On show 108 of Flipping America, I documented 85 possible careers in real estate. Since that time we found one more so we are at 86. Each of these has two or three or thirty variations, possibilities, specialty areas, or asset classes. But they call can be categorized into one of three methods of making money in Real Estate
Buy with the intent to add value and re-sell. This is the FLIP model.
Buy with the intent to create rental income. This is the HOLD model.
Invest in the activities of someone doing 1 or 2. This is the PASSIVE model.
Let’s illustrate these possibilities with three individuals.
Meet Fred Flip. If you want to be like him you are going to be constantly shopping – shopping for that next deal. This is a business that requires day to day management, supervision, and care. (Notice he’s holding a house in his hand, about to put into his shopping basket. It’s a little surprising how many people don’t see this.)
Here’s Rhonda Rent. She buys a house or two each year, puts management into place and simply walks to the mailbox each month to get her check. There are always issues and problems of course, but they are a minor time drain compared to Fred Flip’s busy schedule. Of course Fred makes a lot more money than Rhonda — at least at first.
Lastly here’s Pat Passive. He already has some money and he’s busy doing other stuff important to him, so he just wants to earn a nice return on his money. He can get involved with either Fred or Rhonda or both and he can do that with debt or equity or a combination of both. It’s completely up to how they negotiate the situation.
This business is Fred’s job. For Rhonda it’s a part-time side gig. To Pat, this is just one more investment.
Here’s something interesting. Fred and Rhonda can invest in any asset class – single family, multi-family, Office, Store-front, industrial, commercial land, short term, or storage. You can flip any of those and you can hold any of those. They also are not limited by time frame. And these properties can be local, across the country or even in another country. There are dozens of deal structures and funding structures available to them and through the combination of all these factors, there are literally thousands of possibilities. Pat can invest in any of these by finding the right operators with his preferred investment strategy. (You want to be Pat.)
Let’s compare these three methods of making money with a little chart. First in terms of Activity level. The Flip level will require High Activity – big time investment on your part. The HOLD strategy will require less time, but it will still take SOME. You will take time to find, fix, rent and manage those properties. The PASSIVE strategy requires the least amount of time, but it’s still not NO time. You have to evaluate the investment, which will take a little bit of time.
And how do you actually make your income? Where does the money come from? If you are flipping it comes from your Activity. If you are a landlord, it comes from the property. And if you are a Passive investor your income comes from your money.
As you are thinking about this you probably should consider the type of income you will be making and plan now to consult with a tax professional about the implications. As a Flip investor your income will be earned, although there are structures you can set up to your advantage. Hold investors receive their income as rents, which are taxed differently and there are tax advantages to holding property as well. Passive investors receive Dividend or Interest income – sometimes both. Please plan to speak with your tax professional as soon as possible.
Lastly let’s consider the skills. Flip investors will focus on construction. The Hold strategy requires management skills. And as a passive investor your primary skill will be analysis.
So I’ve introduced you to Fred, Rhonda and Pat. Fred has a business and a job. It may not be that time consuming and if done well, it should afford Fred plenty of time for leisure, family, and hobbies. Rhonda has time also. Whatever her schedule may have been like before she acquired income-producing properties, it has not be greatly impacted by them. And now she has a bit more financial freedom for things like vacations. Rhonda is on her way to financial freedom – her non-earned income pays for her entire lifestyle. Pat may be a bit further down the road to Financial freedom. He’s on his way to wealth building and legacy. He has the time now while enjoying the fruit of both his labor and solid investing strategy to think about the positive impact he could have in the world. So which of these investing strategies is for you?
It might be all of the above. But it probably should at least include Passive investing. Here’s the cool thing about this site and the resources available to you. No matter what you decide, we are here to help you on this journey. Whether you want to flip, own rentals, or make good returns safely through real estate, we can help and we have opportunities for you.
Your answer is going to depend on YOU.
Your life vision – how do you picture things a year or two or ten. Not just in terms of what you have but the type of person you want to BE or the things that you DO. Where you live and how you spend your days. We have a mini-course on this coming soon.
Your financial goals. When you imagine your future lifestyle, how much will it cost? You will want to translate those financial goals into actionable steps. Click here for video on how to do this.
Your knowledge and abilities. If you have a vision and some goals but lack the knowledge you need, we have an abundance of information and resources available to you. Click here for training resources.
Lastly, your willingness. This one is pretty much up to you. Only YOU can decide to pursue this and only YOU can take the steps to get there. The information, guidance, and mentoring you need is readily available. But the one key factor in making money in real estate is YOU. (There’s nothing to click here. Instead, take your index finger that you would use to click and place it on your forehead between your eyes. Now say this: “It’s up to me.” Repeat this activity as often as necessary.
To take the next step, click on any of the links in this post and get started.