Successfully investing in real estate doesn't mean only having homes for rent or flipping for profits. It means having homes for rent and flipping for profits. Different houses, different neighborhoods, and different market conditions should be key drivers when you are deciding whether your next investments will be homes for rent or if you'll flip for profits.
Have a Strategy With Homes for Rent
Homes for rent bring you both long term cash flow and builds equity in real estate. Having homes for rent is a great long term strategy for building wealth. On the other hand, flipping houses brings in big chunks of cash all at one time the way rentals cannot.
If you start young, you can have several rental houses fully paid off using other people's money (renters) by the time you want to retire. Then you keep all of the passive rental income every month - less taxes, insurance, and expenses. You also own all of the equity in these properties. You can use that equity for many things. To take a loan for a worldwide retirement vacation or as security for more rental houses to boost your retirement income.
Flipping Finances Homes for Rent
When it comes to investing in real estate, I stay away from inner city gang areas both when it comes to homes for rent and flipping house. The fact is that the people in these areas just don't have enough money. It's just too hard to make money when the people in the neighborhood don't have any.
Move up to working class neighborhoods. These are people that don't have a lot of money but they do have jobs that provide a steady income. These people can pay their rent every month and many of them dream, and scrape, and save enough to eventually buy a house in the neighborhood they live in.
When it comes to homes for rent versus flipping, I have a specific strategy that I suggest. There are variations to this formula but basically, you flip houses to earn profits to buy homes for rent. Maybe you flip one house and keep half the profits in reserve to put together your next flipping deal. But you use the other half to invest in a rental to get that part of your business going.
What you want to accomplish with this homes for rent business model is to quickly gain control of a few homes for rent where you have enough equity that the cash flow is actually putting money into your bank account. Too often, landlords get into their rentals with just enough cash flow to cover expenses. When the homes for rent go vacant for a month or two or a major repair is required, they find themselves in financial trouble. When you have ample positive cash flow, you can build a reserve to carry you though the tough times.
Homes for Rent Doing Two for One Flips
A good way of having ample positive cash flow in rentals is by making a bigger down payment. This also makes you more attractive to lenders, both private lenders and traditional banks. The way you get this large down payment is by flipping two houses and using three quarters of the profit to buy one rental. Save the other portion of the profit to finance the next flip.
You can vary this formula in many ways. Instead of using half the profits from the first flip to finance the first rental, use two thirds to gain more equity and more positive cash flow. Investing in real estate is about understanding the numbers. Never go into any deal until you clearly understand how the numbers will work out to your advantage.
If you want to work directly with me on the homes for rent versus flipping investing model or any of the other investing models that have proven highly profitable, please join me at www.wendypatton.com/what-is-wendy-pattons-inner-circle.
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By Wendy Patton
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