What Is A Real Estate Investor?
What is a real estate investor? Fortunately, that is not an easy question to answer. There are many different techniques and focuses in real estate investing that one investor may never do in his or her complete career and another investor uses exclusively.
Wikipedia gives the very general definition of a real estate investor as, “A real estate investor is someone who actively or passively invests in real estate.” That’s like defining the sky as something that is above the ground.
The best way to tell what someone does when they tell you they are a REI, is to ask them what their focus and techniques are. Their answer will be one or many of the following and can give you a much better idea as to what they do specifically.
Generally, an investor will either work in residential or commercial RE. Since the business that takes place within either of these verticals is very different, one will most likely focus on one or the other.
Wholesale (Flipping) – Wholesaling can refer to true wholesaling or an “assignment”. A true wholesale is selling a character after the buy has been completed by the investor, but before it has had the necessary rehab work done to make it salable to an occupant. This is also the true definition of flipping before RE shows on cable television used the term in place of rehabbing. The assignment is a variation of wholesaling by which the investor “locks up” the character under contract and “assigns” the contract to another buyer before the closing of the sale, consequently never needing to truly buy the character.
Rehab – Rehabbing (often incorrectly referred to as flipping) is the time of action of buying a character that is in need of renovation and putting in the work or the financing needed to complete the work to make the character habitable (and salable) to an occupant. In the current housing situation, this is a very popular and badly needed technique due to the great amount of foreclosures that came about from the economic decline of the housing market.
REO’s (Real Estate Owned) – REO’s are a focus that includes both techniques described above. REO’s are simply similarities that have been possessed by one or more of the lenders with a financial interest in the character. When a lender (most often a bank) loans money to a buyer of a character, the lender owns the rights to that character until the debt is paid off. If the debtor (occupant or buyer) cannot make his or her payment to the lender, the lender has the right and obligation to take ownership of the character. Lenders do not like to possess character. It is a large liability and has no value. consequently, lenders are eager to sell these similarities which often makes them a highly profitable investment for RE investors.
There are many more techniques and focuses in RE investments which I will elaborate more on in future articles. When talking to a REI, find out if they are focused on residential or commercial and then ask them what techniques they use with similarities. Chances are, you will get a different answer every time and they are all correct.