If you’re a new investor learning the ropes of real estate investment, you’ve come to the right place. Learning how to invest in real estate takes time. So, let’s clear up a few questions before talking about rehab, prehab, and wholesale.
Real Estate Investment Basics
Real estate is basically land and the property or properties upon it, both natural and man-made. Investing in real estate entails purchasing real estate to earn from the property. Though this type of investment requires significant capital, it is a proven way to earn high returns. But how exactly do you earn from real estate?
- Increasing property value– When a property’s value increases, we say it appreciates. Generally, property values increase because of development, improvements, or location. Development involves building houses or commercial centers, while improvements mean renovations such as a new garage or an enhanced kitchen. Location can pull up a property’s value when transportation hubs, schools, and shopping malls are found near the property. What happens after you’ve increased the value of your property? You sell and earn.
- Renting out the property- While selling is the most common way to earn money from real estate, generating rental income is also an option. You can choose to rent out on a short-term or long-term basis, depending on several factors, including the property’s location. For example, if the house is in a tourist spot, consider doing Airbnb or vacation rentals. However, if it is near a school, having long-term student tenants might make more sense financially. For rental income, factor in repairs and maintenance. You may also hire a property manager to take care of the rental property.
Exit Strategies in Real Estate
As the name suggests, exit strategies are concerned with how the investor chooses to remove themselves from the investment situation. In simpler words, an exit strategy is what you, the real estate investor, plan to do the property. Having an exit strategy is a must because it allows you to assess and plan how to earn from your investment. It also helps minimize loss by letting the investor recognize and avoid potential risks.
This article will discuss three common exit strategies in real estate investment: wholesaling, prehabbing, and rehabbing.
Wholesaling is the most popular and easiest way to get started in the real estate business. Not only does it involve relatively less time and effort, but it also has lesser risk. When you choose to wholesale, you become a middleman between property sellers and buyers. Purchase land under market value and then market the property to potential buyers. The wholesaler technically does own the land in the process; they only own the right to purchase it. It is this contract that the wholesaler puts a fee on before passing it to the end buyer.
The challenge in wholesaling is finding potential buyers. While wholesalers do not need plenty of bucks to secure an entire property, they need to invest in marketing and lead generation. This ensures that they will find good buyers.
Some real estate investors might be unfamiliar with “prehabbing,” which means doing minor renovations. Prehabbing is sometimes considered a preparatory stage to rehabbing, or a mix of wholesale and rehab. Both rehabbing and prehabbing build on value appreciation as a means of getting profit. A property that has undergone prehab is usually sold to investors who will do a complete rehabilitation. Some of the easiest ways to prehab a house or building are:
- Landscaping: First impressions last, even in real estate buying and selling. That is why investing in an attractive outdoor landscape is a reasonable choice. You don’t need to spend a fortune to beautify your property’s front yard. After all, prehab is all about making minor cosmetic upgrades. You can do a quick DIY landscape even if you’re a beginner at landscaping.
- Painting: Old, peeling paint is not appealing to prospective buyers. At minimal costs, painting can immediately improve the appearance of your property.
- Cleaning: The beauty of a building might be hidden under layers of grime. Conduct a general clean-up and get rid of the trash.
Last but not least, investors can rehab a home before marketing it. Rehabbing, also known as flipping, refers to a full renovation of the property. Though the investor needs to shell out more for a rehab, a fully renovated house can easily be sold for way higher than the purchase value. High-ROI rehab projects include replacing doors and attic insulation.
The bottom line
Real estate is undeniably a worthy investment. As long as you know and use the proper exit strategies, you’ll be boosting your bottom line in no time.