What is the best real estate investment strategy? If you ask different investors, you will get different answers. A real estate wholesaler will tell you that real estate wholesaling is the way to go. A real estate investor who has made a fortune by investing in rental properties will claim that buying rental properties is the best real estate investment strategy.
Which of the two is really the best real estate investment strategy? Both techniques are great for making money, there’s no denying that. But still, the answer depends more on what you are looking for in an investment. To help decide between real estate wholesaling and investing in rental properties, we’ve explained the two strategies and included the pros and cons of each.
Investing in Rental Properties
The typical go-to of investing in real estate is investing in rental properties. Rental properties are used as properties for rent, as the name suggests. Thus, the essence of a real estate investor is buying rental properties (or just one property) in order to earn rental income. Investing in rental properties can also lead to profit in the form of real estate appreciation, which is an increase in the value of a property over time. As is obvious, rental properties require financing. Most investors are not able to fully cover a property’s price upfront. Instead, most investors use mortgages, in which they pay monthly payments to cover the purchase.
Why You Should Be Investing in Rental Properties
The entire purpose of investing in rental properties is to be making money in the form of rental income. Rental income can be used in many ways. Some investors, for instance, invest in rental properties to earn passive income, which can be used to supplement living or pay off debt. Other investors take a more active approach in making money through real estate, as investing in rental properties is their main source of income. Whether as active or passive income, investing in rental properties is a great source of wealth.
As previously mentioned, rental income isn’t the only form of profit in real estate. Real estate appreciation alone could help a real estate investor hit the bank. A huge profit can be made by selling investment properties after they have increased in fair market value over the years.
Another benefit of investing in investment properties is tax deductions. Operating and mortgage expenses are considered tax deductible, saving a real estate investor a good amount of cash. Never underestimate the effect of tax deductions in real estate, as they can really enhance your experience.
To sum up, if you’re looking to earn active or passive income, increase appreciation of a property to sell, or save money through tax deductions, investing in rental properties is a great fit for you!
Why You Shouldn’t Be Investing in Rental Properties
As great as investing in rental properties is when making money, there are a few potential drawbacks. The most obvious con deals with the purchase of properties. What if a real estate investor does not have enough money?
Luckily, there are plenty of ways to invest in real estate with little to no money. The potential issue with this for some real estate investors is taking on debt. In real estate, debt is used as a method to purchase a property. It is meant to facilitate the financing aspect of real estate investing, it isn’t meant to enslave the real estate investor. Still, debt is a huge commitment. That’s why it’s vital to have your finances in check and only accept deals that you feel comfortable with.
Another con of buying rental properties sheds light on a pro of real estate wholesaling that we will cover shortly. Rental income with investment properties can be active income or passive income. Unfortunately, it isn’t immediate or quick income, as real estate wholesaling is.
Investing in Real Estate Wholesaling
Now that we’ve talked about investing in rental properties, we can move on to real estate wholesaling. In common language, a wholesaler purchases many goods at a low price and sells them at a higher price. A real estate wholesaler does the same thing essentially, with investment properties being the goods to be sold.
Real estate wholesaling consists of a real estate wholesaler helping a seller sell a property by finding buyers. In a way, a real estate wholesaler acts as a middleman for the property seller and the property buyer. The wholesaler and the seller agree on a contract that stipulates that the wholesaler finds a property buyer within a certain period of time. If the real estate wholesaler succeeds, he/she earns a profit agreed upon in the contract.
Why You Should Be Real Estate Wholesaling
As alluded to previously, real estate wholesaling is a very fast way to earn a profit, provided a deal goes through. Investing in rental properties, on the other hand, takes a much longer time to generate rental income. Making money through real estate wholesaling could take as little as a day! The amount earned through real estate wholesaling is also incentivizing. Not only does wholesaling generate quick profits, it leads to big ones, too.
Real estate wholesaling also takes the upper hand in terms of money put into the investment. Buying rental properties requires a considerable amount of cash to be invested before generating a return on investment. Wholesaling simply does not. A real estate wholesaler does not have mortgage and maintenance expenses to consider, and thus it requires no cash to begin with.
If you have a knack for negotiating and want to earn a lot of money quickly without using much, then real estate wholesaling is for you!
Why You Shouldn’t Be Real Estate Wholesaling
All that being said, real estate wholesaling is not perfect. While wholesaling provides a faster profit and a bigger bang for your buck than investing in rental properties, it is not as consistent. Profit in wholesaling depends on how many properties can be sold, which is not as easy to maintain as renting out a property.
Wholesaling also tends to be more difficult for beginning investors. The method can be used by all investors, regardless of experience, but new real estate investors seem to struggle more with it.
For more on deciding the best real estate investment strategy for you, be sure to visit Mashvisor.