I understand the search for information on real estate investing can be difficult to find. Many books are feel-good, motivational pieces without much substance. They contain no real idea of what the field entails or what it takes to be successful. I, like many of you started out my journey reading those same books. Time after time, I found myself just wishing for basic information. I was motivated already. What I needed was the information on what real estate investing is, how it works and how you can get started. This article is intended to briefly describe the different types of real estate investing. I’ve written this from the knowledge I’ve gained during my own search. Good luck and happy investing.
Types of Real Estate Investing
Real estate investing is many things to many people. It is a very diverse field. For some it is a part-time job, for others it’s a full-time occupation. For one person it may be a bit of extra cash, but to another the path to financial freedom. To begin to understand this highly diverse field, you need to know some investment types covered in this broad category.
Wholesaling
Wholesaling is the cheapest way to get into real estate investing, and for that reason, seems to be a natural point of entry into the field. A wholesaler is a person who finds a person who is selling a home and a person who is buying a home and brings them together for a fee. This person is not acting as a real estate agent, as they do not represent either the buyer or the seller. Wholesaling takes neither cash nor credit. It does, however, take willingness to network. After all, how else are you going to find buyers for the homes if you do not know any other investors?
Short Sales
In a short sale, the usual end goal is to wholesale the property. However, in this case, the property has very little equity. It’s impossible to resell a property for more than it is worth. For this reason, the investor must negotiate a payoff with the bank that is less than is owed on the property.
Rehabbing
Rehabbers buy properties that are damaged or run-down (referred to as distressed properties) and fix them up. Once they fix the property they can either resell them or rent them out. Being a rehabber takes some skill in tradecrafts, or a good team of craftspeople that will work with you at a good price.
Landlording
Landlording is the piece of real estate investment that the general public is most familiar with. The goal of a landlord is to buy a property at enough of a discount that the rent collected pays for the property mortgage and upkeep. If the landlord holds the property for a long enough time, the value of the property may increase and the landlord may sell the property for a profit.
Private Lending
Private lenders are people who loan money to other real estate investors. The interest rate that a private lender charges tends to be higher than that charged by a bank. The reason for this, is that a private lender bases their lending decisions on the business plan of the borrower, not on their credit-worthiness. After all, if someone can get a loan from a bank, they usually do. Investors generally turn to private lenders when they are already leveraged with a bank or have little credit.
Money Brokering
Money brokers are very similar to wholesalers. Instead of wholesaling buildings, however, they are wholesaling cash. A money broker finds a borrower and matches them up with a private lender for a fee. As with wholesaling, this takes no cash out of your own pocket. It does, however, take quite a bit of networking. It is also helpful to be able to quality the borrower. You don’t want to regularly take bad deals to your network of potential investors. You want to take them deals that are likely to succeed, deals in which you would invest yourself if you had the capital to do so. This will help to build your reputation and ensure that private lenders are willing to work with you in the future.
Summary
This is just a brief overview of the different types of real estate investing. Investing is hard work, and not a get-rich-quick opportunity. If you are interested in getting into the game, I suggest you contact your local Real Estate Investors Association for more information.
