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The first question I have for someone who's interested in real estate investing is: What type of investing is right for you?

Now when I ask people this question, the response I often hear is:

"I didn't know there were different types of real estate investments. I just want to make some money."

Well, there are several ways to invest in real estate.

Let me explain.

1. Make Money Monthly (Cash Flow)

You buy property and become a landlord. This doesn't necessarily mean you deal with tenants. There are plenty of management companies that will do that for a nominal fee.

You buy property and structure the deal so that any mortgage payment, plus the sum total of expenses, are less than the amount of income (rent) you are receiving. Hence the term - Positive Cash Flow!

When calculating positive cash flow, don't forget there are annual tax benefits to owning real estate and appreciation (realized at the time of sale.)

2. Buying and Selling (Flipping)

The idea here is simple: buy property for less than you sell it for. You can buy a distressed property that needs improvement, or buy from a distressed owner that needs out.

When you buy property that needs improvement, to make the most money you will want to bring the property up to snuff. Whether you do the work, or hire it done, you will need to calculate your cost to improve the property, as well as your holding costs. Holding costs are the expenses of owning the property during the time of repairs and until the property is sold. These costs include taxes, any mortgage interest payments, utilities, and normal maintenance such as grass cutting, and snow removal.

When you buy property from a distressed owner, often the property is fine, but the owner has either fallen behind in mortgage payments or taxes, or does not want the property for other reasons such as relocation, divorce, probate, etc. In this situation, you payoff the owner's debt, take over the property, and sell for a profit. Obviously the debt needs to be lower than the market value for you to profit.

3. Lease Option

This less common method involves controlling the property without taking title. You lease the property and either sell the property or lease to another tenant until the property sells. This one is a bit more complicated and has some drawbacks, such as the inability to depreciate your lease, but you can reap big profits.

4. Buying Tax Liens

Property in default for back taxes can be purchased from the government. You simply place a deposit as designated by the government and sit out the waiting period. If the taxes are not paid, you get the property. Oh, in the meantime your money earns interest and you are guaranteed by the government not to lose a dime!

5. Private Lending

Individuals are allowed to finance so many properties per year without the regulations of becoming a mortgage company. This is a great way to invest passively in the real estate market. By holding a first deed of trust, your money is secured by the property, and you can charge more interest than you would otherwise earn with a typical safe passive investment such as CDs.

6. Pre-Construction:

Buy property direct from builders before they are built. You lock in a wholesale price and market the property upon completion. This is a good opportunity in many areas. You have no tenants to worry about and no mortgage payments during the construction.

So there are six choices for you to start making money in real estate!