Real estate is a huge industry and there are a lot of opportunities to invest in real estate. But where should you start? What types of real estate investing is best for you? Learning the basics of how to invest in real estate is the first step in choosing a strategy. You can then explore different real estate investment strategies and pick one based on your time, budget, and long-term goals.
Different Real Estate Investment Strategies
1) Buy and Holds
These are good long-term investments because of the steady additional income and the opportunity to gain appreciation. If looking for an active, long-term investment, buy-and-holds are the way to go.
Buying an investment property as a buy-and-hold requires research about the market, neighborhood, and property expenses. Positive cash-flow is very important with these investment because money is otherwise lost every month. With buy-and-holds, deciding on becoming a landlord or hiring property management is also something to consider. Can you manage the property yourself? Can you handle having tenants?
Not all buy-and-hold properties are the same. These can range from single-family homes to entire apartment buildings. Depending on location and cash flow, an investor might choose to rent out an entire single-family home to a family or rent out individual rooms to individual tenants. Multi-family homes are popular if the investor wants to have a personal residence at the same location as their investments. The advantage with multi-family homes is being able to spend less and gain more. Finally, apartment buildings can range from small to large buildings. When owning an apartment building, you are becoming the home owner association, and can create your own rules to follow.
2) Airbnb Investment Properties
These are also a type of buy-and-hold property but are vacation or short-term rentals. When buying an investment property as a vacation rental, there are different things to consider. Can you manage turnover between tenants? What are the occupancy rates like in your area? What are the legal regulations for having a short-term rental or Airbnb investment property?
There has been an increase in the number of Airbnb investors as Airbnb investment properties have proved to be lucrative and sometimes produce more income than traditional investments. Search for the optimal real estate investment strategies in your area to find out if traditional or Airbnb investing has higher returns.
3) Fix and Flips
Fix-and-flips are for investors looking for active, short-term investments to quickly make money. Fix-and-flips are properties that are bought, renovated, and then sold. They are not a get-rich quick scheme but if done correctly, investors can quickly profit from this strategy.
When looking for a property to flip, it’s important to look for deal-breakers. After setting a budget, it’s crucial to consult an inspector, contractor, and appraiser in order to identify issues and avoid losing time and money. When flipping, time is the biggest asset. The longer it takes to flip the property, the more monthly expenses.
Related: 5 Tricks To Save On Fix-and-Flips
The U.S. commercial market is huge, and joining commercial real estate investing can lead to huge returns. These properties are leased to businesses which can range from tiny little stores to shopping malls. While there’s an opportunity to rent out to big businesses and get significant cash flow, vacancies can last a longer than with residential properties. This strategy is not for beginners but it’s a great level to reach in your real estate portfolio. Read more in the next point about how you can do this.
5) Passive Investments
Passively investing in real estate means not getting your hands dirty and giving your money to someone else to make the investment happen. One way to do this is by working with a Real Estate Investment Trust ( REIT), which is when a group of investors pool their money to buy large real estate investments, such as malls, skyscrapers, or many single-family homes. Each investor gets a share of the profits and does very little work. These passive investments generally have higher returns and less risk. Different types of REITs include retail, residential, healthcare, office, and mortgage REITs. An investor can invest in a stock exchange-listed REIT or buy a share in a REIT mutual fund. It’s best to consult a financial expert to see if this real estate investment strategy would for you.
Another way to passively invest in real estate is lending your money to an investor looking for a property to flip. Why wouldn’t an investor just go to a bank? It’s difficult to get a loan for a property that is vacant and needs work. This loan is called a first trust deed investment. The investors should pay the 20% down payment and closing costs. As a lender, you would receive interest payments on the loan and a final payment at the end of the term. You money is secured by the property.
6) Real Estate Wholesaling
Making money in real estate does not always require spending money, there are so many diverse opportunities to invest. Wholesaling is one of the ways you can create an income without having to spend any money at at all. A wholesaler finds a seller who wants to put their property up for sale and has not yet gone on the market. The wholesaler finds a buyer and then is entitled to a share of the selling price. To be successful with the real estate investment strategy, you have to network and make contacts in order to have a database of potential sellers and buyers.
Want to learn about a few more real estate investment strategies? Watch the video below.
Real Estate Tips
Before deciding on any real estate investment strategies, make sure to thoroughly understand what each strategy entails. Do an investment property analysis before investing in a rental property or commercial property. Using analytics can help you find the best investment properties and neighborhoods.
2) Network and Join Real Estate Investment Clubs
Join real estate investment clubs to learn about investment strategies and to find partners to work with. Having different team members or contacts with different specialities is very beneficial. Besides getting investment tips, you can call on them when in need of a help.
3) Location, Not Convenience
It can’t be said enough – location is key in real estate. Try to explore areas that will give the highest returns and avoid staying in your area just for the sake of convenience. When you have a location, you can focus on a niche market and better appeal to tenants. For example, if you decide to invest in a college town, you can focus on providing housing suitable for students.
Real estate investing offers a lot more opportunities than most investments. Once you’ve done enough research about different real estate investment strategies, you can have a better idea of what you want and become the investor you want to be.