When planning to enter the real estate investing market, the first step is choosing your role in this industry. The best way to do so is to consult with professionals in order to understand more about the various real estate investment strategies. Yet, when asking different investors, you get different opinions.
On one hand, real estate wholesaling experts will convince you that wholesaling real estate is the best way of making money in real estate. On the other hand, investors that made a fortune with owning rental properties will tell you that becoming a real estate investor of rentals is the way to succeed.
Consequently, you are standing in the face of a dilemma: Which one of these real estate investment strategies is the best for you as a beginner investor? These strategies are both great ways of making money in real estate- there is no doubt about that. However, each strategy has its downsides.
Thus, today we will present these two real estate investment strategies and tell you what would suit beginners the best. Make yourself comfortable and let’s bounce towards the answer!
Investing in Rental Properties
Investing in rental properties, as the name suggests, is all about investing in a property that will be used for generating rental income. Basically, there are two rental strategies that real estate investors can follow when owning a rental property. Either long-term or short-term rental strategies are used depending on different factors.
In order to know what strategy to use when renting out a house, it is advised to use an investment property calculator. With Mashvisor’s real estate investment tool, for instance, every property you view has key metrics for both the Airbnb and traditional rental strategy- cash on cash return, cash flow, cap rate, occupancy rate, etc. That way you can compare and see which strategy will make you more money with a specific property.
After selecting the best investment properties with this investment property calculator, all that’s left is to secure enough money to start a rental property business.
Related: Real Estate Investing for Beginners: How to Start a Rental Business
Now that you have a basic understanding of how to invest in real estate with rentals, here is why you might give it a try:
Reasons to Start a Rental Property Business
#1. The major reason many beginner real estate investors start a rental property business is to make money, of course. Some investors use the income as an addition to their already existing one, while others utilize it as their only source of income.
#2. Rental properties also allow the first-time real estate investor to choose the way he/she wants to operate the business- passively or actively.
#3. If buying an investment property is done wisely, it is almost guaranteed that there will be occupants for your short-term or long-term rental. This means having steady cash flow.
#4. Rental income is not the only way the first-time real estate investor can profit. Let’s not forget about real estate appreciation. A great profit can be made when selling the investment property at the right time after its market value has increased.
#5. Additionally, by budgeting correctly, you can use the money from a rental property to expand your investing business in the future.
Related: How to Start a Rental Property Business – 5 Simple Steps
Drawbacks of Becoming a Real Estate Investor of Rentals
Even though buying an investment property and renting it out is a great way to make money, there are some drawbacks every first-time real estate investor should know about.
#1. The biggest downside of this investment strategy is the financing. First of all, not every beginner investor is able to invest in a property with only his/her money. In most cases, financial support is needed. Many beginner investors do not qualify for a loan. Thus, they are missing the opportunity to invest in their desired property.
#2. Imagine that your income property cannot cover all rental property expenses due to lack of research or a wrongly selected strategy. That might be a huge financial burden to you and your real estate investing business.
Starting a Wholesaling Real Estate Business
Before mentioning what wholesaling real estate is like as a career, let’s define the meaning of wholesaling in general. Basically, the wholesaler is a person who buys different products at a lower price and then sells them at a higher price. Consequently, a real estate wholesaler does the same, only with investment properties.
Wholesaling real estate is all about helping a seller to sell his/her investment property by bringing potential buyers. In other words, a real estate wholesaler is a middleman between the seller and the investment property buyer.
So, how does it work? Let’s provide a real estate investing for beginners step-by-step action plan. The wholesaler finds a property seller and both sign specific wholesaling real estate contracts. These require the wholesaler to find buyers within a certain time frame. The seller, on the other hand, agrees to sell the property at a given price. When the wholesaler succeeds in closing the deal, he/she earns the profit that was agreed on in the wholesaling real estate contract. This is the amount between the seller’s asking price and the actual price at which the wholesaler made the deal.
Reasons to Begin a Real Estate Wholesaling Career
#1. Wholesaling real estate is seen by many investors as the best way to invest in real estate as it is a very fast way of making money in real estate. For example, making money with real estate wholesaling could take less than a day (once you have enough experience and a buyer’s list of course)!
#2. Wholesaling real estate is not only fast, but also can be extremely profitable.
#3. Another great advantage of real estate wholesaling is the money you invest in this business or, let’s say, the money you do NOT invest. While buying an investment property requires significant amounts to cover at least the down payment before generating ROI, wholesaling real estate is a different story. The real estate wholesaler does not need to cover investment property expenses, mortgages, etc. Therefore, he/she can start with no cash in the beginning.
Drawbacks of Becoming a Real Estate Wholesaler
#1. The biggest downside of wholesaling real estate is that it does not generate consistent income as long-term rental properties do. Consequently, you should have a very good real estate investment network in order to find sellers and buyers quickly and consistently.
#2. Wholesaling requires a unique set of skills that not everyone may possess. Negotiation, for instance, is crucial for successful real estate wholesaling. Because the wholesaler does not have a fixed salary, negotiation and research skills will make or break this career pretty quickly!
Which Investment Strategy Is the Best for Beginners?
We have discussed investing in rentals as well as wholesaling real estate for beginners. Both real estate investment strategies can make you rich. But without the proper set of skills, you will not be able to succeed.
So, which strategy is best for beginners? In our opinion, the best strategy for beginners is investing in rental properties. The reason behind this is that during your journey, you are able to learn and have help in selecting investments and maintaining them even if you are new. With wholesaling real estate, it is a different story. You have to already have a good real estate network, great skills of negotiation and knowledge of the investment properties you are going to work with.
To learn more about how we can help you start investing in rental properties, click here.