What Kind of Investor Are You?

When getting started in real estate investing it is important to choose which kind of investor you will be.  This does not mean that you won't do other types of investing, but it is important to focus and learn one type thoroughly.

Wholesaler
A wholesaler finds deals and sells them to other investors.  This type of investing requires a lot of marketing, networking and talking frequently with sellers and buyers.  The key to being a good wholesaler is to have many buyer and seller contacts and being good about connecting them together.  You are in effect the middle man.

Fix and Flip
Many people know about this type of investing through watching shows on television.  The key with being a flipper is to rehab the property and sell it to a buyer in a short amount of time to reduce the amount of interest that has to be paid for the private money loan. Private money loans are typical in these types of investments.  They are a great resource to obtain much needed funding to close a deal but they have to be paid back fast because the interest rate is much higher than a bank loan. 

Flippers usually make large lump sums of money from selling properties after they have increased the property's equity after renovating it.

Buy and Hold
This type of investing is probably the most common and is great for a retirement strategy.  By buying several properties where you're monthly mortgage payment is less than the rental income, you are creating passive, residual income that comes in every month.  This type of investing creates real wealth and can help get you out of the proverbial "rat race" as outlined very eloquently by Robert Kiyosaki.

It is also the type of investing that many complain about because you have to deal with "tenants, toilets, and termites." Dealing with unruly tenants, repairs and maintenance does not have to be difficult if you hire a property management company and have insurance.  Any issues that arise can be mitigated via the property manager and your insurance will cover any damages.

The issues with owning a property don't happen that frequently and the reward is definitely higher than any risk especially if you have a great property that is bringing in revenue.

Buying Notes
One of the least understood types of investing is buying notes.  Buying notes is actually an easier process than all of the above types of investing.  You are basically buying other people's loans from the bank and becoming the bank yourself.  The point of owning the note is to get residual passive income from the homeowner paying back the loan.

By buying the note you actually have control of the property and if the homeowner goes into default you can actually foreclose on the property.  This is not a glamorous prospect and what you can also do is renegotiate with the homeowner for better terms and help them out.  If you really have to then you can foreclose and gain possession of the property.

Buying notes is easier because you are basically calling a bank to get a list of properties and then searching the notes you want to buy.  Then you make an offer to the bank and negotiate for less than what it's worth so you can make a profit.

You can also wholesale notes just like deals.  To do this you have to have the same resources as before: a huge list of buyers and sellers.

Real estate investing is one of the major sources of wealth creation and is something that many people mistakenly think is difficult.  With some effort and due diligence you can build your portfolio and be on your way to financial freedom.