There is no doubt that real estate investing is one of the best ways to make money in both the short and long run. The reason is simple – it is a low risk investment with high potential for return and growth. However, just as any beginning, starting out with property investments can seem like a daunting task. No worries, we are here to help you by showing you the 8 best real estate investment strategies for beginners. In this article, you can read about the pros and cons of each of the top property investment strategies as well as our expert tips on how to succeed and build wealth with each one of them.
Or check out the video below for a rundown of the 8 best real estate investment strategies for beginners.
1. Buy and Hold Real Estate (Our Favorite Among the Best Real Estate Investment Strategies)
It should come as no surprise that we will start out with our favorite property investment strategy and – as many experts would agree – the top one for both beginner and experienced real estate investors. This is the buy and hold investment strategy in real estate. But first things first – “What is buy and hold real estate?”, you may wonder.
What Is Buy and Hold?
Buy and hold is a long-term real estate investment strategy which entails buying an investment property and holding on to it for many years. The goal is to keep the property at least until major price appreciation has taken place. But many of the most successful investors hold on to their investment properties even after they have significantly appreciated in value.
With buy and hold real estate, you have 2 options: 1) You can either keep your property, maintain it, and passively wait for its value to go up, or 2) You can rent it out to make extra money in the form of rental income. We really recommend option #2 as in this way you will be making money in the short run too (from the rent which your tenants will be paying to you) while building wealth in the long run.
Now let’s have a look at the advantages and disadvantages of this potentially absolutely best real estate investment strategy:
Pros of Buy and Hold
- As a beginner real estate investor, you can make LOTS OF MONEY in the long run with the buy and hold investment strategy. Regardless of temporary ups and downs in the housing market, real estate prices are bound to always come back because of the ever-increasing demand and the fact that the land on which properties are built is a very limited resource. Natural appreciation will help you build wealth without putting any extra efforts.
- Making money in the short term is also easily achievable with buy and hold real estate. As long as you are willing to do some work and become a landlord, you can start renting out your investment property from day 1 (provided that it is in good shape and does not require any fixes and repairs) and turn it into an income property.
- Buying real estate properties and holding on to them in the long term allows you to grow your real estate investment portfolio with ease. As soon as you’ve finished paying for your first rental property, you can use the rental income from it to save up for a down payment on a second property and then continue using the rent from both properties to make the monthly mortgage payment. As you can imagine, the more real estate properties you have in your portfolio, the easier and faster it becomes to buy new ones. Growing your portfolio helps you diversify your real estate investments, spread the risk, and make more money.
- Depending on your personality, preferences, and investment goals, you can make buy and hold an active or a passive real estate investment strategy. As we already mentioned, you can either keep your property uninhabited or rent it out for some extra money. In the following sections, we will show you that passive real estate investing is possible even with rental properties.
- Most importantly, buy and hold is an excellent way to start investing in real estate. It requires no prior knowledge and experience as long as you are willing to learn, are ready to do due diligence and real estate market research, and get a hold of the must-have real estate investment tools. Moreover, there are multiple options to finance your long-term real estate investment property including all cash, conventional loan, private money loans, hard money lenders, syndication, partnerships, and others.
Cons of Buy and Hold
- The most important drawback which some property investors find with #1 of the best real estate investment strategies is that you can build wealth IN THE LONG TERM. That is to say, if you are after some quick cash from real estate, the buy and hold strategy is not the top option for you. It takes time for sizeable natural appreciation to take place.
- The buy and hold real estate investing strategy requires long-term commitment. This can pose a challenge for beginner investors who might not be sure if they want to engage in real estate in the long run.
- Buy and hold real estate might not help you build wealth to the extent to which you hope. Real estate appreciation might happen at a lower rate in the housing market where you buy a property. However, you should be able to avoid this if you conduct real estate market analysis carefully before buying an investment property.
Our Tips on How to Succeed with Buy and Hold Real Estate
- Rent out your property. Turning your buy and hold real estate property into a rental is definitely one of the best ways to invest in real estate.
- Invest in a location which is expected to undergo major infrastructure and economic developments. This will push appreciation up.
- Buy below market value. To do this, consider investing in a foreclosed property as those properties for sale are usually listed at discounted rates.
- Take advantage of tax deductions.
- Perform real estate market analysis and investment property analysis before buying to ensure maximum return on investment in the short and long term.
