Taking Advantage Of The 3 Main REI Profi...

Have you been guilty of overcomplicating your real estate investing business?

I see this happening quite often — with newbies and the veterans alike. What happens is the investor will get stuck focusing on one or two strategies, then forget all about taking in the bigger picture and other possible options.

Hey Moguls, Jamel Gibbs here encouraging you to expand your vision for your business…

See, the problem with sticking with only one or two strategies is that if those strategies slow down, your business (and your income) slows as well. Not a good place to be.

So in this lesson, we’re going to step back and discover how to become a more balanced investor. This is done by taking advantage of the 3 main real estate investing profit centers.

Obviously there are numerous ways to make money in real estate investing, but if you want to be a well-rounded investor, then you need to implement the 3 main profit centers:

Wholesaling
Rehabbing
Building residual income

Wholesaling – This is contracting a property at a deep discount and selling it at a discount to another investor in order to keep the spread as your profit in between. If you buy a property at $40k, for instance, and you sell it for $50k, you put $10k profit in your pocket.

Rehabbing – You purchase a property at a discount, fix it up, then sell it for a profit. Usually, closer to retail value.

Building Residual Income – This allows you to make money up front, then make money every single month, plus, you make money when you sell the property in the end.

Let’s look at each profit center now in more detail…

Benefits of Wholesaling

The benefit of wholesaling is that it doesn’t require any money out of your pocket. However, you will need to market if you want to build a successful real estate business.

easy Any business that you jump into — no matter what it is — will need to be marketed. If you want fast results, then you need to spend some money marketing your business.

But when it comes to contracting properties, you won’t need any money; or you need very little money to tie the property up.

And, you don’t need any credit when it comes to wholesaling because you’re never going to take title under your name.

Benefits of Rehabbing

When it comes to rehabbing real estate, you will need money. The benefit of rehabbing is that the money doesn’t have to be your money.

I teach my students how to find private money lenders who will provide money for purchasing the property, the rehabbing process and closing costs.

On top of that, they’ll roll the payments into the loan so you never have to make a monthly payment on the borrowed money. Yep, you can find individuals who will give you the money you need to purchase real estate and you will not have to make monthly payments to them until you sell that property.

This all depends on how you negotiate your deal. So, again, you do need money, but it doesn’t have to be your money.

You will take ownership of this property...

It’s beyond the scope of this lesson to cover the details, but you should always take properties under a land trust if you decide to hold a property. A land trust provides protection for you. This is something you should talk to your attorney about.

Benefits of the Residual Income Method

You can get into a property with very little out-of-pocket investment.

It doesn’t require you to have any credit (if you use the methods listed here), and you’ll take ownership of the property on two of these methods. On the third one, you won’t:

Subject To
Owner Financing
Lease Purchase

There’s another method that you can implement when it comes to the residual income method...

Find a property at a rehab price, fix it up, then do a cash-out refi. This will require you to have credit because you’ll use the services of a traditional bank — a commercial lender — to get this done.

Profit Potentials

Wholesaling

The average profit potential for wholesaling is from $5k to $10k per deal.

Occasionally, you’ll come across a deal that’ll make $20k to $30k on a wholesale flip.

The average “base hits” are common; the higher “homeruns” are rare.

Rehabbing

When you’re rehabbing, the profit potential goes up to $20k to $50k. There are two different exit strategies you can use when it comes to rehabbing real estate.

Prehabbing is when you purchase the property at a discount. The work done is just minor, which is mostly cleanup. You turn around and sell it for less than market value. This is quick and simple.

This is how I started in the business years ago. I bought at a discount, put a little bit of work into the house, then sold it at a discount. I sold either to a landlord or to an end buyer who was happy to take the equity by going in and finishing the project. The profit potential here is $10k to $20k.

Rehabbing on the other hand, is doing a major rehab project where you can make from $20k to $50k per deal. You buy the property at a discount, you do a total renovation and sell at retail price. This is the way to make the most profit.

Residual Income Method

In this scenario, we look at monthly income. I try not to take on any rental unless I can make at least $250/month.

Getting Paid

Wholesaling forces you to keep marketing and looking for deals on a regular basis. It can become like a job, because you’re only as good as your last deal. It is the fastest way to make money, but you only get paid once.

payday Rehabbing enables you to get paid twice. You’re paid at the closing table getting some of your profit up front, then you get paid again when you sell. The beautiful thing about taking some of the profit up front is that it’s tax-free money. Once you sell the property, that is taxable income.

Building Residual Income should provide at least $250 profits on any rental property per month. Think about how this would add up if you had 10 houses... You’d be pulling in an extra $2k every month. If you had 20 houses, that would mean an extra $4k a month. In this method, you get paid up front, monthly, and in the end when/if you sell the property.

This is the area when most people get rich in real estate. You make money on a continual basis without doing the work more than once. Cash flow continues each and every month, which will allow you to expand your business into other areas.

My Personal Example

So, I bought a house one time for $100k, and it needed absolutely no work. The tired landlord had kept it in immaculate condition, but he didn’t want to deal with tenants anymore.

He sold it to me for what he had in it — which at that time was $40k. His payments were only $435/month at the time. He agreed for me to lease-purchase that property for $435/month, with $500 down.

I found a buyer to purchase it for $70k. I collected 10% from the buyer — $7k. I gave the seller the $500 and put $6.5k in my pocket.

I rented it out on a lease-purchase for $750 to that buyer. That was an extra $320/month for 6 months. Then the buyer cashed me out and I collected the rest of the $23k that was left in that house.

This is the beauty of structuring terms deals with residual income.

This is how you are able to take advantage of the 3 profit centers of your real estate investing business.