When I first got started with real estate investing I jumped right into rehabbing houses. I found the houses via direct mail and local wholesalers.
In fact, from 2009 through 2012 I got 90% of my properties from wholesalers. I kept a few of the houses as rentals, so I was able to experience being a landlord as well. I also own apartment building units, and I’m currently looking for more.
People often ask me what the best real estate investing strategy is, and which one they should start with. As with most things, the answer is “it depends” on your personal preferences, strengths and goals.
How to Invest in Real Estate While Working a Full-Time Job
Many investors think that they need to quit their job to get started in real estate. Not true! Many investors successfully build large portfolios over the years while enjoying the stability of their full-time job. If that’s something you are interested in, then this investor’s story of how he built a real estate business while keeping his 9-5 might be helpful.
How I Started Investing in Real Estate
My ultimate goal with real estate investing has always been to build up passive income as quickly as possible. I knew intuitively that the way to accomplish that was to build a portfolio of rental units – the more the better. I felt that buying and holding real estate was the best way to create passive income and long-term wealth.
So why did I start with rehabbing houses?
It has to do with my (limited) comfort zone at the time. It’s also what my mentors advised me to do. But looking back on this, it may not have been the best advice because it distracted me from my ultimate goal, which was building passive income.
My first mentor was actually a wholesaler. Wholesaling is always a good way to get started with real estate investing because it’s low risk and it gives you experience finding and negotiating deals. But you have to do a lot of deals to make a living.
So I decided to skip the wholesaling and go right into rehabbing. With rehabbing, you can make a decent living flipping 2-5 houses per year. In the beginning I felt that doing rehabs produced the most amount of cash in the shortest amount of time. But make no mistake about it, there is nothing passive about flipping houses. It’s a LOT of work all the time. And there is a certain amount of risk that you just don’t have with wholesaling.
One of those properties I kept and sold on a lease option. I really like lease options as an exit strategy to flips if you don’t need cash out immediately. The profits are much higher. But now you’re also a landlord. I had three house I was renting out, but I knew it wasn’t for me. So building a portfolio of rental houses was out.
I do like the idea of combining rehabbing with rentals because rehabbing is an excellent way to generate cash that you can put into rental properties. Using these two tactics is a powerful combination to accelerate your investing career.
My Ultimate Destination for Real Estate Investing
The ultimate destination for me was apartment buildings.
There are so many advantages of apartment buildings: you are less dependent on the surrounding real estate market for valuations. You have a great degree of control of the building by how you manage the income. Banks are eager to give you loans. Because you have multiple units under one roof, you can achieve economies of scale that you can’t achieve with house rentals. It’s customary to have property managers manage the building for you, which is key to achieving passive income. And lastly, the long-term wealth that you can generate with apartment buildings can be significant.
I’m convinced that accumulating a portfolio of apartment buildings is the single best way to achieve your financial goals. (Go ahead and Tweet this quote if you agree!)
But when I first got started, I was told I needed to start small and S L O W L Y work myself up to apartment buildings.
I’m not sure that was the best advice.
On the one hand, I did get real estate investing experience over the course of five years doing rehabs and rentals. But I wonder what would have happened if I had simply focused on buying my first apartment building, right from the start? I would have had to raise money from others (which I did for the rehabs anyway). It probably would have been a slowe start, maybe it would have taken me one or two years to buy my first building. But over the same time period, perhaps I would now own 100 units.
How Should YOU Start?
Whatever path you decide on, ask yourself what you would enjoy doing the most. I know wholesalers who make a great living doing what they do; they have no interest in managing contractors and rehabbing houses.
On the other hand, the rehabbers don’t feel like they can make enough money just wholesaling, and they enjoy building a team and managing the entire process. But if your goal is passive income, consider skipping these strategies.
I think you have to ask yourself what your goals are, what you want to accomplish, and where you want to be. Then figure out the most direct route to get there. If you feel that you want to retire in 5-10 years and replace your job’s income with real estate, then you might want to focus on apartment buildings right from the start and not be distracted with anything else.
What is your favorite real estate strategy today and why? How do you see that changing in the future?