio.
Most real estate investors use one of three strategies:
- Fix and Flip
- Buy Wholesale/assign a property
Most of us are already familiar with a Fix and flip, which is the strategy of purchasing a property, renovating it, and selling it at a profit. Less of us are familiar with wholesaling, also known as an assignment.
According to Investopedia, in real estate wholesaling, the wholesaler contracts a home with a seller, then finds an interested party to buy it. The wholesaler contracts the home with a buyer at a higher price than with the seller and keeps the difference as profit. Real estate wholesalers generally find and contract distressed properties.
The most expensive strategy is a buy and hold strategy. A popular version of this strategy is a BRR. BRR stands for buy, renovate and refinance. This strategy is about maximizing the use of the property.
An example of this is taking a single-family home and turning it into a two-unit triplex. Once you’ve renovated, the bank will assess what you’ve done (typically at a higher value). Once you have a higher evaluation on the property, the bank will lend to you again, giving you the leverage to pull money out of the property.
A BRR is the one strategy that allows you to have your cake and eat it too, you get to keep the property and make your money back!
There are very few investment strategies that allow you to do something like this. The leverage you get from the bank gives you a lot of options to reinvest. The BRR method is a safety net when it comes to investing. You don’t have to sell right away, you can carry the property until the market catches up.
Don’t know which real estate investing strategy is best for you?
The amount of money you have will dictate the best investment strategy for you. A person with no money will want to start out with a wholesaling approach because they won’t have to put any money down.
A person with some money will likely buy and flip right away so they can pay off debts as soon as possible and avoid costs associated with carrying a property. The most financially secure investor will be able to buy, renovate, and refinance while holding the property over time and reinvesting in a second property.
Are you ready to become an investor? We would love to read your thoughts in the comments below.
Look out for more of our blogs about investing in Hamilton real estate.
At the Mackay Realty Network, we specialize in building generational wealth and would be happy to help you take the next step. Meet our founders: