As the real estate market is diverse, you might always find yourself having to choose which way to go. This applies to traditional real estate investing and creative real estate investing.
These are two very different investing strategies that you should know about. So, first: What is traditional real estate investing and what is creative real estate investing? And what are the pros and cons of each one of them?
Traditional real estate investing is when you, as an investor, purchase the real estate property from Multiple Listing Service (MLS). You pay for it to the owner either with your own money or with a bank loan. You should also expect to do most of your work through real estate agents who are going to make lots of offers and get a few accepted.
On the other hand, in creative real estate investing, you do not have to apply for bank loans or even go through the down payment process. You do not have to work with real estate agents either since you are going to be working directly with sellers. Moreover, creative real estate investors are the ones who sell properties to traditional investors.
Related: 3 Ways to Make Money with Creative Real Estate Investing
Of course, both strategies have their own challenges. So, here is a comparison between traditional and creative real estate investing.
Traditional vs. creative real estate investing: Education
Though you need to obtain some education to work in traditional real estate investments, you do not need a high level of education. This is so because the process is generally simple and can be done through real estate agents. Meanwhile, in creative real estate investing, you need to obtain the right education. And you are going to spend a lot of time obtaining it. This is where and why people hesitate and that is where the problem lays. Most people won’t dedicate enough time out of their busy schedule to reach for the right education. Moreover, it does not stop at getting proper education, since finding a mentor or a coach to help you out is another key element in creative real estate investing. Creative real estate investors do not work with real estate agents. They work directly with motivated sellers. They are called motivated sellers because they are created by external situations that are not related to real estate, such as death, divorce, or illness, among many others. These are circumstances that humans are going to be dealing with on daily basis for centuries to come.
Traditional vs. creative real estate investing: Financing
In traditional real estate investing, the main challenge is your source of money. You would need bank checks to pay for the down payment and for necessary renovations on the purchased investment property. On the other hand, in creative real estate investing, you do not have to have a lot of money to start with. Sometimes if you are lucky, you can do it with no money at all. Still, it does not mean that you do not need money at all to start your real estate investment business. There are things that you need to cover even if you are considering starting a small business. You will have to have money for advertising, marketing your property, contacting sellers and buyers, gas money to check out properties for sale, and so on.
The good thing about creative real estate investing is that you will not have to put your name on a bank loan. You can put the property on a contract and flip it. In traditional real estate investing a loan must be under your name.
Related: Financing a Rental Property: What’s the Best Way?
Traditional vs. creative real estate investing: Competition
The more traditional real estate investors compete, the more deals creative real estate investors get. And as we mentioned before, creative real estate investing is a less competitive market that sometimes can feed on the wars between traditional investors. In fact, creative investors make bedding wars and flip their deals to traditional investors.
Traditional vs. creative real estate investing: Market stability
The creative real estate investing market is more stable than the traditional one. The traditional real estate market has a lot of factors that cause constant ups and downs. And the more the market is blooming, the fewer deals there are for traditional investors. However, when the market is depressed, there are more opportunities for traditional investing.
Traditional vs. creative real estate investing: Effort and risk
Traditional real estate investing requires lots of time and energy because you look for hundreds of houses until you find the right one. Moreover, as a traditional real estate investor, you depend heavily on real estate agents to keep your business going. Not to mention that the risks are high and the business is not that steady, as we mentioned before. However, the good side of this is that in traditional real estate investing, you could get lucrative deals, in addition to being able to buy a lot of properties at the same time. On the other hand, in creative real estate investing, the business is a lot more steady and with fewer risks in terms of finances. Keep in mind though, that in traditional investing you can buy several properties at the same time and hire a professional property management service to run them. But in creative real estate investing, you can’t work on many deals at the same time, since it takes some time to do real estate transactions.
Related: Are Low-Risk Investments Possible in Real Estate Investing? Why or Why Not?
Finally!
The question is: Which one is better? When you reach for expert opinions on this, a lot of real estate experts will encourage you to go for creative real estate investing for a bunch of good reasons. But it does not mean that traditional real estate investing is a bad choice. It is all up to you to make up your decision. If you do not have the money needed and do not want to apply for a loan, then creative real estate investing is the way for you. If you have capital and/or don’t mind applying for a bank loan under your name and want to purchase several properties at the same time, then traditional investing is the answer for you.
Either way, make sure to use Mashvisor’s investment property calculator to choose the best investment property in any part of the US.