There are a number of secret rules to the game of success in real estate, and anyone not familiar with these rules is going to find themselves trampled beneath the crush of investors walking over them to make their fortunes. The most important of these is to buy low and sell high; the process of purchasing and rehabilitating a property can make all the difference in the world in the amount of profit it is able to generate. This is not, however, the only rule of which new investors should be aware.
The most important factor in how much success an investor is going to be able to achieve in real estate is what type of property they choose to purchase and what they do with it after they are finished. The most common type of real estate transaction is the purchase and "flip" of a single family home. What this means is that an investor will purchase a single family home that is in need of rehabilitation for a price well below market value and rehabilitate it. They will then turn around and resell the property for its full market value, pocketing the difference (thousands if they have done their homework properly) and walking on to their next deal.
This has its advantages. These types of transactions can be conducted fairly quickly, and the investor stands to acquire a large amount of capital in one fell swoop upon the sale of the property. This type of business transaction can generate a very comfortable monthly income for the investor in question; however, it is not going to be sufficient to propel them up into the ranks of the whales in the business. In addition, in the event that the market hits a slump in its cycle (as all housing markets do) the investor who has made their career from single family homes is going to find themselves holding the bag on a deal that is not nearly as profitable as it first appeared.
In order for the investor to rise to the top of the food chain (perhaps sharks would have been a better analogy) he or she is going to have to learn the secret of passive income. What is passive income? Passive income is the money generated from an investment that the investor did not have to do anything further to earn, and in the case of multi-family homes it comes from rental income.
Think about it. The markets rise and fall; however, very rarely do the cost of rentals do so, particularly for renters who have been in their current residence for some time. These rents will come every month to the investor, who will be able to enjoy the money coming in without getting to enjoy the stress that can accompany the purchase and rehabilitation of a single family home. If they are extremely intelligent they have hired a manager to see to the daily operation of their property, freeing them up to decide whether they are going to take their new income and go to Tahiti or the Bahamas.
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