Moving from Wholesaling, to Flipping and then to Building Your Portfolio
There are various styles of investing based on the individual investor’s goals, risk tolerance, timing, liquidity and more factors based on the investment vessel they use. This holds true when investing in real estate as well. Here’s an example of two different strategies. An investor who wants to build capital fast will often choose to flip a property; meanwhile, an investor looking for long term income will typically hold property for monthly income from rent.
As we’ve previously mentioned wholesaling is a great strategy to start with. It has a reduced amount of risk involved. In addition to spending less time, (wholesaling a home, typically only takes 15 to 45 days) you’re putting up funds only for the deposit which is paid back when the buyer you assign the contract to, closes on the home. So essentially, that deposit money is the only risk in wholesaling.
During the wholesaling phase the investor should be focused on building capital, and educating themselves about each style of investing. One way to seek education during this phase in your career is with a mentor. We partner with Joe Barletta, a real estate investment coach who highlights the following process: the benefits of wholesaling first, then progressing into flipping homes and lastly, growing a real estate portfolio. Joe’s strategy allows novice investors to hone in on the skills all real estate investors need to fine tune. He teaches beginners how to start investing with low amounts of capital and he continues to mentor the investor as he or she progresses into the other styles of investing.
Using Joe’s strategy, the natural progression from wholesaling would be to flipping a home. This allows an investor to make more money on a single deal. However, it may also take longer. By this we mean, days, months even up to a full year. Another risk factor is the investor is now actually owning the home on paper as well. (The investor/flipper takes the title.) The risk is higher because a flipper is responsible for more cash into the deal. For example, they are responsible for the down payment at purchase, monthly payments, insurance, and title costs. As a result, the best way to start flipping is to start small. Look for properties in your price range and ones which require minimal renovations. When possible, purchase with cash, because cash buyers can get out of the flip faster. As the investor grows their circle of contractors, appraisers, financing, and knowledge of the market they can start tackle bigger jobs and qualify for better terms in financing.
The end goal is to create a passive income so that we can retire, hopefully sooner, rather than later. Growing a rental portfolio can be a great way to do this. However, the investor should know the risks involved and how to manage them.
If the investor seeks financing to own the home, it’s a good idea to keep flipping while building his or her portfolio so that they can keep their debt down. In situations where the renter stops paying rent, an eviction process can be lengthy and the owner can still be responsible for the mortgage. If a flipping projects can pay off a mortgage, then the investor is only responsible for insurance, taxes, and maintenance. One way to avoid the eviction scenario is with a preferred tenant who does pay rent on time. This also results in higher profits for the investor from that one property.
When investors fail to continue the job of flipping, they often find themselves owning multiple properties, all with debt and only getting the monthly income that an investor with one rental and no debt receives. To continue wholesaling and flipping while building a portfolio will allow an investor to quit their job, create a passive income, manage risk, and have control over growing their income.
Be sure to check out how you can benefit from Joe Barletta’s coaching services here.