The term “real estate investor” gets thrown around a lot. Many people who get started learning how to flip houses immediately give themselves this label. That’s ok – I’m all for the ‘fake it ’til you make it’ approach. But the term itself is rather vague, no matter whether you’re a seasoned veteran or new investor — after all, there are countless ways to invest in real estate. Calling yourself a real estate investor, therefore, doesn’t really mean much. Let’s look at some of the most common methods used today:
- Flipping houses
- Wholesaling / assigning contracts
- Holding residential property for cash flow (landlord)
- Holding commercial property for cash flow (landlord)
- Holding property for appreciation (speculation)
- Buying notes
- Private mortgage lending
- Hard money lending
- Buying tax liens
- Residential development
- Commercial development
- Condo conversions
- REITs (real estate investment trust)
There are more, of course, but you get the idea. Some of the above methods are more active (flipping houses, wholesaling) while others are more passive (cash flow, private mortgage lending). The right method for you is what makes you happy and what makes you money, right? And only you can answer that. But the most important lesson, no matter how you choose to invest is this…
Invest in What You Know
The biggest mistakes people often make involve investing large sums of money without the appropriate education. I don’t just mean picking up late-night infomercial CD programs during a bought of insomnia — I mean deciding to buy a fixer upper to flip or a property because a friend says it’s a great deal.
Even further, investors who have had some success in one area above, for example flipping houses, will then decide to take the plunge into commercial buy and holds without understanding the huge difference between commercial and residential real estate. Success in one area doesn’t always translate into success in another. Invest in what you know.
As a coach with the FortuneBuilders Mastery real estate education company, I can tell you firsthand there are plenty of people who have tried to make money in real estate doing things their own way or taking risks without sufficient justification or training. There’s no need for it.
Of course, this “leap before you know” approach isn’t unique to real estate. How many people thoroughly research companies before they buy stocks or mutual funds? Do you look at the company’s board of directors? Or do you just go with name recognition and how it’s done the past few months before deciding to pull the trigger?
The best thing you can do is to avoid “chasing shiny objects” and find one niche that you can research and find success with. Then, consider adding another niche to your repertoire of investment strategies. It may take more time and energy, but the good investments are worth it.