Part 2 in a series

If you are starting out in investing, chances are you want to invest hands on. You probably want to either invest full time, or simply add to the family finances with a deal or two a year.  Deciding the type of investing that works for you, and how much time and money you should invest, are important decisions.

Choosing a direction and focusing will make a big difference in how successful you are.  One thing you should consider is the skill set needed for various niches in the investing world.

If you are an experienced investor, you know more about what you are doing and how much time and financial resources you should allocate to real estate.

But if you are just starting out, make sure you are not cashing in your kid’s college fund the first week.  Allocate a portion of your capital to real estate investing to stay diversified.  As you become more experienced and you have invested in a few successful deals, then you can increase the allocation to real estate.

If you prefer hands-on investing, then consider what niche you prefer.  Here are a few examples:

Buy and hold Multi-family investing:

Requires some cash for a downpayment, and thick skin.  Buy some books to learn about calculating cashflow BEFORE you start looking at properties.  Learn some property management skills BEFORE you buy your first multi.  It’s amazing how many people buy a multi without having any real understanding of how the numbers will play out, or what a landlord should and shouldn’t do.  For example, in Massachusetts a landlord can hold first months rent, last months rent, and a one month security deposit.  But in New Hampshire, the max is first months rent and a one month security deposit.  No pet deposits, either.  You need to know these things or they can trip you up.

Wholesaling:

Requires the ability to keep going no matter how many times you hear “no”.  You must contact a boatload of homeowners to find one who will sell you their house at a price low enough for profit.  Finding sellers is a numbers game.  Requires no cash except what you spend for marketing to homeowners.  If you can find good deals, you’ll have no trouble selling them to your local real estate investors who want to rehab.  Spend some money on a marketing course, and attend your local REIA’s to build your buyer’s list.

Rehabbing:

Make sure you can either do the work yourself (properly) or you are good at managing contractors.  Paying retail for contracting will kill your profit, or you’ll be bidding so low on a property that lots of people will outbid you.  Rehabbing requires the ability to find deals, the ability to evaluate how much you should pay, the ability to manage the rehab, the ability to market the house for sale and evaluate the price you should be listing at.  The last two can be handled by a real estate agent, but you must know the end value before you can make your offer.  If you don’t have the funds to buy cash, you’ll need hard money or a money partner, because banks won’t lend on properties in serious disrepair.

I’m getting a little long here, so I’ll discuss hands-off investing tomorrow.