Cash buyers have a unique advantage in the real estate market. They can leverage their financial resources to move quickly and close deals before anybody else.
Are you looking for ways to invest your cash in the market?
Here are the six best investment strategies for cash buyers to help you capitalize on your strengths and maximize your profits.
1. Invest in Wholesale Properties – Leverage Your Cash Flow
Real estate wholesalers work hard to locate properties that may be listed below market value; such assets are typically undervalued because they are in a distressed state.
This could be an abandoned house, a foreclosed apartment, a property that has been vacant for several years, or a house in need of repairs.
Wholesalers in your market typically do not repair or renovate damaged properties or even take possession of them. They identify the owner, make an offer, and get the property under contract.
Next, they look for cash buyers who can close the deal quickly before the contract expires. This is where you can leverage your cash flow and purchase wholesale property at a discount.
Next, you can renovate the properties to increase their perceived market value so that you can sell them for a profit.
However, keep in mind that you should do your due diligence with the wholesaler as well as the property you are investing in. Ask about their fees, services, and terms upfront.
2. Fix-and-Flip Strategy for Cash Buyers
A popular real estate investing strategy for cash buyers involves buying properties in need of repair, renovating them, and then selling them at a higher price.
Compared to other real estate investors, you have an edge in this method as you can fund the purchase as well as the repairs.
This strategy is most effective when you can renovate the property quickly and flip it immediately after. The longer you hold on to the property, the more you will spend on carrying costs like property taxes and insurance.
Not all properties are good candidates for fix-and-flip investing by cash buyers. The key is to find properties that are in good locations, have good bones, and can be renovated for a profit.
To successfully pull off this investment strategy, cash buyers should always rely on accurate estimates from contractors for the cost of renovations, stay on a budget when the renovations take place, and be prepared for unexpected expenses, such as hidden damage, or having to completely replace a major system.
3. Buying Rental Properties With Cash for Investment Purpose
The chief reason why some cash buyers choose to invest in rental properties is because they help generate steady income streams.
Rental properties also appreciate in the long term, but you need to factor in maintenance and carrying costs as well. This strategy does help offset the risk of depreciation with short-term rehabs.
If you don’t want to manage a rental property yourself, hire a property management company that will find and screen tenants, collect rent, and handle maintenance issues on your behalf.
This buy-and-hold strategy is generally more stable and can be a good place to start for anyone new in the real estate investing (REI) space, including cash buyers.
4. Investing in Real Estate Investment Trusts
REITs utilize accredited investors’s money to invest in income-producing real estate assets across different sectors.
Over 150 million Americans have their money invested in REITs through their pension plans, IRAs, and other funds. Nearly every major shopping center you walk into is owned by these entities. You can also find REITs that exclusively own, finance, and manage retail centers, office spaces, or apartment complexes.
Several reputable REITs trade on major stock exchanges, and you can invest in them by simply buying their mutual funds or exchange-traded funds (ETFs). Do your research or consult a financial planner, especially when it’s a public non-listed or private REIT.
Investing in REITs can be a good option for a passive investment strategy (regular dividends) to diversify your portfolio. They offer investors the opportunity to invest in real estate assets without having to find, purchase, finance, or manage the property themselves.
5. Buy Tax Liens & Deeds at Auctions
A property tax lien is a legal claim to real estate property for which an individual or business entity has failed to pay taxes owed to the federal or local municipal government.
A tax lien guarantees payment of the tax debt by giving the government a legal claim to the property. If the taxpayer fails to pay the debt, the government can foreclose on the property and sell it to recover the debt.
Once a lien is issued, the local municipal government will auction off a tax lien certificate to the highest bidder. The certificate states the total amount owed, including interest and penalties.
You can buy property tax liens as an investment strategy, just like you can buy actual properties at an auction.
However, buyers should carefully assess the potential cost of repairs and other hidden costs.
This real estate investing strategy carries substantial risks, and novice investors should stay away from it until they fully understand what they are getting into.
Cash buyers should not expect to get physical ownership of the property after purchasing a tax lien.
According to the National Tax Lien Investing, over 98% of homeowners in the United States redeem their properties before foreclosure.
6. For Best Results, Create Your Own System
The best way to minimize risks while moving towards your financial goals as a cash buyer is to acquire the right property at the appropriate price.
So, prudent cash buyers often do not solely depend on wholesalers, real estate agents, auctions, rental companies, or title agents in their target markets for referrals or direct offers.
Instead, they utilize dedicated platforms like REIgrow to actively pursue owners of potentially undervalued properties available for cash purchase.
With REIgrow, you can quickly initiate follow-ups through the user-friendly lead pipeline and drag-and-drop sales funnel features. You can automate a variety of marketing tasks, including sending emails, text messages, ringless voicemails, or even direct mail to potential leads, encouraging them to schedule an appointment or arrange a call.
Over time, cash buyers, like other real estate investors, should diversify their portfolios to mitigate risks.
Maintain a solid reserve for unexpected expenses and understand that your leverage can sometimes work against you.
Therefore, don’t rush to buy properties just to build a portfolio.