Do you wish to invest in real estate and build wealth to pass down to generations? Here are the top property investment strategies for success.
Investing in real estate remains a great way to build wealth and create a consistent income stream. But real estate investing is an umbrella that contains many different strategies. As a newbie, the strategies may be a bit overwhelming at first.
Table of Contents
- Property Investment Strategy #1: House Hacking
- Property Investment Strategy #2: Real Estate Wholesaling
- Property Investment Strategy #3: Fix and Flip
- Property Investment Strategy #4: Live-In Flip
- Property Investment Strategy #5: BRRRR Strategy
- Property Investment Strategy #6: Real Estate Syndications and Crowdfunding
- Investment Strategy #7: Real Estate Investment Trusts (REITs)
- How to Find a Market That’s Optimal for Your Preferred Property Investment Strategy
There are many advisors, influencers, and gurus out there who claim to offer you the key to successful investing. While some of the said experts hold differing opinions, the truth is that there are many effective real estate investment strategies. There isn’t a strategy that’s not suitable for investors.
In fact, the perfect investment strategy is highly subjective. It depends on your financial situation and investment and income goals. As such, the perfect investment strategy can change should your situation and needs change.
In today’s blog post, we’re going to look at some of the top property investment strategies for you to consider. Since we want you to succeed, we’re also going to show you how to find a real estate market using Mashvisor’s Market Finder.
That said, what are the top property investment strategies? Below is a list of seven great property investment strategies that are suitable for beginner, novice, and experienced real estate investors.
Property Investment Strategy #1: House Hacking
Let’s start our list with the most beginner-friendly property investment strategy.
House hacking involves buying a property, living in half of it, and leasing the other half out. The rental income you receive from the other half helps you offset your mortgage and pay for other property expenses. In some cases, you even make some profit. You literally get to live on your property for free.
The house hacking strategy works well with multifamily properties since you can easily live in one of the units and lease out the rest. Your tenants become your neighbors.
It isn’t to say that single family property owners can’t pursue such a strategy. You can lease out your extra bedrooms, basement, or garage.
House hacking is beginner-friendly since it’s the best way to learn how to become a landlord. You get to learn how to manage tenants, schedule maintenance, and track your finances.
Another benefit of house hacking is that it gives you easy access to residential mortgages. Such mortgages come with lower interest rates and down payment requirements compared to investment mortgages.
For investors with a long-term mindset, the said strategy will set you up for success. It’s easy to finish paying the mortgage, get another one, buy another property, move out, house hack the other property, and transition the previous property to a full-blow rental property.
Property Investment Strategy #2: Real Estate Wholesaling
In real estate wholesaling, you act as a middleman between property seller and buyer. You find good deals on properties, get them under contract, and then transfer the contract to a willing buyer. You profit by either charging a service fee or collecting the difference between what the seller is willing to take and what the buyer is paying for the property.
To succeed in real estate wholesaling, you must stay in the loop on what properties are selling in the market. While you can use popular listing platforms, such as the MLS, it can also be beneficial to consider off-market properties.
Off market properties are listings that aren’t actively on sale. The property owners may be considering selling the properties or simply don’t want to list them on public platforms.
To find off market properties, you can consider driving for dollars. As the name suggests, the strategy involves driving around neighborhoods and looking for “for sale” signs. You can also find potential off market deals by looking out for neglected yards. Simply look for properties that look promising.
The only potential downside with wholesaling is that you must possess strong marketing and sales skills. If you don’t lack such skills and you aren’t willing to learn, you might need to consider another strategy. It makes wholesale less suitable for newbies.
Related: What Does Off Market Mean in Real Estate?
Property Investment Strategy #3: Fix and Flip
House flipping, also known as fix and flip, was popularized by numerous reality TV shows. The strategy involves purchasing tired properties that need fixing, carrying out the required repairs and upgrades, and then selling the fixed property for a profit.
The fix and flip strategy requires quite a number of skills and some experience. Firstly, you need to be in a position to identify excellent flipping properties. Not all properties that need repairs are worth flipping. Some tired properties should just be left as they are.
Secondly, you need marketing and sales skills. You want to sell the property as soon as possible. The more the property stays on the market, the more money you spend on property expenses, such as mortgage and taxes. You don’t want to keep spending on a property that isn’t bringing in any returns.
