Investment Strategies
There are 3 main investment strategies our investors use when purchasing property at trustee sale. Each is unique and depending on your specific investment goals work great for a portfolio.
Fix and Flip
The fix and flip is a great way to roll your profits constantly and build your investment capital on a continuing basis. This strategy requires the investor to spend more time researching the properties because gross margin is an important factor in the success of a fix and flipper. This investor needs patience in today’s trustee sale market. Lately we are seeing prices being driven up closer to retail which means the flipper must be willing to take less margin than they may have in the past. In a perfect world a flipper looks for properties that he can purchase at around 75% of market value. Today we recommend focusing on a gross profit of around $10,000 after expenses. With bank interest rates being low, this guarantees a better return than you would receive in a savings or money market account. By focusing on doing multiple flips during the year you raise your annual return. By using this strategy, our investors are getting more properties and are realizing annual returns between 16%-20%. The best part is that you have a hard asset to back your investment.
Buy and Hold (Rent)
The buy and hold investor is looking for a less labor intensive strategy. Buy and hold investors can pay more for the property than retail because they are in it for the long haul. The most important number for the buy and hold investor is rate of return. We are currently seeing very high activity on the homes in $75,000 and under range for this investor. Many are being driven up to retail or slightly over because the investor can get the property the next day and have it rented within a week. Additionally, if you buy a $50,000 home and rent it for $900 per month you are earning your initial investment back in 4.5 years. This is an incredibly good investment rate of return. This investor will still be responsible for maintenance of the property, HOA fees & taxes. However this owner maintains the right to future appreciation. And with purchase prices like these, appreciation is almost guaranteed.
Buy and Sell (Carrying the Contract)
The buy and sell investor is similar to the buy and hold investor, except that they relinquish all control of the property to a new owner. This investor maintains first lien position and essentially becomes a bank. The investor pays no annual taxes, maintenance or other HOA fees. They relinquish all rights to future appreciation to the new owner. The payments are collected by a professional note service, who then forwards your monthly principal & interest to your bank account. This is a very hands off approach. You will usually get a sizable down payment and interest rates can be as high as 10%-12%. The only draw back to this investment strategy is that if the owner fails to make payment, you will have to foreclose on them, which can be costly and take time. Due diligence and a large down payment are the best way to avert issues like this from occurring. The upside is that once you have the property back after a foreclosure, you can do it again. Our partner realtor agency is quite specialized in structuring transactions such as these as it is a favorite of ours for the long term investor.
