Pros and Cons of Every Real Estate Investing Strategy Compared

Are you considering investing in real estate? What strategy are you considering? How does that compare to all your other options?

Let's dive into the pros and cons of every real estate investing strategy… compared in this special one-time-only class taught by James on February 10, 2021.

Before I share with you the outline of the class, I want to mention that I could have opted to do either a qualitative comparison or a quantitative comparison of each strategy. I ultimately chose to do a qualitative comparison for this class. Perhaps I'll do a quantitative class in the future.

Real Estate Investing Strategies

What is a strategy? I've opted to define it as a unique combination of entry, holding period and exit.

When categorizing each strategy, I opted to break them down into three main categories with some sub-categories.

  • Entry
    • Channel
    • Financing
  • Hold
    • Active/Passive
    • Duration
  • Exit
    • Channel
    • Financing

Channels are the source of where you find or sell deals.

Financing is how you finance the deal when you buy or how your buyer finances the deal when you sell (depending on whether we're talking about entry or exit).

Financing When Buying

We have several classes on financing, but here's a breakdown of the different types of financing for a wide range of real estate investing strategies.

  • Cash (or Second-Order Cash Equivalent)
  • Traditional Owner-Occupant
  • Traditional Non-Owner-Occupant
  • Creative Financing
    • Owner Financing
    • Wrap Financing
    • Loan Assumption
    • Rent-To-Own family
    • Agreement-For-Deed family
    • Subject To
  • Partner
    • Cash (or Second-Order Cash Equivalent)
    • Traditional Financing
  • No Financing Required
  • Hard Money (including Transactional Funding)
  • Private Money

I think many of these are self-explanatory, but Second-Order Cash Equivalent is not. Second-Order Cash Equivalent is accessing cash by using another asset. For example, doing cash out refinance on another free and clear rental property to buy a new property for cash. Or, using the margin feature of your stock portfolio to borrow against your own investments to pay cash for a fix and flip.

Entry

Let's look at the sources of deals (channels) and the financing when buying first.

Channels When Buying

Finding Deals Is Like Trying To Find Alligators
Finding Deals Is Like Trying To Find Alligators

I use an analogy with finding alligators to describe finding deals.

You could… in theory… find a recently released alligator in the New York sewer system. However, if you're really wanting to find alligators you might want to look in Florida. Even more specifically, you might want to look in the Everglades.

Similarly, if you're looking for a specific type of creative financing… like buying properties “subject to” the existing financing… you might be able to… in theory… find one in the MLS (like the alligator in the sewer), but you're much more likely to find one by marketing for motivated sellers. And, more specifically… marketing to sellers that have little or no equity in neighborhoods you want to acquire properties in (like the Everglades part of our analogy).

Here are the channels for finding deals.

  • Multiple Listing Service (MLS) including Foreclosures and Short Sales
  • For Sale By Owner
    • Actively Marketed FSBOs
    • Hidden FSBOs
      • Marketing
      • Networking
  • Wholesalers
  • Tax Lien/Tax Lien Sales
  • Auctions
    • Foreclosure
    • IRS and other government organizations

Holding

I discuss whether you're being mostly active or passive when holding the properties.

For example, you could actively be improving the property with a fix and flip by doing repairs and upgrades. Or, you could be living in the property and doing improvements while you live there… like a live-in BRRR.

Or, you could be actively collecting income from the property by renting it. Or, you could be collecting seller financing payments by offering the property to your buyer with owner financing.

Alternatively to actively holding the property, you might have an option on a property and are not collecting rent or improving the property while you have an equitable interest with your option.

Next, I discussed your holding duration.

This could be just while the property is under contract like in the case of you wholesaling.

Or, you could choose to buy the property with the intention of never selling it… holding it forever.

Or, it could be anywhere in between from 3-6 months on a flip to 3-5 years on a sandwich lease-option or 10 years with a long-term buy-and-hold.

Selling

Let's talk about the channels for selling your property and the financing your buyer may use when buying it from you.

Financing When Selling

  • Traditional Financing (Cash)
    • Owner Occupant/Non-Owner-Occupant
    • Buyer(s) and/or family/partners
  • Hard and private money
  • Creative Financing
    • Owner Financing
    • Wrap Financing
    • Loan Assumption
    • Rent-To-Own family
    • Agreement-For-Deed family
    • Subject To

Channels When Selling

What channels are we using with various real estate investing strategies when we go to exit our investment?

  • Selling Through Others
    • Multiple Listing Service/Real Estate Brokers
    • Wholesalers
  • For Sale By Owner
    • Actively Marketed FSBO
    • Hidden FSBO
      • Unsolicited offers
      • Networking
    • Rent-To-Own family
    • Auction
  • Ignoring “losses” like natural disasters, lawsuits, bankruptcy, foreclosure, divorce, etc.

Creative Financing FAQs Matrix

Creative Financing FAQs Matrix
Creative Financing FAQs Matrix

Due to going over time, I was not able to cover everything I wanted to in this class outline. One thing I was not able to get to is the Creative Financing FAQs Matrix, but you can get more info on that in The Ultimate Guide to Creative Financing.

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