Thirdly, you must be in a position to keep all your expenses low. The key with house flipping is selling the house at a price significantly higher than all associated costs. You need to find properties that you can buy below the market value and know suppliers and contractors that can keep repair costs low. Keep in mind that one small miscalculation can lead you to substantial losses.
As you can already tell, house flipping requires hands-on skills and experience. You must build a team of builders, renovators, and suppliers who can offer their services and supply high-quality materials at an affordable price.
Another potential downside is that you’ll need to pay capital gains taxes since you’ve sold the property so fast.
Property Investment Strategy #4: Live-In Flip
In the live-in flip property investment strategy, the investor lives in the fixer-upper home while upgrading it and then sells it much later for a significant tax-free profit. In the fix and flip strategy, the investor loses money for every month the property is in their hands. But the live-in flip investor lives in the property and uses it as they fix it.
Live-in flip property investments can be profitable, especially if you can find a house for a price below the market value or one where the upgrades will boost its value. You can obtain owner-occupied financing to live in your investment.
The above strategy is really lucrative for investors who qualify for low-interest mortgages, such as Veteran Administration (VA) loans.
Additionally, the US Tax Code allows investors to sell their homes and pay no taxes on gains of up to $250,000 for an individual and $500,000 for a couple. To qualify for the said tax benefit, you must live in the property for at least two of the five years before the sale.
If you move out in the middle of a live-in flip, you can also qualify for partial benefits, as long as the reasons for moving are:
- Health reasons
- Job relocation
- Military deployment
- Unforeseen circumstances
If any of the above instances should happen, always consult with a tax professional.
Some investors will put the returns of the sale into another fixer-upper that is a better investment property with the goal of diversifying their investment portfolio or building an income stream that enables them to buy their home debt-free.
The main potential downside with a live-in flip is that you must live on a construction site and move every time you make a sale. There’s also the possibility of realizing that the property comes with more problems than you initially thought.
Property Investment Strategy #5: BRRRR Strategy
When done the right way, the BRRRR (Buy, Rehab, Rent, Refinance, Repeat) strategy can be effective in building your rental property portfolio without running out of cash, even as a beginner.
How to Do BRRRR
Here’s how the BRRRR strategy works:
- Buy: Look for fixer-upper properties that you can buy for a price below the market value.
- Rehab: Renovate, upgrade, and improve the property to increase its value.
- Rent: Rent out the property to offset the mortgage.
- Refinance: Get a property reappraisal, the leverage cash-out refinancing to get a long-term conventional mortgage.
- Repeat: Use the funds from the refinance to invest in another similar property.
Just like fix and flip, the BRRRR strategy may not necessarily be recommended for novice investors. You need to be able to identify properties that need some work but are excellent investments.
Determine the cost of the repairs so that you can keep your rental rates attractive to tenants. You also need to know how long the repairs will take since you’ll be making mortgage payments as the renovations continue.
You must also find good long-term tenants who’ll pay you enough to cover the mortgage until you can refinance.
Keep in mind that banks tend to follow a “seasoning” period before refinancing. They’ll also need you to put a certain amount of equity in the property before granting you a cash-out refinance. Lenders don’t refinance vacant properties. Besides, you must possess a good credit score.
While the returns can be great, BRRRR is labor-intensive and isn’t a passive investment strategy. It can also be challenging to obtain a conventional mortgage on a distressed property. As an investor, you’re going to need a network of lenders or be in a position to take out a home equity line of credit (HELOC).
Related: 7 Best Loans for Investment Property in 2023
Property Investment Strategy #6: Real Estate Syndications and Crowdfunding
Real estate syndications and crowdfunding are excellent options for investors who want to invest in real estate passively. Investors use real estate syndication to pool resources and access real estate investment opportunities they might not have the financial muscle to access by themself.
With purposeful decision-making and an eye for excellent opportunities, investing in syndication can be lucrative. Essentially, you invest your money with syndicators or partners who find and manage investment deals for you. You benefit from the profit made from the deal.
Syndication can be private or public. Private syndication is managed manually by the investors, while public syndication is operationalized through a syndication marketplace.
If you choose the syndication path, you must be picky with who you choose to invest. Remember, it’s the syndicator’s role to manage and oversee the investment. You want your investment to be in good hands even if you didn’t contribute much when starting.
Crowdfunding is a newer type of real estate syndication where an investment deal is promoted on online crowdfunding platforms. Accredited and non-accredited can contribute and profit from the deal.
