There are many kinds of investment strategies in real estate. Out of them, wholesaling, retailing, and buy and hold are considered the most popular ones. Let us understand the pros and cons of each of these investment strategies to allow you to choose the strategy that suits your goals and liking.
What is wholesaling?
This is a real estate investment strategy where you pass on good deals to other investors and get your cut or commission from them. You are in the deal for a very short period and book your profit as soon as you are able to sell it to another investor.
Pros of wholesaling
- You can start investing in real estate with very little capital. All you need is to identify a lucrative deal, sign the contract and then assign this contract to another investor.
- You are not bothered with making improvements to the property as it is the headache of the investor.
- Wholesaling does involve dealing with tenants to make it stress free for you.
Cons of wholesaling
- It needs lot of research on finding motivated sellers and distressed properties. You need to develop a strong network for identifying these sellers as we as investors ready to buy deals from you.
- Income earned from forwarding deals to investors is taxable and so you need to put aside a part of your income from every deal to pay to taxmen.
What is retailing?
Retailing involves buying lucrative properties and then repairing them to book profit upon selling them in future. It usually involves single family homes.
Pros of retailing
- Retailing allows you to book huge profits with every transaction
- You can save lots of money if you know how to transform a distressed property in a desirable one through rehabbing.
Cons of retailing
- It requires lots of money for buying properties and also to turn them around. You have to pay out of your pocket the money required for the upkeep also till the time the property gets sold.
- It requires developing a good team of contractors to be able to carry out rehab quickly and smoothly.
- You need help of realtors to sell your properties. You must be ready to pay their commission out of your pocket.
- You need a good knowledge of the housing market in which you are buying a property.
Buy and Hold
This is an investment strategy usually employed by landlords. They buy an investment property, earn rental income, and then sell it after booking a profit.
Pros of buy and hold
You can benefit from price appreciation as well as rental income during the period you hold on to the property.
- You can pay for the maintenance and upkeep from the rental income paid by your tenants.
- You can benefit from tax breaks provided by the government and enjoy depreciation benefits of the property.
Cons of buy and hold
- You must deal with tenants. You must screen them to allow entry only to good quality tenants.
- There are frequent repairs of rental income properties that can be costly as well as tiring.
- You must look after the management of your property to maintain positive cash flow
Now that you know about all three investment strategies, it is your own decision which one suits your liking and requirements. If you cannot find good deals and investors, it is better to stay away from wholesaling. Also, if you are not good at rehabbing, it is better to stick to buy and hold where you can also enjoy passive income in the form of rental income.
Property Management Service Areas