A real estate investor has a blank canvas with a palette full of colors. Perhaps like an artist who stares at a canvas and wants to paint but what, oh what to paint? The artist has unlimited options from a simple vase with flowers to a magnificent landscape with millions of colors. Like the artist, real estate investors soon find there are more choices than originally imagined. So much so that it can be overwhelming at first. Let’s put a few of the primary colors on the palette by explaining your investment options to get you started…

The strategies and options available to an investor will range depending on your individual situation and current market conditions. Think in terms of things you control and those you don’t. First let’s talk about you; there are the goals you set, your ability to get financing, the actual funds you have to invest, the time you have to research and execute your strategy, and your appetite for risk. Your own knowledge and skills will be a driver too, so get educated and keep learning.

Then there are the things that you can’t control like the availability of inventory at reasonable prices, low-cost financing and interest rates, rent prices, vacancy rates and other economic factors. What you are looking for are properties undervalued where you can buy and flip, or where the ratio of purchase price relative to rent is favorable in decent neighborhoods to buy and hold. Below is a depiction of some of these influencing factors.

The good news is that you control a good chunk of your influences and the strategy you deploy will depend a lot on you. Do you have a lot of time on your hands now or will this change in the future? Do you have specific skills that support one approach versus another? Do you have family in a specific location or wish to retire in a given place? What you need is a roadmap that takes into account your personal influences, market forces and options available. So we created one for you.

Below is a great way for you to visualize how to Select, Personalize and Make your Strategy Happen. First, comprehend what will influence your strategy by determining your goals and writing them down. Second, define your limits such as how much you have to invest and your ability to get financing. Third, try to get a simple read on some of the macro trends around market conditions. After you do these three things take the time to understand the four basic strategies available to a real estate investor--flipping, wholesaling, owning the note, or buying and holding. Once you’ve picked a strategy then you can look at how to personalize it. Start by understanding how different situations have impacted what and where other investors have bought. Then you can move onto how to make it happen and decide how involved you can and want to be. Are you able to be hands on or passive, or somewhere in the middle?

Don’t get hung up on any one step at this point until you’ve read all the lessons in this section. It will start to fall into place as we give examples. So let’s get started and dive into common real estate strategies for investors and your strategy selection.

Flipping: a great investment with high and quick returns

Wholesaling: quick way to make profits without fixing or managing tenants

Owning the Note: be the bank, not the owner and earn the interest

Buying and Holding: long-term growth with appreciation and cash flow

With flipping you typically use either your money or credit (or someone else’s money or credit) to acquire properties that you will fix and sell quickly for a profit. These properties need anything from cosmetic upgrades (paint, flooring) to more in-depth fixes (mold, plumbing, new roof). When you learn strategies to find deals for less money and find competent people to assist with the rehab cheaper and faster than others, you will have a recipe for profits no matter where you live. This is a high-risk strategy with quick and high returns for those that have the time, experience and right market conditions. I don’t see this being a fit for the novice investor or those who are missing renovation experience or the time and capital to invest.

This is a strategy for people to get into the real estate market without using their own money. A buyer will often purchase many properties all at once and then sell them to cash buyers for a higher price than originally purchased, which is where the wholesaler makes the profit. Most of the time the buyer does not take title to the property, therefore reducing risk during the process. To be successful this strategy requires wholesale buyers to learn unique techniques to create great deals most others can’t find. Essentially you operate as a broker and must be a top-notch middleman, with undisputable skills in sourcing undervalued properties while being proficient in sales and marketing to sell them fast. This isn’t for everyone.

Kerching! Does anyone want to be a bank? Remember being the banker in Monopoly™? Well the benefit of owning the note is that you get to pick up a loan and associated property for a deep discount. Banks and other investors don’t like the expensive, lengthy foreclosure process so they will sometimes sell the note (also called mortgage notes). The investor who buys the note essentially becomes the new “bank” so he or she can either negotiate a new loan with the borrower or foreclose on the property. The downside here is that you are purchasing a lot of paperwork so understand what you’re buying. The upside is huge—you often get the loan for pennies on the dollar, you receive great returns for a long period of time and often the homeowner remains in their home while paying off the loan that you now own. You are not a landlord with all the associated expenses and risks, but you do run the risk of having to collect loan payments much like rent and you must be prepared to go through the foreclosure process. Being the bank means no depreciation and associated tax benefits to rental income. I’m not a huge fan right now as I see higher returns in being an owner and leveraging other people’s money.

Similar to the buy and flip strategy, you use your own or someone else’s money or credit to acquire a property you will hold onto for a period of time. The goal is to generate a positive return from your monthly cash flow. Profits will vary and will be based on a number of factors, including but not limited to market value for the area, condition of property, taxes and property management fees. Learning to fine-tune your process to purchase cheaper, rehab for less money, contract with a great property manager and find solid tenants will help you to maximize your returns. Right now there is an opportunity to buy in high cash-flow regions and pick up double-digit cap rate properties by financing to get an even higher cash-on-cash return. You are clearly a landlord and owner in this model and can create cash flow, long-term appreciation and profit from ownership benefits such as depreciation.

That outlines the four basic approaches. Real estate investors really do have access to multiple ways to create short- and long-term wealth. The strategies described above are a great way for individual investors to begin building a real estate portfolio. Market timing, education, due diligence and the teams you work with are truly going to define how successful you can be.