The crowdfunding strategy allows you to work with a broad range of investors. Unlike traditional syndication, there’s no limitation to the minimum amount of money you need to invest. Typically, you can begin investing with as little as $500.
While syndication and crowdfunding are often categorized as passive real estate investments, it can be quite misleading. They can be very easy and passive, but successful syndication and crowdfunding investors are active.
Active syndication and crowdfunding investors thoroughly screen the syndicators, general partners, and investment opportunities before investing their money. In short, they may turn down more deals than they accept, which is a lot different than passive investing.
Property Investment Strategy #7: Real Estate Investment Trusts (REITs)
REITs (pronounced as reets) are much like mutual funds but for real estate investments. They are corporations that allow investors to put money in them without actually buying physical properties.
There are three types of REITs:
- Equity REITs: These REITs own and operate commercial and income-producing properties, such as warehouses, office buildings, shopping malls, medical complexes, and more. They generate their income through rent.
- Mortgage REITs: These REITs lend money directly to real estate investors through loans and mortgages or indirectly through buying mortgage-backed securities. They get their earnings through the interest from loans and mortgages.
- Hybrid REITs: These are REITs that use both equity and mortgage strategies.
When you invest in a REIT, you buy shares into the income that the REIT earns. In short, you earn an income from the revenue collected depending on the number of shares you’ve invested.
The downside with REITs is that they’re highly illiquid. Unlike stocks, you can’t sell them on a ready market. If you need an asset that you can sell fast when you need cash, REITs may not be the best option for you.
How to Find a Market That’s Optimal for Your Preferred Property Investment Strategy
At this point, you already know one or two property investment strategies that you can start with. But what is the next step if you want to get started?
Choosing a lucrative housing market should always be the first thing on your mind before you start investing. Your location makes a huge difference in whether your investment succeeds or not.
You want to find an investment location that’s landlord-friendly and with favorable property taxes. For investors who want to become short term rental hosts, you want to invest in a city with favorable Airbnb laws and regulations.
That said, how do you find the best market for your preferred property investment strategy?
1. Know What to Watch Out For
To evaluate a real estate market properly, you need to know what you should be looking out for. In short, you must understand the characteristics of a lucrative housing market.
Let’s break down some features of a good real estate market:
A Growing Job Market
The best housing markets have robust job markets with diverse job opportunities. A growing job market is a sign of a good economy.
A growing job market provides many employment opportunities for the residents. It results in an influx of young people looking for employment. These people will want a place to live. When the unemployment rate is low, a majority of the population can afford the cost of living and rent.
All the above factors are good signs for landlords and investors. They mean that your property will enjoy a good occupancy rate. You can also charge higher rental rates to match the demand. You end up with a high rental income.
A Good Price to Rent Ratio
Price to rent ratio is one of the most important metrics for investors. It’s used to determine whether renting a home is more affordable than buying one in a certain market.
A high price to rent ratio (more than 21) indicates that the renters in that market are more than homeowners. However, it’s also a sign that the city is expensive, hence why most residents can’t afford to buy their homes. If the median property price is within your budget, such a market may be ideal for you.
On the other hand, a low price to rent ratio (lower than 15) shows that there are more homeowners than renters. It means that more people can afford their homes, and there’s less demand for rental properties.
A low price to rent ratio may still make sense if there’s a high renter population that drives the rental demand.
Related: The Complete Guide to Price to Rent Ratio in Real Estate Investing
Favorable Property Taxes
Many real estate investors are attracted to rental properties due to the many tax deductions that one can benefit from. However, some cities may have high property taxes that eat into the tax deductions. You want to invest in a market where the property taxes are affordable enough to boost your chances of generating a positive cash flow.
Different cities impose different property tax rates. Always visit the municipal office or your local authority to determine how much you’ll be required to pay in property taxes.
2. Use the Right Tool
Finding the right investment market by yourself can be an uphill task. You need to research every city’s and neighborhood’s amenities, collect real estate comps, and make various calculations to estimate the market’s profitability. In addition, you need to do all of them while keeping data reliability and accuracy in mind.
For someone with a busy schedule, doing so is impossible. It’s also not an option for investors who want to find accurate data that’s also up to date.
This is where Mashvisor’s Market Finder comes in.
What Is the Market Finder?
The Market Finder is a tool from Mashvisor that gives you a bird’s eye view of the US housing market. It’s tailored to help real estate investors determine the most ideal markets to put their money in.
