There’s a favorite saying among the real estate investing gooroos out there: you’re not in the real estate investing business, you’re in the marketing business.
The problem with this is that it’s just not useful, nor incredibly precise.
It may be true, but saying that real estate investors are in the marketing business is no more true than saying ANY business is in the marketing business.
Every business has the same primary functions: locate prospects, pre-screen prospects, construct and present offers, follow-up, close quickly.
These are the 5 steps of any business, whether it’s real estate investing, or dog-walking.
So to say that real estate investors are in the marketing business is like saying real estate investors are in the profit-generating business — it’s true, but it’s like… no duh.
It wasn’t until I realized what was really going on that this whole real estate investing thing really clicked for me…
If we’re not in the marketing business, what business are we in?
There are a lot of different avenues to make money inside the real estate business as a whole.
Wholesaling, rehabbing and retailing, rentals, vacation rentals, student housing, subsidized housing, assisted living… and that’s all just on the residential side. There’s a whole world in commercial, too. And don’t forget there’s also the agent/broker world as well!
So the type of business you’re in, within the real estate investing world, really depends on the avenue of investing you work in.
The good news is that we all get to choose what kind of business we want to be in.
For this article, though, we’ll focus just on the residential investing market that seems to be so hot right now.
Wholesalers: the pawn stars of the industry.
I’ve heard the wholesaling business likened to the pawn shop business. I couldn’t agree more.
People bring their junk in and you make them a low-ball offer and buy it for pennies on the dollar.
Then the bargain-hunters come in and buy it for a few more pennies on the dollar, and you keep the spread. Simple enough.
If your business revolves around wholesaling, you’re basically in the pawn shop business.
Rehabbers: the used car salesmen of the industry.
These are the bargain-hunters going around looking for junk they can buy at pawn shops or auctions for pennies on the dollar, put a little elbow grease into them, and sell it as new.
Maybe they put some sawdust in the gear box, or turn back the odometer a few miles, and bam! — you got a shiny new product to sell to the masses.
If you’re doing fix-and-flip on all the houses you buy, you’re basically in the used car business.
Landlords: the halfway-house-mothers of the industry.
There’s a saying, if you want to make a small fortune in rentals, start with a large fortune.
These guys are the masochists in our industry who like to inflict brain damage on themselves in the name of monthly recurring income. Yeah it’s small money per unit, but hey, it adds up.
If you’re a buy-and-hold investor in the single-family rental business, you’re basically running individual halfway-houses for ex-cons and ne’er-do-wells. At least it seems that way sometimes doesn’t it? 🙂
What business do you want to be in?
You might think I’m knocking these other avenues of profit in real estate investing, but I’m not.
I’m just telling it like it is.
The good news, as I mentioned earlier, is that you get to choose what business you want to be in.
Now of course I left out a bunch because I wanted to just focus on the big three that I see out there right now: wholesaling, rehabbing, and landlording.
But I’ve saved the best for last.
And it’s the avenue of real estate that I’m in personally…
Transactional Engineers: the financing wizards of the industry.
If wholesalers are in the pawn shop business, rehabbers are in the used car business, and landlords are in the halfway-house business, then “Transactional Engineers” are in the financing business.
What other types of companies are in the financing business? Banks.
And who’s got the big skyscrapers downtown? Banks.
So what game would you rather be playing in? Pawn shop, used cars, or banking?
I’ll take banking any day of the week.
So what does a Transactional Engineer business look like and how are we in the financing business?
Well, let me show you what this looks like by using a recent deal as an illustration.
Here’s a recent deal we did and made about $38k CASH profit.
This house was in great shape the day we bought it, and the same shape the day we ‘sold’ it (which was actually the same day).
The crazy part was that we paid full market value for this house, and yet we still made a big spread on it.
The numbers are actually better than I let on before.
Yeah we made about $38k cash profit on the front-end, but because we were able to buy this with owner financing, and then sell it with owner financing, this house is still putting about $500/mo profit in our pocket.
But it gets better. If and when our buyer refinances and cashes us out, we’ll get ANOTHER $32,900 payday on the back-end (depending on how long it takes them to refinance).
Total profit: $86,400 over time on a house we paid full market value for, didn’t touch, and we still get cash flow from today.
I’d also like to point out that I didn’t have to borrow any money to do this deal, there were no lender approvals I had to get, no appraisals, no inspections, I didn’t personally guarantee any notes, and I had no cash out of pocket going into the deal.
This is the kind of financial know-how that Kiyosaki talks about in Rich Dad Poor Dad: we CREATE money and assets out of thin air.