Real estate offers huge payoffs to the creative investor who works hard. But that’s just the problem. In order to get paid with real estate you always have to be working. If you stop looking for properties and writing offers the money stops too. There is an exception if you have the luxury of buying large pieces of property and having someone else manage them. But for the rookie investor this isn’t an option.
So what are the experts doing? What are Robert Allen, Ron LaGrande, and Carlton Sheets doing with their expert knowledge? Let’s discuss what they aren’t doing. They aren’t scouring the newspaper looking for public notice foreclosures. They aren’t knocking doors making offers to desperate sellers. They aren’t sending form letters to out-of-state property owners. Do you know why they aren’t doing any of the things they know so much about? Because it requires too much work.
Instead of being knee deep in real estate they are making their money teaching people how to invest for themselves. They aren’t real estate investors anymore, they are information marketers. These experts moved from real estate investing to information marketing because there is easier money in selling information.
Selling information gives you many advantages over any other business model. The first advantage is that selling information has great margins. This means for every dollar you spend on expenses you can get 2, 3, or 10 dollars of return. They wrote their material one time and sell it over and over again. It doesn’t cost them any thing extra after they get the system up and going.
The easiest and fastest way to sell information is through the internet. Setting up an internet business requires very little risk and investment. Unlike real estate investing which requires a lot of personal risk. If one real estate deal falls apart you could lose your home or destroy your credit. If your internet business fails nothing major is at risk.
The chance of your internet business failing is a lot lower too. If you do your research and avoid spamming techniques there’s little that can destroy your little business. With real estate, on the other hand, there are hundreds of ways for a deal to fall to pieces. Things like shifts in market, unexpected expenses, and people flaking out can all cause your real estate investing to sour.
The real clincher for an internet business being better than real estate investing is this: passive income. Passive income is a powerful force. Your internet business will make you money while you sleep, while you’re on vacation, and while you’re doing other things. Some real estate investors will probably bring up rental properties. Isn’t that passive income? My wife’s parents have a lot of rental properties and they are always chasing down payments, fixing things, or paying the bills. It’s really not as passive as it first appears.
So, let’s leave real estate investing to people that don’t know better and do what real estate gurus are doing instead; selling information online.
Probably the best way to describe where everything fits in, it's best to think of a triangle. If you look at Real Estate like a triangle you'll see that on one side we have Rehabs, on another side we have Rental Property and on the last side of the triangle we have wholesaling.
I consider wholesaling to be the bottom side of the triangle, the foundation. Wholesaling is the foundation that quickly injects large chunks of capital into your home buying business. This is the capital that you'll be using to grow your business and purchase long term wealth vehicles like Rental Properties. I personally wouldn't recommend trying to do any of the other real estate investing strategies until you've had a few wholesale deals under your belt.
Wholesaling, or "Flipping" properties is by far the easiest way for a new real estate investor to go from zero to $20,000 in 30 - 45 days. It won't take you long to get to the point where you're making $10,000 to $20,000 checks each and every month only working a few hours a week. That's probably one of the greatest benefits that you'll find when wholesaling Real Estate.
Who wants to worry about fixing junk properties..or unclogging toilets? This is a strategy that you can put on auto pilot if you put the appropriate systems in place. If done properly, you should only need to show up to Close The Deal & then to pick up your check at the title company. Remember that time is your most valuable asset!
Once you've created your investor list (which we will discuss) it won't be hard for you to move these deals in a short amount of time, normally within 10 to 15 days. Your buyers will be paying with All Cash and financing is not an issue.
This is much easier than selling to an "End Buyer". In a slower Real Estate Market, it may literally take two to three months for you to find a qualified buyer who wants to buy the property. Remember that the keyword here is "QUALIFIED BUYER". When you're dealing with other investors you know that they either have cash or hard money, and financing isn't a big issue. When you're dealing with "Joe Q. Public" you're going to get interested buyers with various financing issues and you're the one that has to worry about getting the deal closed. Once you find a buyer, you've got to get their loan approved, then you've got to get the loan taken care of, get the appraisal and all the other things that come with a regular retail buyer, and so it may take anywhere between three months to eight months to close a deal on a rehab, going from purchase - rehab - resale.
That brings me to another reason why I prefer wholesaling real estate over rehabbing. When you buy, fix and resell real estate, you're committed to the property. Once you close on that baby it's your's...The Good And The Bad! If some unforeseen problem arises (It always does), you're going to be the one that carries the expense. If you're rehabbing a property, you've got to start by hiring a contractor or handyman. You've got to get him to do all the repairs to the property, market the property, go through the process with the end buyer. All of this may take a long time, and you are the one carrying the costs. Every day that this property remains in your possession, money is pouring out of your wallet.
In a wholesale deal, all that you are really doing is getting control of the property. You would simply take the same property that you would normally buy and rehab, and get it under contract. Then, you're taking that contract, marketing it and selling it to other investors that want to take on the project. There are investors out there that prefer doing rehabs. These are investors who have the cash to pay and who don't mind waiting six months to do a rehab. There are also investors that want to do a deal, but are horrible at talking to sellers and would not be able to secure the pricing that you can. These Rehabbers have no problem paying you an "assignment fee" (the amount that you pocket when you sell your contract) because they understand that it is a cost of doing business for them.
The Rehabber will generally net more than a wholesaler, but look back at all of the risk and time associated with doing a rehab. The average, depending upon your location is between $25,000.00 to $40,000.00. and at times even more. But most wholesale deals are going to net you anywhere between $10,000.00 and $20,000.00. Usually about half of what the average Rehabber makes per deal. However, unlike the rehabber, as a wholesaler, you have more control of the amount of money you earn. The best part of wholesaling is that your pay is directly proportionate to your ability to put deals together and not how much time or physical labor you have in a deal. As you get better at negotiating, you'll be getting properties under contract for less and less, allowing you to sell the contract for more and more.
I would personally rather do four wholesales and spend less time than to wait six to eight months for a single rehab to cash out. Even if you're in a position to wait that long, is it really worth the risk? That's the question that you need to ask your self when deciding which real estate investment strategy you want to take on. Exactly how much risk are you willing to accept?
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