The tool allows you to zoom in on areas that arouse your interest so you can get a comprehensive analysis of what the location can offer. It gives you access to a wide array of tools from Mashvisor to help you save both your time and money when searching for lucrative investment properties.
For example, it gives you access to the heatmap tool, which is a color-coded visual analysis tool that helps you to see how different neighborhoods perform based on your search criteria. In simple terms, this tool allows you to see which areas to invest in and which ones to avoid.
The Market Finder is powered by the Mashmeter Score. The Mashmeter Score is Mashvisor’s valuation of neighborhoods based on how long term and short term rentals perform. It is the number to look at if you’re looking for a metric on which to base your investment decision.
How to Use the Market Finder
One special thing about Mashvisor is that we create our tools with user experience in mind. You won’t find it hard to navigate the site or the pages in general. We make sure that your search for a lucrative real estate market and property is a rewarding experience.
To use the Market Finder, make sure you’re logged in to access your dashboard. Then, follow the simple steps below:
Step 1: Click Search Markets to load the Market Finder page, where you’ll see a map of the US real estate market. The map contains blue labels with numbers on them. The numbers refer to the number of markets under the long term or short term rental category.
Step 2: Choose either long term or short term rental category to make it your market search criteria
Step 3: Click on any blue label on the map or manually enter your desired location in the search field.
Once your click or enter a location manually, the map will zoom in on that market. You zoom in or out to adjust the view.
Step 4: You can go back to looking for other profitable investment markets in the nationwide view by clicking on Top Markets on the top part of your display.
Using the Market Finder Filters
As mentioned before, the Market Finder tool allows you to customize your search for top investment markets using different filters.
Simply click on the Filters button located next to the search bar. You’ll see a sidebar slide on the right part of your screen to display the different filters you can use to set up your search criteria.
The filters are:
- Mashmeter Score
- School Rankings
- Crime and Safety
- Home Value
- Property Type
- Monthly Rental Revenue
- Occupancy Rate
- Cap Rate
You can pick any filters of your choice and click on the Apply Filters button on the bottom right corner of the page.
You can also check which filters are active by clicking on the Active Filters button located above the Top Markets sidebar.
Saving Your Favorite Markets
When carrying out your research, you may come across some markets you like, but you still want to continue with your search. After all, you want to come up with a list of a few potential investment locations.
Fortunately, the Market Finder allows you to save your favorite markets and come back to them later. There are two ways to save your favorite markets using the Market Finder:
Step 1: Click on any blue label to choose a location on the map view. The map will zoom in on the specific market you selected and show you neighborhoods that match your requirements based on the set filters.
Each of the neighborhoods is represented by a colored dot. The colors represent how they perform based on the Mashmeter Score.
Step 2: You can now hover the mouse over a dot or click on it to save the market. Once you hover the mouse over one market, a text window will pop up and show you the neighborhood’s name, a View Details link that you can click, and a hollow heart icon.
Click on the hollow heart icon to save the market. You know the market has successfully been saved when the heart icon starts pumping and turns blue.
The second way to save a market on the map view is by clicking on the colored dot. It will open a sidebar that gives you an overview of that specific neighborhood. You can scroll down to see further what the neighborhood offers in great detail. If the market pleases you, click on Save Market at the top of the sidebar.
Step 1: Click on the Table icon above the map.
Step 2: Under the Save column, click on the heart icon to save your desired markets.
Once you’re done saving markets that you like, click on Favorites on the left side of your display. All saved markets will be listed here. The list makes it easier for you to go back to your saved locations and run comprehensive analyses.
Sign up to Mashvisor today and access your 7-day free trial to start looking for lucrative real estate investments using the Market Finder tool.
As a real estate investor, there are many investing strategies you need to consider. The top property investment strategies include house hacking, wholesaling, house flipping, REITs, syndications, and crowdfunding.
Know that there isn’t any perfect property investment strategy. The top investment strategy for you depends on your financial situation and investment goals. What works for someone else might not work for you. Also, the best investment strategy for you now might not be the best strategy five years down the line.
Most importantly, ensure you use the right tools to make the right investment and business decisions. This is where Mashvisor comes in.
Mashvisor is your best friend when it comes to real estate investments. Whether you choose to follow the long term or short term rental strategy, we will walk with you and help you succeed. For example, we provide you with rental comps to help Airbnb hosts set the right nightly rate and successfully manage their rental properties.
Book your demo today and see how our tools can help you choose the right property investment strategy.