“Ninety percent of all millionaires become so through owning real estate. More money has been made in real estate than in all industrial investments combined. The wise young man or wage earner of today invests his money in real estate.” – Andrew Carnegie, billionaire industrialist.
Indeed, real estate investing is still one of the best ways of making money and growing wealth. In spite of the Coronavirus pandemic, the US housing market has remained resilient. According to Zillow, home values increased by 9.9% last year and are predicted to go up by 11.4% in the next year. This mean real estate appreciation will help investors build wealth in the long term.
To help you get started in real estate to take advantage of the numerous benefits, in this article we will at the best real estate investment strategies for beginners in 2021.
But before that, let us explore some reasons why investing in real estate is one of the best investments.
Why you should consider investing in real estate
Here are some reasons why you should buy real estate in 2021:
- Portfolio diversification – As a real estate investor, portfolio diversification is very crucial for your success. Owning real estate is a great way to diversify from the stock market as well as to invest in different markets, different property types, and different strategies. In this way, you protect yourself against risk.
- Tax benefits – Investors are allowed to deduct expenses connected to the maintenance and management of real estate investments. This includes mortgage interest, property taxes, advertising costs, property insurance, property management fees, and repair costs. All these deductions can significantly lower your taxable income.
- Appreciation – Real estate usually increases in value over time. The good news is that you can also force appreciation by making improvements on the property. This means that you can raise the rent over time while also raising the price of your income property once you decide to sell it.
- Low interest rates – In order to stimulate economic growth, the Federal Reserve lowered mortgage interest rates to near zero levels in 2020. This makes it easier for the average American to borrow a loan for real estate investment.
- Hedge against inflation – The value of property goes up in direct proportion to inflation. This makes real estate the perfect hedge against inflation.
What are the best real estate investment strategies for beginners in 2021?
There are multiple ways of how to invest in real estate, each bringing its own pros and cons. Here are 5 common real estate investment strategies for newbies:
1. Investing in Airbnb (short-term) rental properties
Investing in an Airbnb rental can be a great place to start for beginners. Besides Airbnb, you can get your income property listed on other vacation rental platforms like Booking.com, VRBO, FlipKey, HouseTrip, and Kid and Coe. Since rent is charged on a nightly basis, you can make more money with a vacation rental home than with a long-term rental, and that’s what makes Airbnb rental properties one of the top real estate investment strategies in 2021. In addition, you can adjust your rates based on seasonal demand. However, due to seasonality, Airbnb rental income can be somewhat irregular. In addition, you are likely to encounter short-term rental legal restrictions in some locations. So, you should conduct careful real estate market analysis before deciding on the best cities for Airbnb investment in 2021.
Related: How Do I Invest in Airbnb Property?
2. Investing in traditional (long-term) rental properties
As the name suggests, long-term rentals are properties that you buy to rent out on a long-term basis. One of the greatest benefits of investing in a traditional rental is that you can earn a stable rental income. At the beginning of the Coronavirus pandemic, there was a sharp decline in Airbnb occupancy rate all over the US. Meanwhile, demand for most long-term rental properties remained relatively stable, thus ensuring a positive cash flow and a good rate of return. Traditional rentals are also cheaper to maintain compared to vacation rentals, which makes them one of the best real estate investment strategies for beginners with a limited budget and a full-time job.
To start looking for and analyzing the best investment properties in your city and neighborhood of choice, click here.
3. Fix and flip
In this real estate investment strategy, the investor purchases a distressed property, makes renovations and repairs, and then sells the home to a home buyer or another real estate investor for a profit. This concept has been popularized by reality shows like Flip or Flop, Flipping 101, My First Home, Fixer Upper, and Austin Flippers. The main advantage of flipping real estate is that you can make a lot of money within a very short time. However, this strategy is also extremely risky and very active. If you underestimate the repair and renovation costs, you could lose all your money.
Related: Will the Fix and Flip Strategy Be Profitable in 2021?
4. Real estate investment groups
Real estate investment groups are companies that buy a large property and then sell units to individual investors while handling the maintenance and administration of the investment property. This strategy is ideal for real estate investors who want to earn a monthly passive income without having to worry about managing a rental property. The company handles all the advertising, tenant screening, rent collection, and maintenance in exchange for a portion of the rent. Though this is one of the real estate investment strategies that save you the hassle of being a landlord, the fees charged can be very prohibitive. In addition, you have no control over the investment decisions.
5. Real estate investment trusts (REITs)
With REITs, you can invest in real estate without actually owning a physical building. REITs are basically companies that buy and manage properties to make a return on investment. Investors buy shares in the real estate company and then receive a share of the rental income or gains from home sales. Just like real estate investment groups, REITs allow passive real estate investing without being a landlord or an Airbnb host. The downside is that you have no control over the management of the properties. If the REIT management is incompetent, you could end up losing all your money.
Related: What Is a Real Estate Investment Trust (REIT)?
These are 5 of the best ways to get started in real estate investing as a newbie in 2021. Other real estate investing strategies to consider include wholesale real estate, real estate ETFs, real estate mutual funds, real estate investment partnerships, and real estate crowdfunding. However, these approaches are less appropriate for beginner investors. Keep in mind that all real estate investment strategies have their advantages and disadvantages. Therefore, be sure to do your diligent research before jumping in. Follow the news, read real estate blogs, listen to real estate podcasts, watch real estate videos, subscribe to industry publications, and talk to real estate professionals.
You cannot talk about real estate investing for beginners without mentioning software. In order to make the right investment decisions when it comes to buying traditional and Airbnb rental properties, you need to use the AI-based Mashvisor real estate investment tools. For example, the real estate heatmap will help you find the best places to invest in real estate. Before buying rental property, use the investment property calculator to analyze the profitability potential of the condo, single family home, apartment, or multi family home of your choice. If you are looking for cheap off market properties, visit the Mashvisor property marketplace. There, you will find foreclosed homes, short sales, tenant-occupied rentals, and auctioned homes.
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