I’ve had a huge interest in real estate investing over the last 9 years or so. One of the biggest limiting factors in closing that first deal really comes down to which kind of property nets the best overall return.
Residential flipping?
Lots of reality shows out there promising crazy returns, but very risky in most cases when it come to “real” cold, hard reality. It’s not that this isn’t a great way to make money, it’s just that the competition is ridiculous. Wealthy real estate firms with large networks scout and buy up the best deals, and leave the risky chafe for the little guys. Then, if the property won’t sell right away, you get caught in the single-family rental trap that real estate guru, Grant Cardone details in the video embedded further down the page.
Commercial flipping?
The same holds true in the commercial space when it comes to flipping properties. The only trouble here is, there’s lots of commercial ghost towns out there, including abandoned strip malls and massive industrial parks with empty buildings and nobody interested in buying them. Worse, the price of entry can run into the millions to finance and if repairs are needed, you’ll either need millions in available funds and/or credit, or a list of other investors who trust you at the ready with their money.
Renting: Residential or commercial?
So flipping isn’t the smartest move for a first time investor. Renting has long been touted as one of, if not the best long-term real estate investing methods you can use. Tenants pay for the mortgage and the upkeep via their monthly rent, while your investment grows in value over the years. There’s the hassle of dealing with tenants, but that’s what property management companies exist for.
In the video below, Grant Cardone talks about his preferred real estate investing vehicle, cautioning everyone as to why they need to steer clear of making the same mistake he did on his first deal — ie., buying a single-family residential home and renting it:
Pretty sage advice from Cardone here. You’ll need at least 10% down to buy a home. If you’re living in the home you buy versus renting, it’ll take years (in most cases) for the value to go up significantly, and it’s a shaky way to build up a reliable retirement fund — certainly won’t make you uber-wealthy.
Single-family properties are for suckers
If you rent out a single-family home, you’re only making a little money (after mortgage and upkeep) every month — and only as long as the house is rented. Once it’s sitting, you have to pay the bills. You’ll be able to leverage the home’s equity eventually, but the risks are many including renters leaving before their lease is up and the home being damaged, leaving you footing the repair bills.
Multi-family properties for the win
Then comes the advice for focusing on multi-family commercial properties. As Grant detailed: multi-family homes offer the advantage of knowing that even if one or two units are vacant, you still have a huge financial buffer with the many other tenants your property houses. I don’t think he mentioned the equity advantage, but obviously a multi-tenant property is going to offer you a lot more capital when it comes to buying more properties and growing your empire.
Wait til you’re rich before buying a home to live in
I almost think Cardone is using the “Rent Where You Live — Own What You Can Rent” slogan as more of a tongue-in-cheek way of telling you to buy and rent out several multi-family properties and have lots of moolah in the bank before settling on a home of your own. In this article, he explains that you should already be rich beyond the average person’s wildest dreams before laying down roots in your dream home.
Solid advice from a man who’s been there and done that.
Share your thoughts…
Main Image Credit: Grantcardonetv.com
