Today we’ll discuss other strategies besides fix and flip that you will run into as you progress in your real estate investing career. So, let’s chat about a few of them and see how they may fit into your strategies. Today, I want to talk to you about three strategies that may suit your plans. As you advance in your real estate career, you’ll see that some might work at certain times. So, the three things that I wanted to talk to you about and the three strategies that are very closely related to the fix and flip is the micro flip, also known as wholesale. Number two would be buying and holding, and number three would be lease-to-own.
So, let’s talk about what a micro flip is. A micro flip or wholesale is usually presented for beginners, but I don’t believe that is correct. Let me explain why. In a micro flip or a wholesale transaction, you will be finding a property that is significantly discounted, then put it under contract, turn it around and give it to an investor for a fee. This investor will take it, close on it, complete the renovations and do the flip. So, you flip the paper to the investor. So that’s why it’s called micro flip. However, there are a few things that you need to be aware of.
One of them is that you need to have the property or find it at a very low countered price. The reason is that when you give it to the investor to close on, they need to have that gap to make a profit. So, you’re going to find a property with some discount, but there is not enough discount for you to flip it. So, most likely, another investor is not going to go for it. Because if they have to pay you a fee, and they still have to make a profit, and there is not enough room, they’re not going to go for it. And the reason this is not a beginner’s strategy is because you need to know how to estimate the cost of repairs. Because when you’re presenting this deal to another investor, you’ve got to be thorough, and you need to know what it’s going to take for him to be able to do the repairs and earn a profit.
This happens quite often when you run into a discounted property. Still, unfortunately, you may not have the cash available for that specific deal if you want to take it on, so you may decide to put it under contract and flip it to another investor. These flips just come in at that time, and you need to take advantage of them when the property is at the right price, and you know how to do the repairs and that another person could benefit from it, then go ahead and do it. That is how I would do wholesale. If you’re unable to take on the project yourself because your crews are too busy, or maybe you have two or three houses already on the go, and you don’t have the resources to take the next one. Then I would suggest you go ahead and do a micro flip or wholesale. Remember to check with the jurisdiction you’re in because, in some jurisdictions, this type of sale is not allowed.
The following strategy is to buy and hold. This involves keeping a property that you obtained at a discounted price, and you want to do a flip initially. Still, for whatever reason, the markets changed or perhaps you decided you’re better off having it as a rental. So, you keep the property; if it needs work, you will perform the job as you would for a flip. But instead of selling it, you’ll have tenants living in it. Most likely, if you have a duplex or a triplex, that could work very well for you. I highly recommend that you do this, mainly if you collected some profits from some of your flips, to try to keep one rental for every two or three flips. It would be an excellent way to keep the cash flowing. However, you need to be careful as you’re going to tie up some capital. So, make sure you have a little bit of both so you can continue running your business and do another flip. If you’re buying houses for rentals, complete the repairs, and get some tenants in it. Property management is one thing you need to consider. Are you going to manage the property yourself or hire a company? If you’re going to hire a company, you need to do a lot of due diligence there. But it’s possible, and it’s an excellent way to have some profits.
The last strategy is a lease to own. It’s the same as a fix and flip property but has been affected by a change in the market. The tenant-buyer now wants to buy the house and will rent the property for several years. Or maybe you found somebody who asked if they can rent a house or buy it, but they cannot qualify for other reasons, maybe they don’t have enough credit, or perhaps they have bad credit, and now they’re coming back with a better job and putting together the down payment. So, you can do something that is a lease to own, usually between a two to three, sometimes five-year term, depending on the property’s price. You’re going to define it as either two, three or five years, but it will only happen if they give you a down payment. It’s not called a down payment in this type of transactions, it’s called a consideration, and it’s just to let you know they are serious about buying the property.The way it works for you when you take the consideration, it would be like a kind of down payment. Then they’re going to pay you to rent, and on top of the rent, they’re going to give you extra money that is going towards the down payment in the future, whether it’s two years, three years, or five years, and you’re also going to give them a price, whatever price you define. You must check the appreciation in that area to provide them with a fair price. So, in this strategy, you’re going to generate some cash coming in, which is the consideration, and then you’ll have cash flow when they’re renting. The best part about it is that you don’t have anything to do with the maintenance of the property. So, you’re not going to have a property manager because the tenant-buyer is responsible for upkeeping the place and doing whatever they want there, so if something breaks, they will have to repair it. Of course, you’ll give them a house in working order, and they will be responsible for the property until they purchase it. In 2,3, or 5 years, when they close the property, they will be able to qualify for the mortgage. And that’s it. You can use these three strategies to complement your fix and flip business. So, you have a micro flip or a wholesale, Then you have the buy and hold and the lease to own. Until the next time, invest wisely and please have no hesitation in contacting me if you need further information.
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