You say you are investing in real estate, but I’d bet on the fact that you are actually working in real estate. In fact, most people who think they are investing in real estate are actually working in real estate instead. I can hear you right now: “Wait, what? No, no… I’m investing in real estate.”
Getting Started
There are several (or more) ways to be involved in real estate investing. Especially when you are just starting out, it can be really tough to sift through where to even get started because of how many choices there are of what you can do as a real estate investor. The good news is that all the choices are good. Whether you flip, buy rental properties, wholesale, do notes… whatever it is you end up doing, they are all good options and can all be very profitable. That’s the joy of real estate investing — there is something for everyone!
Now, the trick is figuring out what method to try your hand at. There are a lot of considerations in figuring out which area of real estate investing you will be the best at, and more importantly, which area you enjoy the most. For a more in depth explanation of some different facets of real estate investing, check out this article. If you read that article, you’ll see “Involvement Level” listed as one of the considerations for each method. That consideration is what I’m going to expand on here.
Alternatively, maybe you are already a long-time investor. This article may just help with some clarity, which can be good, whether you use it for general awareness or in assisting you to make a change. Or if you’ve been frustrated with any of your investing lately, maybe this will help explain something that is possibly contributing to the situation.
Investing vs. Working
If I look up “invest” and “work” on dictionary.com, I get the following definitions:
Invest: to put money to use, by purchase or expenditure, in something offering potential profitable returns, as interest, income, or appreciation
Work: exertion or effort directed to produce or accomplish something; labor; toil
Straight investing is putting your money into something and getting returns on it (hopefully positive ones!). So your money is what brings in the return, not you. Working, on the other hand, means you (not your money) puts forth an effort into something in order to get a return.
If I break these concepts down into even simpler terms, I come up with:
Invest: your money is the means to the profit
Work: your effort is the means to the profit
I’ll go ahead and tell you right now, there is no means of investing that doesn’t require at least a tiny bit of work on your part. It’s impossible, unless you are literally just handing your money to someone blindly, and they are investing it for you — you never ask questions, and you get returns on it. But for the most part, every method of investing requires at least some work on your part, even if it means signing your name to something, keeping an eye on something, or even just figuring out what it is in the first place you want to get involved in. All of that is work. That’s okay, and just assume that to be the default level of work required with any investment option. However, once you start specifying different types of investments, you need to realize they all involve a different level of work on your part to make each one successful.
Related: Passive Real Estate Investing: How to Have a True “Four Hour” Real Estate Workweek
Now, are you ready to apply this?
Different Methods of Investing and How Much Work They Require
I’m going to jump right in and show you a few different methods of investing and the differences in how much work is required for each via a fancy-dancy graph. I think seeing the breakdowns more visually will help put this into perspective a little nicer, and then under the graph I will expand on each one. Hopefully doing that will help you see more clearly how investing and working tie in together. And again, the amount of work noted is the amount of work required to make the overall investment happen.
Ready, set, bam! (note: percentages are estimates)
Wholesaling
If you’ve read many of my articles, you know I don’t support calling wholesaling a method of investment at all. I only refer to it as one because it is so highly talked about amongst real estate investors — just about every newbie investor has considered doing it at some point or another, and for whatever reason, the majority of people do think it is a method of investing.
But the reality is: wholesaling is 100% work. It is a job. What people don’t realize is that if you decide to wholesale, it is simply taking on a new job in order to gain capital that you can then use to invest (that part being the reason people consider it to be a method of investing — because it is almost always because someone wants to get into real estate investing, but doesn’t have the capital to get started).
There is nothing wrong with taking on wholesaling, and it is an amazing way to learn the ins and outs of investing, but there are a ton of other “businesses” you can start if you are just wanting to build capital. But without going on a rant about why I don’t think wholesaling is a method of investing, just understand that success in wholesaling is 100% dependent on the effort that you put in. Your money does nothing for you in this method (unless you are doing some varied version of wholesaling; then you might use some of your own money).
Basic wholesaling = not your money. It’s all you.
Flipping
This is one of the most interesting balances of investing and working. It can actually be a little tricky to comprehend, …read more