If you think that buy and hold is the best approach for you among the top real estate investment strategies, sign up for Mashvisor. Mashvisor’s Property Finder and rental property calculator will help you find top performing real estate properties to buy and hold while renting out to make money in the short and long run.
2. Traditional Rental Properties
The second of the best real estate investment strategies for beginner investors is buying and owning a traditional rental property.
What Is a Traditional Rental?
The long-term rental property investment strategy is a variety of the buy and hold strategy. It simply means that you rent out your investment property on a long-term basis. This is usually done on a monthly basis, but lease agreements can also have a one-year duration. Owning a traditional rental property is among the oldest real estate investing strategies and one to last as even people who cannot afford to buy a home need a place to live.
Pros of a Traditional Rental
- The monthly rental income which you will receive from your tenants is the best aspect of buying an investment property to rent out on a long-term basis. As long as you are able to purchase a profitable property in a top location for real estate investing and find good tenants, the difference between the rental income and the costs of running a rental property will be pouring into your pockets in the form of positive cash flow.
- If you choose your income property wisely based on big data and predictive analytics, you can achieve a high return on investment in terms of both cap rate and cash on cash return. The best real estate investments can bring a double-digit return on a monthly basis.
- Owning a traditional rental property gives beginner real estate investors some flexibility. In case the economic situation changes and the rental demand drops, you can switch your rental strategy and convert your property into an Airbnb rental.
- Real estate appreciation makes rental properties one of the top wealth building strategies in the real estate world.
- A traditional rental can be a passive real estate investing strategy if you hire a professional property management company. While property managers will charge you a percentage of the monthly rental income or a flat fee, they will be able to optimize the management of your property and increase your profitability. Meanwhile, you will enjoy your passive income from real estate or work on growing your investment portfolio with the best real estate investment strategies.
Cons of a Long-Term Rental Property
- Turning your buy and hold real estate property into a rental means that you turn from a real estate investor into a landlord as well. Being a landlord, managing a rental property, and dealing with tenants is not a good fit for everyone. Some people just don’t have the personality, while others don’t have the time. (But no worries, as we said before, professional property management services are always an option).
- Data from Mashvisor shows that traditional rentals tend to bring a lower return on investment than Airbnb rentals. In most real estate markets, long-term rentals have a lower cap rate and cash on cash return.
- If you rent out your property on a monthly or annual basis, it means that you cannot use it for personal reasons. You can’t ask your tenants to leave for a week because you want to spend your vacation in your beachfront rental property.
Our Tips on How to Build Wealth with Traditional Rentals
- ALWAYS go for positive cash flow. This is the only way to make money in real estate.
- Choose one of the best places to invest in real estate. You can find the top markets for 2019 here.
- Conduct real estate market analysis and investment property analysis to secure positive cash flow and high return on investment.
- Buy an investment property with a good cap rate, meaning 8% or more.
- Consider professional property management. This will save you lots of time and efforts and push your return on investment up.
- If you are just about to get started in real estate investing, buy a small, cheap, simple property. Always start out small. Once you’ve learned the basics of real estate investments and have become an experienced investor, you can add bigger, more luxurious, and more expensive properties to your portfolio.
If you lean towards the traditional rental real estate investing strategy, you can start your search for profitable properties for sale here.
3. Airbnb Rentals
The third option among the best real estate investment strategies for new investors is an Airbnb rental property.
What Is an Airbnb Rental?
Renting out on Airbnb is one of the real estate rental investment strategies. Again, it can be combined with buy and hold real estate for maximum profitability in the short and long run. Unlike traditional rentals though, Airbnb rental properties – or vacation rentals, also known as short-term rentals – are rented out on a nightly basis.
Pros of Short-Term Rentals
- You can make a lot of money right away with an Airbnb rental. Mashvisor data shows that in the majority of real estate markets, short-term rentals achieve a higher return on investment than long-term ones.
- As a real estate investor, you can apply a flexible pricing system to your Airbnb rental property and thus maximize your profitability. Charge higher rates during peak season to make more money and lower rental rates during the off season to optimize your Airbnb occupancy rate.
- You can use your vacation rental for your own purposes. You just need to mark it as unavailable on your marketing platform.
