REI Essentials: Which Investing Strategies Work Best For Each Market Type?
Welcome back to another great post in my awesome series REI Essentials. As you are well aware, there’s so much information; so many strategies and advanced strategies; so many techniques that make up the entire business of real estate investing… It can get overwhelming at times.
This is why I’m so enthusiastic about reviewing – and re-reviewing – the fundamentals. You have to learn to walk before you learn to run. And you have to learn the basics of investing before moving on to the more advanced aspects of the business.
In the last segment in this series, I talked about the four profit centers in real estate investing. I call it the 4 Square Strategy Matrix. Make sure you check that out because it was loaded with tons of good info.
Today, I want to carry that principle on to the next step. In this blog post I want to help you get a clearer view of which investing strategies you can use in each of the four types of markets we’re going to explore.
This is important to know because certain investing strategies work better in certain markets.
War Zone Neighborhoods
Let’s start by looking at a war zone scenario.
This is an area where you’re scared to get out of your car at night. You’re probably only going to want to focus on wholesaling in this market.
Everything else is a big no-no in the war zone neighborhoods. Rehabbing is out of the question. Trust me, I tried rehabbing war-zone properties only to get everything ripped out of the house and stolen the first night that we put it in.
It’s not worth the risk – or the expense.
Low-income neighborhoods can be an amazing market segment to do just about everything. Low income refers to working-class neighborhoods.
Here, you are free to wholesale, do creative financing, fix-and-flips and own rentals.
Middle income is also a great little sweet spot. A lot of investors who don’t want to deal with the lower-income type of people, type of tenants, type of renters, type of buyers, will simply move up to the middle income. (That is, if they can afford it.)
These neighborhoods are great for wholesaling, creative financing, fixing and flipping, and buying and holding – as long as you are able to earn cash flow.
What you never want to do is get into a predicament like a lot of investors did during the big real estate boom. They bought houses that didn’t cash flow; the rental rates were too low compared to the debt servicing. Not a wise decision.
Interestingly, upper income is kind of like a war zone. You must be careful doing a lot of different investing strategies here. Wholesaling works great in upper income, but you will want to stay away from everything else, unless you’re a really experienced investor.
If you’re an experienced investor and you have access to a lot of money; if you can take on big risks, then fixing and flipping in upper income neighborhoods is just fine. I know a lot of savvy, wealthy investors who own rentals in upper-income neighborhoods. They also do lease option strategies and such. But again, these are the more experienced investors.
Which One Fits Where?
When you’re a newbie investor, it’s easy to learn different ways to make deals, and then think they can be used anytime, anywhere. Not so!
Knowing which type of deal fits in which market will allow you to streamline your business. Your approach will be more effective and you will not end up painting yourself into a corner.
In our next blog in this Essentials series, we’ll take a look at the different types of cash flow. Which one will fit your business model?
See ya then…
Tags: Cash Flow, Fix and Flip, Low Income Neighborhoods, Middle Income Neighborhoods, Rehabbing, Upper Income Neighborhoods, War Zone Neighborhoods, Wholesaling
Trackback from your site.