It's often said that more millionaires are made through real estate than any other type of business. But in a landscape of rising interest rates and low inventories, which real estate business models should you consider? In this article, we'll explore nine diverse and lucrative real estate business models to help you navigate changing markets.
The Diversity of Real Estate Business Models
Gone are the days when there were only a few real estate business models to choose from. In the past, if you had access to capital, you could opt for fix-and-flip or buy-and-hold strategies. Alternatively, you could become a real estate agent or broker. But now, the options are much more diverse. Here are the real estate business models we'll cover:
- Real estate agents
- Wholesaling
- Wholetailing
- Buy and hold investing
- House flipping
- Remote investing
- Listing service for FSBO
- BRRRR
- Hybrid agent/investor
No matter your budget, there's a real estate business model that can work for you. The key is to have the discipline to get started and keep going.
The Main Challenge of These Real Estate Business Models
While these real estate business models offer numerous opportunities for entrepreneurs, they also present specific challenges. One challenge that unites these models is the need to consistently generate leads. Whether you're an agent or an investor, having a steady flow of leads is crucial for predictable income and business growth.
At Carrot, we specialize in helping agents and investors generate leads through effective website design and conversion optimization. We've successfully generated over 2.5 million leads for our clients nationwide. Visit our website to learn more about how we can help you grow your real estate business.
1. Real Estate Agents
When thinking about getting into real estate, becoming a real estate agent or broker is often the first business model that comes to mind. Real estate agents make money by helping people buy and sell homes, typically earning between 3% and 6% of the sales price. While becoming a licensed realtor requires research and some upfront investment, it offers a low barrier to entry and the potential for good profits on high-ticket properties.
2. Wholesaling
Wholesaling is a relatively new real estate business model that has gained popularity in the last decade. As a wholesaler, you act as a "deal finder" for cash buyers, finding motivated sellers and getting properties under contract at a price that allows for a profitable assignment to the buyer. With minimal startup capital required, wholesaling offers numerous opportunities in most markets and the potential to make significant assignment fees.
3. Wholetailing
A hybrid of wholesaling and retailing, wholetailing involves buying houses at low-ball prices, making minimal repairs, and selling them on the MLS to traditional buyers. Wholetailing can yield substantial profits, often ranging from $50,000 to $100,000, without the extensive work that flipping requires. However, wholetail deals are not as common, and this business model works better as a supplemental strategy.
4. Buy-And-Hold Investing
Buy-and-hold investing is an excellent long-term wealth-building strategy. Investors purchase properties, ideally at a good deal, and generate cash flow by renting them out. The goal is to accumulate as many properties as possible, increasing net worth and passive income. While buy-and-hold investing offers great potential, it requires access to capital for consistent property acquisitions and diligent property management.
5. House Flipping
Thanks to popular TV shows, house flipping has become a well-known real estate business model. However, it's also one of the riskier ones. House flipping involves buying properties, renovating them, and selling for a profit. While the potential cash payoff is significant, house flipping involves more upfront work, higher risk, and a substantial amount of investment.
6. Remote Investing
Advancements in technology have made remote real estate investing possible. Investors can now generate leads, find deals, inspect properties, and purchase them without being physically present. Remote investing offers the freedom to operate anywhere in the U.S. and tap into the most profitable markets. However, it requires thorough research, buying properties sight unseen, and building a business with robust systems and trustworthy team members.
7. Listing Service For FSBO
This passive real estate business model involves setting up a website to attract FSBO (For Sale By Owner) sellers who want to list their homes on the MLS. As a licensed realtor, you can offer to list these properties for a flat fee, charging upwards of $250 per listing. With the right setup and effective traffic generation, this business can run almost entirely on autopilot.
8. BRRRR
The BRRRR method (Buy, Rehab, Rent, Refinance, Repeat) is a modified version of the buy-and-hold strategy. It allows investors to purchase multiple properties with minimal capital. Investors buy properties using cash, private money, or hard money, renovate them, and rent them out. After a seasoning period, they do a cash-out refinance and repeat the process with the original funds. This method facilitates faster portfolio growth but requires upfront funding and accurate financial calculations.
9. Hybrid Real Estate Model
The hybrid real estate model combines being an agent with being an investor. Agents using this strategy serve sellers with multiple offers, such as a cash offer for speed and convenience or a market listing for top dollar. This model offers flexibility and allows for easy adaptation to market shifts. However, it requires agents to be open to learning more about investing.
In conclusion, there are numerous real estate business models to consider, catering to different budgets and goals. Whether you're just starting or expanding your real estate ventures, there's an opportunity waiting for you. Good luck!
