I keep hearing and seeing advertisements about how easy it is to make money investing in real estate. I hear advertisements on the radio for free seminars about flipping houses without any of your own money, and without any hard work. I see Facebook sponsored posts about how easy it is to flip houses with no money, or without even buying a house. Every time I hear the word easy associated with real estate, huge red flags pop up in my head. Having been a real estate agent and investor for 15 years, I have learned real estate is not easy. In fact getting rich, achieving success, or running a business is not easy. Even if you inherited millions of dollars it takes work to manage the money and keep it. That is why most people who come into a large sum of money very quickly are broke a few years later. If you are looking for the easy way to succeed in life, you are going to be waiting a long time for that success to come. Real estate investing may provide awesome opportunities for people to make money, but it is not easy.
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How easy is it to make money in various types of real estate investing?
There are many ways to invest in real estate. I document most of them in this article that talks about the top 9 ways to invest in real estate. I won’t go over every one of these techniques, but I will talk about the most often advertised ways to invest in real estate: flipping, rental properties, notes, and wholesaling. There are actually some easy ways to invest in real estate, but they will most likely not make you rich. They can make you a decent return on your money you have already saved.
- Real estate crowdfunding: Crowdfunding has become a very popular way to invest. You can invest small amounts of money with crowdfunding companies, who then pool your money with other investors to create a larger investment. They then lend that investment to flippers or other real estate developers. You may be able to make great returns with crowdfunding (7 to 12 percent), but you would have to have a lot of money to get rich from that return. Crowdfunding can be relatively easy to get started with.
- Investing in a REIT: A REIT is a real estate investment trust, which you can buy like a stock or mutual fund. REIT’s are made up of large real estate holdings like apartment buildings, commercial developments, or even large pools of single family homes. I would not expect to get rich off a REIT, but it can make you a decent return and it is very easy to invest in.
- Investing in turn-key rentals: Turn-key rental properties are rentals that can be bought already rehabbed, rented, and managed by a property manager. They tend to be located in high cash flowing areas and take minimal work. However, there can still be problems with tenants, repairs, and bad turn-key companies. I own a turn-key property in Cleveland. Buying a turn-key property can be easy, but you must do your due diligence picking a company, and you need money. Here is more information on buying turn-key rentals.
- Partnering with other real estate investors: Another way to invest in real estate is to partner with an active investor. One partner may lend money for a deal, while the other partner finds the deal, completes the rehab, and sells the property. You could strictly lend money or have an equity position as well. Partnering can be an easy way to invest if you are only supplying the money. However, you have to make sure you pick the right partner and the right properties to lend on.
While there are ways to invest in real estate that are fairly easy, you can see most of them take money. The more money you have, the easier it is to invest. Most people looking for an easy way to get rich, do not already have hundreds of thousands of dollars in the bank (except for the lottery winners who have a better chance of going bankrupt than the general population).
How easy is it to flip houses?
I have sold 11 and bought 13 flips so far in 2016 (it is September). I have 12 flips in progress and love flipping houses. While most advertisements on television, radio and online are about flipping houses, it is not easy. Here are the key points to flipping houses:
- It takes money to buy a flip: Banks do not like to lend money on flips because they are short-term loans. Not only are flip loans riskier than most loans, they make the bank less money because they are paid off quickly. You need a down payment if you can get a loan, money for renovations, and money for carrying costs. You can partner with someone who has money, but they will be hesitant to invest with a brand new flipper. You might be able to find a hard money lender, but they will be hesitant to lend to new flippers as well, and may charge really high rates. How to finance fix and flips.
- It takes knowledge and hard work to find deals: There are not deals simply sitting around for anyone to buy and flip. Not only does it take money to flip, but it takes hard work to find those deals. You can buy from the MLS, auctions, trustee sales, or from private sellers, but there are other investors looking to buy from those sources as well. It is not impossible to buy flips, obviously I have 12 right now with two more under contract to buy, but it takes hard work to learn how to find those deals. How to find a great deal on a flip.
- It takes hard work to find contractors to repair the flip: The house flipping shows make flipping look pretty easy. You even see the hosts of the shows doing work on the homes, which is completely fabricated by the shows. When flipping houses you do not want to do the work yourself, unless you are an experienced contractor. Finding great contractors is not easy, and it takes a lot of work to manage them and make sure they are doing their job. I have been flipping for 15 years and still have problems with contractors.
Why do advertisements make is sound so easy to flip houses?
There are many other issues that come along with flipping that I could write a book about. In fact, I did write a book about flipping that you can find on Amazon. Flipping is by no means easy, but it can be a lot of fun and very lucrative if you take the time to learn the business and put the hard work in. I average about $30,000 in profit on each flip I complete. So why do so many places advertise that you can flip houses so easily and with none of your own money? There are a few reasons you hear those commercials.
- They are trying to sell you flipping programs: When you hear an advertisement for a free seminar with a television house flipping star, they are trying to sell you a $30,000 plus training program. They use very sleazy marketing techniques to draw people in, and will not teach you anything until you pay them a lot of money. When you get in the program, most students realize how difficult it is to actually flip houses. They use words like easy and no money, because typically people looking to get rich quick are more likely to buy into those programs.
- They are not really talking about flipping houses: Many of these advertisements talk about flipping houses with no money or without even buying a house. They are not really talking about flipping, they are talking about wholesaling. You can wholesale houses with less money and without owning the house, but it is completely different from flipping and not easy. I will talk about this more soon.
- They might want to partner with you: Some of these programs will offer lending programs or partnership opportunities. If you find a great deal they will fund it for you, which sounds awesome! However, they usually charge really high interest rates, or want a large chunk of the equity. They have very strict guidelines for lending and make sure they are protected. Usually you must have an awesome deal for them to help you buy it, and in those cases you could probably find a local investor to partner with, who won’t require as much of the profit.
How is wholesaling different from flipping houses?
Many of the advertisements you hear for flipping programs are actually for wholesaling. To me, flipping is when you buy a house, fix it up, and sell the house for a profit. In some cases you may not have to fix up the home, but there is another issue like an uncooperative tenant. Wholesaling is when you buy a house or have a contract assigned to you, but instead of fixing it up or solving another problem, you sell it right away to another investor. You can wholesale houses quickly without much money, but it is not easy. There are many investors who set out to become wholesalers and I would estimate 10 percent of them or fewer succeed in wholesaling one house.
Wholesaling can take little money as I said because you do not have to pay for the house. However, it takes money to find awesome deals that you can sell to investors. Direct marketing is the most common way to find deals for wholesaling and it takes money to set up a campaign. Not only does it take money, but it can take months to find those deals and find the investors to sell them too. Real estate investors also have to be very careful about how they wholesale to avoid breaking laws. I think it is easier to become a real estate agent and make money that way, instead of wholesaling.
Be very careful when you hear how easy it is to flip houses. There will usually be a very high-priced sales pitch coming soon. I am not against people who sell education, especially since I sell education. However, I try to be as realistic as possible and avoid sleazy marketing techniques meant to trick people. Flipping is hard, making a lot of money is hard, running a business is hard. Doing things that are hard and being successful at those things is one of the most rewarding feelings. It also makes life a lot of fun. While flipping houses may not be easy, that does not mean you cannot do it. It just means it takes a little time and hard work.