Next Trending Real Estate Strategy

[Jared Dewey]

Pretty new to the game of real estate here. People talk all the time about amazing strategies and then others chime in with their opinions that the strategy is dead, it doesn't work any more, etc. etc. My question to you guys is: What is the next best strategy? What are some strategies that are dead and or strategies to steer clear away from? What is the tried and true method? Let me know your opinions in the comments below.

[Don Konipol]

Quote from @Jared Dewey:

Pretty new to the game of real estate here. People talk all the time about amazing strategies and then others chime in with their opinions that the strategy is dead, it doesn't work any more, etc. etc. My question to you guys is: What is the next best strategy? What are some strategies that are dead and or strategies to steer clear away from? What is the tried and true method? Let me know your opinions in the comments below.

1. Buy and Hold - Simplest strategy with least risk. However, unless high leverage is combined with high inflation, takes a long time to accumulate wealth. Great for self directed retirement funds (especially Roth) when investor is 45 or younger.

2. Buy and Hold with Value Added – Requires knowledge, experience, time and capital than simple Buy and Hold. Higher ROI, faster wealth accumulation. Harder to find, identify and finance target properties. Greater risk of costly mistakes. Not as forgiving as simple Buy and Hold.

3. Fix and Flip Residential – Relatively simple strategy requiring knowledge of construction costs, property valuation and appraisal, managerial ability. Transactional profit; wealth building has to come from saving and investing the resultant profits. A hybrid between an investment and a business.

4. Fix and Flip (Reposition) Commercial – Potential high ROI often requires either joint venture partner or deal syndication. Besides usual skill set of construction, real estate and managerial knowledge and ability requires local market knowledge and property segment knowledge.

5. Development - Highest risk potential highest reward strategy. Requires all skills and knowledge described above PLUS risk containment/modification, investor relations, financing knowledge, and patience to go through multiple layers of bureaucracy to obtain the numerous approvals necessary to finalize the project. Get ready to spend a lot of money upfront for professional drafting, architectural, engineering and environmental studies, reports, forecasts, etc.

6. Distressed Property Purchase – This covers the broad spectrum of strategies that hopefully result in the purchase of a property significantly below market value. Main skill set is analytical ability and negotiating expertise. This is an area where high ROI can be combined with relatively low risk. The downside is that everybody and their brother is looking for these deals. Best way to secure this kind of deal is when you find one have the cash available to provide a large non refundable earnest money deposit and to close quickly. Wealth building can be accelerated with just a few of these deals if successful.

7. Wholesaling – actually isn’t wholesaling as wholesaling is …… well, lets not go there and just agree to call it “wholesaling”. Basically a TIME risk as little capital would typically be invested. UNLESS the wholesaler really wants to compete in the market and then they can spend $10,000 per month on marketing. Some say its brokering without a license, others say its not investing its a job, both probably true. I do know some large wholesalers who earn a relatively large steady profit year after year and build wealth by saving and investing. Over hyped with many false promises by gurus selling $30,000 mentoring programs to people with little capital but the ability to extend their credit card limits. Got to be a 99% + failure rate. My advice – if this is what you want to do just become a real estate agent and wholesale on the side.

8. Investing in Syndications, Funds, Joint Ventures as Passive Investor - Limited returns but carefully chosen a portfolio can ROI at 12%. Need to research both sponsor and investment thoroughly, and diversification is key so one disaster beyond your control doesn't put a dent so big in your net worth that it sets you back 10 years. I'd recommend a minimum of 10 different investments with at least 5 different sponsors spread out evenly.

9. Hard Money Lending – If done on your own actually requires MORE knowledge than investing in property. Returns in the 12-15% range depending on the amount of risk, and if you're comfortable/confident to lend secured by commercial real estate or you want to stick to SFR. Moderate risk for a moderate/high return.

10. Short Term Rental – High day to day involvement make this a business as much as or more than an investment. Returns superior to buy, hold, and rent IF you don't consider the value of your time and expertise. Some people will tell you technology will allow you to run the STR from anywhere; while this may be true it still takes a considerable amount of time. Plus, you're "on call' 24/7. Hiring a property manager eats into a lot, if not most of the profits in excess of what you could make with a standard long term rental. Some have had success with the hybrid of Mid Term Rental, which is similar to furnished rentals.

11. Triple Net Lease – with a credit tenant its very low risk and very low returns. More like a long term corporate bond. With non credit tenant returns can be MUCH higher – I’ve had returns in the 15-20% annual range, but risk of tenant default makes this a medium to medium high risk investment.

12. Hotels – A business with a real estate investment aspect IF you’re the owner-operator. If you own the real estate and lease to a management company then this takes on the properties of aa Triple Net Lease. There’s also the option to own the hotel or motel and hire a management company on a set fee or percentage of revenues basis, which would put this somewhere in between on the risk/return scale.