This is simply an overview of some of the basics of the most popular strategies used today, so that you can compare and contrast the benefits they provide, the resources they require, and the hassles they produce.

Landlording.

?  The basics: buy a rental property, keep it occupied, managed, and maintained for as long as you can stand it.

?  The benefits: cash flow, long-term wealth through appreciation and pay down of the mortgage balance by rental income, tax breaks through depreciation.?  The hassles: management and maintenance can be time-consuming, tenants can be frustrating, often takes many years for a property to show significant cash flow. You can't pull cash out without refinancing or selling the property, and there's a long and growing list of liability issues, including lead paint, black mold, radon, asbestos, personal injury, discrimination that come with owning rental properties.? What you'll need to do it: 10%-20% of the purchase price in cash as a downpayment plus good credit, OR a cooperative seller who's willing to carry the financing privately; cash, in the amount of approximately $2,000 per unit, as "capital repair fund" for turnovers, emergency repairs, upgrades, and so on; good people skills and patience for dealing with tenants; time to deal with management and repairs; an education in tenant-landlord law in your state; and understanding about how to screen tenants carefully; and entity, such as a limited liability company, to own the properties and shield your personal assets from liability.?  Good for: people who are building income and assets for retirement.

Retailing

?  The basics: buy a 1-3 unit property that needs repairs and upgrades in an affordable but desirable area at an under-market price. Bring the property into good condition for the neighborhood; sell it to a qualified homeowner for full retail price.?  The benefits: a cash profit of $20,000 or more in 6 months or less?  The hassles: repairs are ALWAYS more extensive and expensive than predicted; finding and keeping skilled, affordable contractors; finding qualified buyers and moving them through the purchase process without incident; not tax-advantaged.? What you'll need to do it: 10%-20% of the purchase price in cash as a downpayment plus good credit, OR a cooperative seller who's willing to carry the financing privately; access to cash in the amount of the repairs and holding costs; a working knowledge of renovation, including how repairs are made and how much they should costs; a trustworthy general contractor, or a team of subcontractors; a good real estate agent or the ability to show and sell the property yourself.?  Good for: people who have renovation experience and access to cash who want relatively quick, cash profits with no long-term obligations.

Wholesaling

?  The basics: find a 1-4 unit property that can be purchased at least 30% under market (typically because it needs significant repairs), get a purchase agreement with the seller, assign your right to purchase the property for a fee of $5,000-$ 10,000 to an investor. The investor steps into your shoes and purchases the property at the agreed-upon bargain price, then fixes and retails it for a profit or fixes it and rents it for cash flow.

?  The benefits: a cash profit of $5,000 or more in 3 weeks or less with NO repairs or cash out of pocket

?  The hassles: creates a one-time profit-if you want another check, you'll have to find another deal; taxed as a short-term capital gain.

? What you'll need to do it: the time and ability to talk to many, many sellers (usually takes about 20-50 contacts to find one good deal; contacts with a number of investors who will buy your contracts, and who can buy the properties with cash

?  Good for: anyone who needs quick cash; new investors who have no experience in renovation or rental management; people with limited cash and credit.

Lease/Optioning

?  The basics: find a 1-3 unit property that can be purchased 20% under market or with favorable seller terms. Lease the property to tenant who wishes to purchase it after 1-2 years.

?  The benefits: 3 paydays-one in the form of an "option fee" of 1%-5% of the sale price when the tenant/buyer moves in, plus monthly cash flow from rents, plus a final payoff when the tenant/buyer purchases the properties; tax benefits similar to renting; tenant/buyer typically takes care of repairs and maintenance as part of his option agreement.

?  The hassles: not every tenant/buyer purchases the property, which means you have to start the process all over again.

? What you'll need to do it: 10%-20% of the purchase price in cash as a downpayment plus good credit, OR a cooperative seller who's willing to carry the financing privately; access to cash in the amount of the repairs and holding costs; a good mortgage broker who can get financing for "B" and "C" credit buyers.

?  Good for: people who want medium-term cash flow and tax benefits without the management hassles of renting

Selling with Owner Financing

? The basics: find a 1-3 unit property that can be purchased 20% under market or with favorable seller terms. Sell the property with owner financing (usually a land contract, contract for deed, or seller-held mortgage) to a homeowner.

?The benefits: Cash flow with no management or repairs responsibilities

?The hassles: Foreclosure, if the buyer stops paying; no tax advantages

?What you'll need to do it: In order to sell a property with an owner-held mortgage, you must own it free and clear-in other words, pay cash for it. The sell via land contract or contract for deed, an understanding lender-these strategies both trip the due-on-sale clause in a typical mortgage.

?Good for: people who want medium-term cash flow without the management hassles of renting

And yes, there are other strategies for making money in real estate: becoming a private lender, investing in group homes, and developing land are just a few. But these 5 are the easiest to understand and easiest for most people to handle in terms of the cash and credit requirement. None require special licenses, and each is a proven money-maker. But as you can see, each also provides different benefits and requires different types of skills and resources to accomplish. Choosing the right strategy (or combination of strategies) will allow you to reach your income and wealth goals with a minimum of work; choosing the wrong ones is a recipe for financial disaster.



Source: www.regoddess.com

 

Do you own real estate articles or stories and want to share with other investors? 
You have chance to win $100 Amazon Gift Certificates. We will give away 3 prizes for top authors each month!

Email your articles or stories to:  articles@buyincomeproperties.com

 

© Copyright 2001 - 2010 by BuyIncomeProperties.com               

 

 

Visit Real Estate Forums for every real estate investing topics!  Enter Here

    

Top of Page