Creative Real Estate vs Traditional Investing

Are you made for creative real estate or are you meant for a more traditional path? I will introduce you to the variances, the good and bad sides of both methods and which path is best for you.

To begin let’s take a look at both types individually:

In traditional real estate, an investor…

◾Purchases venture properties on the MLS.
◾Discovers deals by way of a real estate agent.
◾Purchases foreclosures that are recorded on the MLS.
◾Purchases foreclosures at the foreclosure public sale.
◾Purchases homes from venders.
◾Takes part in bid wars with other purchasers.
◾Uses large earnest cash checks to acquire contracts on properties.
◾Supplies large down payments.
◾Applies for investor bank loans.
◾Places a lot of bids and gets a limited amount accepted.
◾Frequently looks at deals, on the internet and in person.
◾Discusses deals centered on value.

In creative real estate, an investor…

◾Discovers deals by marketing towards driven sellers.
◾Catches the deals before others are aware of them.
◾Partakes in pint-size or no rivalry.
◾Deals with sellers directly minus agent involvement.
◾Typically puts up very slight earnest money
◾Hardly ever requires down payments.
◾Doesn‘t complete loan submissions.
◾Purchases homes with owner funding.
◾Takes over standing mortgages
◾Provides numerous bids on the same home.
◾Constructs bidding combats when selling their deals.
◾Produces money with every lead by passing on the bad ones to agents.
◾Practices transactional funding, hard and reserved funds.
◾Seldom looks at houses except to get it under contract.
◾Discusses deals centered on terms, value or both.

Mutually they both have obstacles to face; creative real estate requires significant education whereas traditional real estate requires money and/or the ability to borrow money.

The largest trial to creative real estate is obtaining the knowledge. First, you have to gain admittance to the proper training. Naturally, you get what you pay for so characteristically there is a fee accompanied with obtaining the accurate education. Next, having the correct mentor or instructor to aid you in your journey is vital to obtaining the best training. Third, you must make time and take the action necessary to really learn from what you are being taught. This is where many individuals fail. They want the amazing outcomes creative real estate can offer them but they aren’t willing to follow through with securing the instruction (even when they have purchased the right supplies and are learning from the right mentor).

An additional significant fact about creative real estate is that having a small amount of cash can be stretched pretty far. This might sound like confusing data since a creative investor can frequently buy real estate devoid of cash or credit, but there are expenses accompanied with starting and running a small business. When I started out, I ended up homeless. Life in such monetary dismal stretches made everything tougher. I couldn’t receive faxes because I didn’t have a fax line. I couldn’t do extended drives because I didn’t have cash for gas. I couldn’t acquire driven seller’s calls because I couldn’t put any funds into marketing. Without doubt the sum of money required to positively liftoff a creative real estate career is not even close to the amount a down payment requires on one single traditional investing deal, but it is useful for you to realize that having some funds to invest in your new creative real estate business can make a huge difference. In fact, for those who are in the monetary state I was in when I first began (poor), I highly advise those individuals put creative real estate on the backburner until you can raise a little cash and get back in the game. Or else, it will feel like trying to walk down the road in a storm. As an alternative, patiently wait until the storm has passed before beginning your journey.

The chief trial to traditional real estate is receiving access to the funds; funds for earnest money checks, funds for down payments, receiving loans from banks, and sometimes the funds to pay for repairs on properties you have bought. While it is conceivable to get access to funds through private persons, most use the funds they have gathered over their lifespan, such as a sequestration fund or the selling of a business or an inheritance, alongside using their good credit and sturdy monetary situation to obtain bank loans. Though there is some instruction necessary to become active in traditional investing, the traditional method is quite easy; employ a real estate agent to locate possible deals, offer a lot of low offers, get one accepted, purchase the property, renovate it, & resell it or rent it out. Then, do it again. Creative real estate isn’t nearly as easy and has a lot of diverse sides so the knowledge needed is considerably more intricate.

Which one is best?

In complete transparency, I am a little partial to creative real estate because when I started out, I was poor so the choice was made for me, and I had to go the creative path. So I am a creative guy from the beginning. But the traditional method is great as well. For instance, the traditional way permits an investor to purchase a lot of houses quite hastily. A very new drift in the market consist of Wall Street (huge hedge funds and private equity firms) purchasing single household homes at a rather fast speed. They are purchasing foreclosures in masses as well as listed houses. As today is the picture-perfect period to be buying real estate (most specialists agree that we have reached the lowest point), for those establishments that have a large sum of money, taking the traditional path lets them purchase thousands of houses very fast.

In addition, when you choose the traditional path, you can purchase property as an extended span prosperity constructing commitment at a lower amount than the creative methods of owner financing or subject to. The cause of this is that usually, a seller will either trade in favorable terms for a higher sales price or the seller will take a lesser amount in exchange for receipt of cash speedily.

Likewise, with complete auctions, there are instances where a traditional investor can get a marvelous deal by being the highest bidder when there is little competition at auction.

Creative real estate has its individual set of rewards too. Most prominently, you can acquire a ton of wealth and size a prosperity with a small amount of cash and/or no credit. But also useful is that creative real estate is steady whereas traditional investing decreases and increases with the fluctuations in the marketplace. When the market is thriving, there are fewer traditional deals. When the market is dejected, there are lots of traditional deals. With the creative method, the basis of deals is this client called a motivated seller. A motivated seller is created by palliative situations that are usually outside of real estate; life trials such as divorce, sickness, monetary difficulties, death, occupation transfer, downscaling, upgrading, and so forth. These are things that people will be going through in good times and bad forever.

Also worthy of note is competition. There is very little competition in the creative real estate realm unlike the traditional arena. Interestingly enough, traditional investor competition benefits creative investors because they can sell their deals to the traditional investors. For example, while traditional investors are panicking that the sky is falling because Wall Street has entered the game, creative real estate investors benefit from the hedge funds getting in the market because they can flip their deals to them. (Now if all the traditional investors figured out how the creative investors were doing what they were doing, then those creative ones would be in trouble!)

Paradoxically, now that I am in a monetary situation to be a traditional investor, I still favor investing in real estate creatively. I would rather pay a little more for an extended period property than put my name on a mortgage. Andrew Carnegie said in his book written over a century ago, “You should never personally guarantee a business loan.” I think of a mortgage on an investment property as a business loan so following Carnegie’s rule, I evade receiving bank loans for the properties I buy. As you can learn from my blog on Flipping Houses, I would rather wholesale than renovate and resell.