Cons of Airbnb Rental Properties
- The last couple of years have seen a major spike in strict, often prohibitive short-term rental regulations and laws. Many markets which used to be among the best locations to invest in an Airbnb rental are not an option for investors anymore, such as Anaheim, Las Vegas, Los Angeles, San Francisco, and others.
- There is less security associated with renting out on Airbnb as your bookings are on a nightly rather than monthly basis.
- Being an Airbnb host requires a lot of efforts, unless you hire a vacation rental home management company.
Our Tips on How to Make Money with an Airbnb Rental
- Select one of the best places for investing in Airbnb.
- Check out the local Airbnb issues and regulations. Here is a list of the US cities with the least Airbnb legal issues in 2019.
- Perform real estate market analysis and investment property analysis to buy a top performing Airbnb property.
- Adjust your nightly rate based on seasonality.
- Push your Airbnb occupancy rate up by attracting positive Airbnb guest reviews.
- Hire a professional property manager to make passive real estate rental income from your Airbnb property.
Ready to start looking for your high return on investment Airbnb rental property? Search through hundreds of thousands of properties right now to find the one which matches your criteria and expectations.
4. BRRR Strategy
The next on our list of the best real estate investment strategies is the BRRR strategy.
What Is the BRRR Strategy?
BRRR stands for Buy, Rehab, Rent, Refinance. A real estate investor buys a somewhat distressed property, fixes it and repairs it, then rents it out for at least 6 months, and finally refinances it to buy another investment property.
Pros of the BRRR Strategy
- You can force appreciation by buying a distressed property and rehabbing it. This will increase your long-term return once you decide to sell your property.
- BRRR is among the best strategies in real estate to build a property portfolio quickly.
- You don’t need additional sources for financing a rental property as you use your existing investment properties to buy new ones and build wealth.
Cons of the BRRR Strategy
- BRRR is not ideal for new real estate investors with no previous experience in the housing market. It requires knowledge of properties and a network of real estate professionals in order to succeed.
- BRRR is among the most active real estate investing strategies. You can’t make passive income.
Our Tips on How to Ace the BRRR Strategy
- Buy investment properties below market value. Consider foreclosures, short sales, and bank-owned properties.
- Build a real estate investment network of property sellers, real estate agents, appraisers, home inspectors, contractors, and other real estate professionals to expedite your deals.
- Always hire a home inspector to evaluate the current condition of the property so that you know how much you will need to spend on rehabbing it.
5. House Hacking
If you haven’t found the best real estate investment strategy for your case yet, do not lose hope. House hacking is another property investment strategy which is perfect for beginner real estate investors.
What Is House Hacking?
House hacking means buying a duplex, triplex, or another multi-family home in order to live in one of the housing units while renting out the rest. As such, it is related to two of the other top real estate investment strategies previously discussed: 1) Buy and hold and 2) Traditional rentals.
Pros of House Hacking
- Your tenants pay for your rent and your investment property. The rental income you make should be enough to cover the mortgage payments to the bank, which means paying off your home and your rental property.
- You can manage the duplex or triplex on your own as you live on site. There is no need to spend money on a professional property manager.
- If you buy a property in a low price to rent ratio market, the monthly rent should be enough to leave you with positive cash flow.
Cons of House Hacking
- You get to share a property with your tenants. Having bad tenants will turn into a real nightmare.
- House hacking is not a passive real estate strategy. You will need to manage the housing units which you rent out to make money from real estate.
Tips on How to Succeed with House Hacking
- Look for a small multi-family home which can easily be split into 2 or more housing units.
- Screen your tenants particularly well as they will also be your neighbors.
- Make sure the rental income will cover the entire monthly mortgage payment as well as the other ongoing expenses.
6. Fix and Flip Real Estate
As you can see, the list of the best real estate investment strategies for beginners goes on. The next one is fix and flip real estate.
What Is Fix and Flip Real Estate?
Flipping houses requires buying a real estate property in a poor condition, fixing it up to a good state, and selling it to another real property investor or homebuyer. Fix and flip is one of the best real estate investments for those beginners looking for quick cash.
Pros of Fix and Flip
- You can make a significant amount of money very quickly. A fix and flip deal can be completed within a couple of months, and you can end up with thousands of dollars in profit. Not bad for a beginner investor, right?
- House flipping gives you access to additional sources of financing. Along with loans for fix and flip investors, both private money loans and hard money loans become more accessible and affordable as you repay quickly which lowers the interest rate and the total repayment amount.
