Investing Classes and Strategies

 

When discussing real estate investment, you need to recognize immediately, how broad the topic is.  Yes, there are some overlying elements and features that are applicable to all niches within real estate investing, but each class comes with its own uniqueness.  

The following is a list of some of the various classes one could invest in: 

Raw land1. Raw Land: Can you get simpler than this?  Probably not! Raw land is the dirt you stand on at a property. Raw land can have construction occur on it or could be leased for agricultural or mineral means. Buying larger parcels could allow an investor to subdivide the land for future development.  

House2. Residential single family homes:  When most people think about real estate investment, this is the first place their mind travels to.  It is exactly what it sounds like, a home that is designed to house a single family. This can be an 800 square foot, 2 bedroom property or a 5 bedroom, 3,000 square foot home.  

3. Duplexes, Triplexes, and Quads:  These small multifamily properties are the next step up from single family homes.  These properties, ranging from two to four units, can be purchased and managed very similarly to single family homes.  There is tremendous flexibility here with lending, managing, and investing. 

4. Small apartments:  Buildings with 5 to 50 units are considered small apartments.  Small apartments enter into the commercial world of real estate and financing, but on the lower end.  A key characteristic is recognizing how value is determined, which is done through income generation as opposed to the comparative property approach. 

Apartment5. Large apartments:  50-plus units are considered large apartments.  Large apartments bring investor into a new echelon of real estate as their size and value often lead one to be involved with many people and the sheer value is significantly higher than the aforementioned classes.  

6. Real Estate Investment Trusts:  REITs are real estate mutual funds.  A big group of investors pool their cash into one pot and purchase large holdings of property.  This may include strip malls or mega-apartment complexes. REITs, like mutual funds, are very passive for the investor.  

Commercial7. Commercial:  Non-residential properties is an easy way to identify commercial investment.  The leased property’s purpose is to house a business. The range is wide when examining commercial properties.  You will find small local businesses to large supermarkets or industrial parks. A unique element of commercial investment is the lending facet is a little more stringent and expedient than a conventional residential loan.  

8. Notes:  When using a loan to purchase a property, the terms are prepared with a note.  There is a niche where these paper mortgages or notes, can be purchased and sold just like any other product.  

The complexity, at least in options, increases as you decide about how you plan to generate cash-flow from your property class.  There are three primary strategies to consider:

  1. Buy and Hold:  This strategy is the simple buy a property and rent it out.  The renter uses the cash-flow generated as passive income and a means to pay down the loan used to purchase the property.  When choosing to go down this path, it is very important to analyze the entire deal ensuring that all expenses on the front-end as well as on-going are considered ensuring positive cash-flow.  Additionally, systems need to be in place regarding the management of the property; will it be done by the owner or a paid property manager? Buying and holding a property also offers variety in the length of ownership.  You can own the property through the life of the loan or sell it when the property achieve an optimal level of value. 

  2. RenovateBuy and Flip:  If you have tuned into HGTV, you likely have watched a flipping-themed program.  An investor purchases a property on the cheap, and then renovates it creating instant equity.  Just as with the buy and hold strategy, flipping requires analysis to ensure value exists in the deal.  You have to assess how much you plan to spend on renovations and what the after repair value will be. Speed is also a critical factor.  The faster you can flip the property, the sooner you receive income and reduce your carrying costs.  

  3. Wholesaling: This lesser known strategy operates with the notes of real estate.  Here the investor finds a property, writes a contract, and then sells the contract to another buyer.  The income comes from the fee charged for selling the good deal to another investor who may not want to do the legwork that a wholesaler is willing to do.  Wholesaling can be very simple and require little overhead to begin your investing path.  

While investing in real estate goes well beyond these 800 words, these points provide an initial introduction.  There are options for many, and many can do it with limited cash flow. To begin you simply need to educate yourself, align with a team who can help in the areas you are deficient in, and find a great deal in the niche that most interests you.  

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