The buy and hold for rental approach to real estate investment is the most popular, but it isn’t the only way to realize a great return from real estate. In fact, the investor who wants to buy and hold frequently isn’t one who wants the hassle or added risk involved in the distressed property purchase and renovation process. They become a very good customer for the flip investor.
Particularly in today’s market, with higher foreclosure inventories, there are a great many properties available with condition problems and at deep discounts to their after repair value. You can fill a void and bring ready-to-rent or even occupied properties to other investors. With the stock market forever in gyration, more people are being drawn to the long term stability of rental real estate. So, what does this opportunity look like?
The flip investor locates bargain properties that could be renovated to resell to long term investors.
Do the due diligence to determine the after repair value of the property.
Study the rental market to determine the probable rent that can be charged.
Run the numbers and negotiate a deep discount purchase, with built-in equity after renovation.
Be thorough in planning and budgeting the renovation process, using contractors whose bids and performance you trust.
Get the work done within budget and on your time schedule.
Advertise for a tenant and get the property rented.
Resell it to the long term investor with cash flow assured.
You become a retail marketer of rental properties to investors desirous of cash flow and long term appreciation. They are willing to pay retail, or close to it, if their cash flow is positive. There are some definite advantages to this intermediary role:
1. You can develop relationships with investors who will be on tap to purchase properties, giving you the opportunity to set up a purchase before renovation is complete. You can close a purchase deal almost immediately, taking your profits to the bank.
2. The same timing advantage holds for locating tenants if you want to sell it occupied. This is a good practice, as you don’t have to convince the buyer of probable rent, as you have a lease in place.
With buyers out there ready to purchase renovated and occupied properties at prices of 85% to 100% of retail value, and with your renovation project coming in at 60% to 75% of that value, the short term investment opportunity is obvious.