When starting out in real estate investing with limited resources is it better to get going as a slumlord or wholesaling properties?
Many real estate investment courses and gurus have traditionally focused on rentals as the path to financial freedom through passive income. Rentals can be a great addition to any portfolio if done right. However, there are also many reasons getting started by wholesaling can be advantageous for the green investor, especially for those stepping out with limited cash.
If starting out with such limited capital in rentals means being limited to being a ‘slumlord’ and investing in severely distressed properties in even more depressed neighborhoods it could mean setting yourself up for some nail-biting times ahead.
Buy and hold real estate investment doesn’t just require money for acquisition, but often ongoing debt service, utilities, taxes and insurances, regular maintenance and having a reserve fund for major repair items as well. Many newer investors simply aren’t financially prepared for this. Neither are many ready for the extreme amount of hours the property management involves and how dealing with tenants can strap them down to their properties. Additionally, rentals normally mean small numbers, and little income. It can add up over the long term and is really beneficial in retirement, but it is not the fast track to big money, real wealth or financial freedom in the short term. It also leaves investors on the precipitous edge of insolvency, unless they have another way to stack up lumps sums of cash.
Those tight on cash who are limited in investing in low end rentals can find the trials even tougher; property management incredibly difficult, and it can be a full time job to preserve property value.
In contrast wholesaling properties can help less affluent investors to rapidly build up their liquidity. Wholesaling delivers larger lump sums of cash, far faster, and eliminates any ongoing monetary obligation to the property. In, out and paid.
Wholesaling requires very little to get started, and can deliver a higher ROI, and can even be a passive income investment strategy if a good system is incorporated and automated.
Once investors have accumulated a substantial nest egg and slush fund, then they can choose to diversify out from just wholesaling properties to rentals, development, private lending and other strategies as they please. It can just be wiser to begin with wholesaling to get a better feel for the industry with low risk and enjoy a higher velocity of incoming cash.
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