- Fix and flip is good for first-time real estate investors as it allows them to get a taste of most aspects of the real estate business such as buying an investment property, implementing fixes and repairs, and selling a house. In this way, they can decide if this is the right niche for them without a long-term commitment.
- There is no need to deal with tenants and their endless demands with fix and flip real estate.
- Flipping houses is ideal for real estate investors with a dynamic personality and resourceful nature.
Cons of Flipping Houses
- Passive real estate investing is not an option with fix and flip. You have to work hard to make money.
- Property investors do not take advantage of natural appreciation with this real estate investing strategy.
- You need a strong real estate network in order to be able to successfully buy properties, repair them, and sell them quickly enough to make a profit. Building such a network takes time.
- Fix and flip real estate might seem challenging to beginner investors without previous knowledge of and experience in the real estate business.
Our Tips on How to Fix and Flip Houses Successfully
- Buy low. Look for off market properties, foreclosed properties, short sales, bank-owned properties, and other cheap real estate.
- Schedule a home inspection to know the extent to which the property for sale needs to be renovated and repaired.
- Make sure the price at which you can sell the fixed property will exceed the sum of the initial property price and the repairs.
- Have a real estate network of property buyers and sellers, appraisers, inspectors, real estate agents, contractors, financiers, and others.
- Be ready for some hard work.
7. Wholesaling Real Estate
#7 on our list of the best real estate investment strategies for beginner as well as experienced property investors is wholesaling.
What Is Wholesaling in Real Estate?
Wholesaling real estate means that you find a property for sale below market value, put it under contract, and find a buyer. With this real estate investment strategy, you don’t own the property at any point in time.
Pros of Wholesaling Real Estate
- You can become a real estate wholesaler with no money. Since you don’t need to buy an investment property, this is a perfect strategy for investors with a limited budget. All the money you need is to market the property to potential buyers.
- Real estate wholesaling does not require long-term commitment which makes it good for first-time investors who want to explore the industry. In addition, you don’t have to deal with managing a property and tackling tenants.
- You make money fast. You can go through the entire process in just a couple of weeks if you are resourceful and work hard.
- You can easily make a few thousand dollars from a deal.
Cons of Real Estate Wholesaling
- You have to act fast. A wholesaler usually has just a few weeks to find a property buyer. Otherwise, he/she needs to become the owner.
- Natural real estate appreciation means nothing for wholesalers.
- This is one of the most dynamic and risky real estate investment strategies. Finding a buyer might turn out harder than you think.
- It is difficult to convince the buyer to buy the property for a price higher than what the seller is selling it for. You have to be a convincing middleman.
Our Tips on How to Ace Wholesaling Properties
- Find an ongoing source of motivated sellers and properties below market value.
- Connect with real estate investors of rental properties who are looking for good opportunities to add more properties to their investment portfolio.
- Develop an outstanding marketing plan.
8. REIT Investing
The last of the top real estate investment strategies which beginner investors should consider is investing in a REIT, or a real estate investment trust.
What Is a REIT?
A REIT is a company which owns, operates, or finances income-producing real estate properties. Investing in REITs means buying shares which in turn will bring you dividends in the short term as well as capital gains in the long run.
Pros of Investing in a REIT
- REIT investing is the most passive real estate investment strategy there is. You buy stocks and then do nothing until you decide to sell them.
- Investing in a REIT requires zero knowledge of specific real estate markets as the trust chooses the location and the properties and manages them.
- Real estate investors make money in the short run through dividends.
- Significant return on investment is possible in the long term, once you sell your shares.
- Your real estate investment is diversified as REITs own a number of properties.
Cons of REIT Investments
- You have no control over the management of the properties or the trust. This means there is nothing you can do to increase your return and profit.
- Investing in a REIT is the same as investing in real estate property shares. While you invest your money, you don’t invest yourself.
One of the best features of real estate investing is the wide variety of options which it offers. Another top aspect is the relatively easy entrance for beginners. If you are wondering whether to start investing in real estate in 2019, we advise you to do so. There is nothing to lose other than your financial dependence on your 9-to-5 job, as long as you budget carefully, analyze the housing market and properties well, and manage your investment business diligently. Now that you know the 8 best real estate investment strategies for beginners, there is nothing in the way between you and building wealth with real estate.