When people here real estate investment, they think of a variety of things. While it may seem like a mysterious method in which people make money from homes or land, it's in fact very simple if we break it down in a way that makes sense.
Let's start with what everyone already knows. A real estate agent is someone that brokers the deal between a buyer and a seller when creating a transaction for a house. Usually, you'll have one agent that represents the buyer and that person will attempt to find homes that match the buyers' criteria. The other agent is a seller agent, and they represent the current homeowners' interests in selling the home. They generally work under a broker and have access to an MLS and other resources that help them market the home and attract potential buyers. They'll often do things like hold open houses, take photography or videography for the home, and stage the home while presenting to potential buyers.
Where the real estate investor differs
Unlike an agent, a real estate investor doesn't actually represent a buyer or a seller. Actually, a real estate investor can be one of three things.
A wholesaler is someone who finds homes that are looking to be sold, whether they're going to be foreclosed, have tax liens, went through some sort of damage, or otherwise needs to get sold either on a timeline or just doesn't have the option to easily go through an agent (who requires that the home be at least somewhat presentable).
The wholesaler will put the home under contract so that the homeowner can't go elsewhere, and then they will approach an investor that's interested in renovating and flipping the property. The wholesaler gets a cut of the sale price, usually predefined in the contract, and brokers the deal between the homeowner and real estate investor purchaser. The wholesaler doesn't do any rehabilitation on the home. They are simply a middle man.
The purchaser in any investment deal is someone who is interested in taking a project home, renovating or remodeling parts of it, and then turns around and sells it. They may sell it themselves or they may use a real estate agent to do so, but it's generally ready to be sold to regular, non-investor type of buyers at this point. The rehabber can make a substantial amount of money once the project is said and done, depending on how cheap they got it and what the actual market value of the home is valued at.
The rehabber may purchase with their own money, but oftentimes they use a money lender to purchase the property. And the money lender gets their share of the sale once it's closed.
The Money Lender
The last primary form of a real estate investor is the money lender. In many cases, the money lender was once a rehabber, but they've built enough wealth to the point that they can now simply lend money to other rehabbers and get returns once the home is sold. Money lenders operate in lieu of a bank because they offer easier methods of money-getting. They solely operate on the details of a deal, and as long as it meets certain criteria (usually purchased at 70% or less of the market value of the home after rehab), then they are willing to lend money out to a rehabber. The conditions in which how much they're paid is negotiable and generally depends on the track record of the rehabber and how desperate or new they are to the market. Money lenders usually lend from thier own cash bank, leverage from their own properties, or from an IRA account.
As a homeowner, which would you choose?
The correct choice for a homeowner really depends on what the needs are. If the homeowner is not restricted by any sort of timeline, then they can go through the traditional real estate sales route. This often requires making any repairs necessary, staging (photos), listing on the MLS, showing to multiple buyers, then going into negotiations before closing (and paying closing costs usually ranging from $2000-$5000). This is generally the best route if top-dollar is the goal.
Choosing a real estate investor is the best route if there is a timeline, such as relocation, foreclosure, liens, inheritance, fire/water damage, or any other situation where making repairs isn't affordable or the homeowner simply can't wait as long as it takes in a regular process. RE Investors can generally make offers in cash and close within a week, all while not requiring the homeowner to pay any additional fees or closing costs. This is often really attractive to homeowners when they just don't want to deal with the property or going through the burden of selling through an agent.
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