1. Short Term Residential – This could include the strategy of buying a fixer-upper and making the improvements and then selling.  In highly appreciating markets, it could just mean buying, holding for a short time and “flipping”.  In depreciating markets, it could mean picking up a foreclosure or distressed sale of a property and __________.
2. Long Term Residential – This strategy usually requires research into areas that have great rental income for the purchase price and in a market that has reasonable market growth.  It also works for multi-unit properties (apartments)
3. Residential Construction – Buying land or a home that needs to be demolished and rebuilt has great potential in huge returns on investment… but you need to know about the construction process, be able to manage your costs (and your contractor) and have lots of cash.   
4. Commercial – Those that don’t want to be residential landlords, often go to this form of investing, and usually it is best to be part of a larger group and invest in either a fund or “Tenant In Common” purchase.

Each type of investment strategy has its pros and cons; so finding the right team of advisors or partners is essential.  Many underestimate the value of a good real estate agent.  In fact, many people think that real estate is easy and agents are overpaid.  When a real estate agent performs his role thoroughly, in a totally professional manner, he is definitely not overpaid, even in absurd priced markets where home values are in the millions.  But like the difference between a mortgage professional and the typical loan officer, or the CPA versus an amateur tax preparer, there is a big difference between a professional real estate agent and someone who is licensed to buy or sell real estate. 

Part of the big picture is hooking you up with the right real estate agent for your needs.  At Insider, we have alliances with the right agents in many cities throughout the United States (since real estate investing better be more than just California). 

USE of LEVERAGE in REAL ESTATE INVESTMENTS

Real Estate Investments offer something very few other types of investments can:  LEVERAGE.  Therefore the returns on investment in real estate have the greatest opportunity for you to build wealth. 

If you had $50,000 to invest and were questioning if you should buy stock or real estate, let’s review the following two scenarios:

If you bought 10,000 shares of a stock at $5/share, you will have invested $50,000.  If the price of the stock doubles in one year’s time to $10/share, you will have doubled your money.  But note, in order for you to make $50,000 on your $50,000 investment, the stock would have to increase 100%.

If you took your $50,000 and used it as a down payment on a $500,000 piece of real estate, you would be leveraging the asset and coming in with only 10% of the purchase price.  You will therefore be borrowing $450,000.  In order to make $50,000 on your investment, your real estate would have to appreciate only 10% in the year (10% of $500,000 is $50,000).  Of course this isn’t completely true since there is a cost of borrowing that $450,000 (which is partially or wholly offset by rental income) and then there are selling costs which will run 4-6% of the selling price.  So, let’s just say for argument sake that you could rent the place out for what your “carry costs” are (mortgage, taxes, insurance, HOA dues etc.).  Yes, this is possible in certain areas (but not in San Diego anymore, that is for sure).  Then on your original $500,000 purchase, in order to net a $50,000 profit, your asset would have to increase 16% to a value of $579,000, (since after paying 5% selling costs, you need to sell it for $579,000 to profit $50,000). 

So in these examples, in order to make $50,000 (and double your investment), in the stock market, your investment would have to increase 100%, whereas in the real estate market, your investment would only have to increase 16% in a year.

Of course, in any investment strategy, the value of the asset could go DOWN.  So it’s still a risk-reward situation and it’s always appropriate to buy low and sell high.  The questions are:

1)      When is the right time to buy (and sell)?

2)      What is the right investment?

Are we in a real estate bubble that is about to pop?  Who knows?  In most metropolitan areas we’d say probably not.  But, as most economic experts agree, you can reasonably expect certain areas which have already attained huge market increases to cool off.  You may even see a 20-30% correction, but even at that level, we wouldn’t call it a bursting bubble.  Properties in all “good” areas go through their cycles, so from an investor’s standpoint, the question of cash flow on the rental income is critical since even in down markets, there isn’t a huge change in rental incomes and usually you have your renters in a lease.