Broadly speaking, traditional real estate investment strategies fall into two areas:

The cash strategy and the cash flow and equity strategy

If you’re a seasoned investor, you no doubt know this information like the back of your hand. However, I wanted to provide a brief description of each “traditional strategy” below for those who might be new to the industry.

the cash strategy

With this strategy, the goal is to generate cash immediately. An investor can then use that money as earned income or invest it again in more properties. There are four options to employ when looking for a cash strategy:

Search and recommend

If an investor’s goal is simply cash and not investment, he or she may become a “bird dog.” Bird dogs find good investment properties for investors. By doing so, they earn a “find fee”. It is the fastest way to earn cash.

control and assign

With this method, the investor obtains an assignable contract or option on an investment property and then finds someone else to purchase it. It gives the investor considerable bargaining power and a good margin. The volume is low, however.

Buy and sell

This is the method of purchasing a property, without making any improvements, and then putting it back on the market at a higher price. The profit margin is better than with a control and allocation strategy. But the investor will need to spend more time getting these deals done. Finally, the volume is lower than with the following method.

Buy, upgrade and sell

This is the “rehabilitation” method. The investor buys the property, fixes it up, and then sells it for a profit. It offers investors even better margins than the buy and sell strategy. Naturally, rehabilitation requires much more time and money, and there may be fewer deals to make.

Capital and cash flow strategy

This strategy is long term. That is, the investor seeks to create cash flow and generate capital for the future. There are three basic options:

lease option

This method has the great advantage of requiring little or no money. Within this method, the investor has several alternatives for cash flow: Lease with option to enter, lease with option to exit or both.

Lease Option In occurs when an investor negotiates to lease a property (usually 2-5 years) and includes an option to purchase at the end of the term at a pre-negotiated price. Once the investor has the right to lease the property, he or she leases it at a higher payment to a lease-to-own buyer. The difference between the lease payment and the occupant’s rent creates the cash flow. Note: Investors must ensure they have a tenant lined up before accepting the lease option on any property. This ensures that the cash flow will arrive!

Lease Option Out occurs when investors lease a property they own to a tenant with an option to purchase at the end of the lease period. With this method, they get more cash flow during the lease term and also capital (depending on the pre-negotiated price).

buy and hold

With this method, investors buy a property and lease it. This is a less complicated strategy than the “Lease Option” mentioned above. However, the investor is now the actual owner, and with ownership comes both reward and risk. Buy & Hold gives investors more flexibility than with the methods listed above. They have the option to sell anytime they want, or they can hold the property for cash flow and capital accumulation for as long as they want.

Buy, upgrade and hold

In general, this is perhaps the best method for generating cash flow and capital. Despite the current market, properties tend to appreciate over time. Plus, when investors make improvements, they have the potential for higher rents (more cash flow!) and greater capital accumulation. Additionally, they may also have the opportunity to enhance a property’s potential by relocating it to a more profitable use. Finally, when improvements are made, some of them are classified as capital improvements by the Internal Revenue Service, so there is the possibility of reducing the taxes paid on the cash flow obtained from the property.

Of course, there is more to these strategies than can be adequately described in this article. And it has taken me decades to perfect my approach to each situation.

What these traditional investment strategies lack is the flexibility to turn a profit quickly, and again, many of these methods require a large amount of cash to purchase the property.

The most creative real estate strategies such as short sales, estate sales, rehabbing and selling, pre-foreclosures, and other “non-traditional” methods are at risk of being curtailed with the introduction of the new Uniform Closing Instructions.

These new regulations that are about to come into force will limit real estate investors to using traditional methods, which will close the opportunity to invest in more creative strategies.