Real estate investment strategies come in a variety of forms, just like there are numerous types of real estate assets. Which approach is best for a specific investment will depend on their risk appetite, the level of control they desire over the asset, whether they are a novice or experienced real estate investors, the amount of cash they have available for a down payment, and the amount of cash flow they need.
Two main types of Real Estate Investments
It’s crucial to remember that there are active and passive real estate investment strategies. What makes a difference is how much effort, control, and risk you put into it. and when you work with a real estate consultant this gets easy for you to find the right investments.
Real estate investing that is active or direct takes a practical approach: You have a direct hand in the acquisition, renovation, maintenance, and selling of the property. Although it takes a lot of time and work, it could result in high-profit margins. The ability to make decisions and potential tax deductions that come with this form of investing are additional benefits.
The converse is true for passive or indirect real estate investing: You can profit from real estate holdings without putting down a sizable down payment or actively maintaining them. These typically take the shape of buy-and-hold investments, real estate funds, REITs, and crowdfunding (more on these shortly). Without your direct engagement, passive investing aims to provide a consistent income flow and potential gains from the property’s appreciation. You can expect smaller financial risks, fewer legal obligations, and a completely passive recurring income from this type of investing.
Real Estate Investment Strategies
1. House Hacking
Living in a house that also generates revenue, such as a duplex, triplex, fourplex, or a property with additional rentable space like a basement, guest house, or spare bedrooms, is known as house hacking. You can cut your overall housing expenditures by renting out a portion of your home.
The fact that you could learn about the rental market while residing in your rental makes house hacking an excellent method. And after you’ve lived there for a while, you can leave and turn the house into a long-term rental.
2. BRRRR Deal
Brandon Turner’s show Bigger Pockets made BRRRR investing a well-known technique. BRRRR stands for buy, rehab, rent, refinance and repeat:
Buy: Purchase a house for less than market value.
Rehab: Add value to the property by renovating and improving it.
Rent: To pay the mortgage, the property is rented out.
Refinance: Reappraise the property, then use a cash-out refinance to get a better mortgage.
Repeat: Use the money you made back from the transaction into purchasing more real estate.
The goal of BRRRR is to profit from a property that others might have passed over because of its low face value or seeming lack of promise.
While employing the BRRRR method, look for properties that, despite needing some renovation, are good investments. Concentrate on making upgrades that raise the value of the property, such as adding hardwood flooring, more bedrooms, or updating the kitchen and bathroom. Your home evaluation will be enhanced by the value these upgrades offer, and you’ll be able to get extra money to use toward other investments.
3. Flipping Properties
Flipping involves making quick sales of renovated homes afterward. While the flipper continues to make mortgage payments until the house is sold, success in flipping is determined by the profit the seller makes over the purchase price and how quickly the property is sold.
Flippers look for purchases that are below market value, make enough modifications to significantly increase the price, then sell the homes rapidly. If the flipper can make significant renovations while keeping expenditures in check, a distressed property can be the most enticing.
A system is in place for successful flippers, including easy access to low-cost materials, a crew that can complete work of a high standard for a reasonable price, and a real estate agent who can sell a house rapidly.
Read Beginner’s Guide to Investing in Real Estate for more in-depth knowledge
4. Wholesaling Properties
A common tactic used by investors to profit from excellent buys is wholesaling. With this method, you locate a property that will be a good deal, help a buyer and seller sell it, and then keep the difference between the seller’s asking price and the price the buyer actually pays.
You must be aware of the properties that are available on the market in order to be successful with this method. For the money, you can use well-known listing websites and the Multiple Listing Service (MLS). This entails manually looking through neighborhoods for potential properties.
The requirement for good marketing and sales abilities is a drawback of wholesale business. Wholesaling might not be for you if you lack these abilities and don’t want to put in the effort to develop them.
5. Real estate investment groups
For those who wish to own rental property without having to deal with the difficulties of management, real estate investment groups (REIGs) are the perfect option. A capital reserve and access to finance are necessary for investing in REIGs.
REIGs are little mutual funds that make real estate investment decisions. In a typical real estate investment group, a business purchases or constructs a collection of apartment buildings or condominiums, and then permits investors to acquire them through the business to become members of the group.
6. Live-in Flip
The live-in flip enables an investor to live in a fixer-upper while making improvements and then sell it for a significant, tax-free profit afterward. The live-in flipper uses the house while it is being renovated, even though they lose money for each month the house is in their possession.
The live-in flip can be extremely profitable if they are able to locate a home that is under market value or one that can be improved to raise its value. This is because they can use owner-occupied financing to live in a home they are treating as an investment.
The live-in flip can be an effective investing tactic, particularly if the investor is eligible for low-interest mortgages like Veterans Administration loans.
Syndication is frequently viewed as a more passive approach to real estate investing. Syndication can, however, result in significant gains if decisions are made carefully and the process is actively monitored. The primary goal of the syndication method is to pool your resources with those of other accredited investors in order to purchase real estate.
Most agreements are located and managed by syndicators for a fee; you then receive the profit. Public or private syndication is possible. While private syndication is typically managed manually by investors, public syndication is typically operationalized through a syndication platform.
8. Online real estate platforms
Platforms for real estate investing are for people who want to pool their money with others to invest in a larger commercial or residential purchase. The investment is made through real estate crowdfunding sites, which are online real estate marketplaces. While less than what is needed to buy houses outright, this still requires funds for investment.
Internet marketplaces bring together project financiers and developers of real estate. You can sometimes diversify your investments without spending a lot of money.
9. Debt Snowball
One method to steadily increase wealth, lower risk, and eventually establish a steady stream of rental revenue is the Rental Debt Snowball Strategy. It basically entails collecting all of the income from your present rentals and any other sources, then concentrating that income to pay off one mortgage loan at a time.
10. Hard money lending
Making short-term loans to real estate investors who purchase rental properties or fix-and-flip properties is known as hard money lending. The loans typically have higher rates of interest, points (upfront fees), and lower loan-to-value ratios.
The tactic carries significant dangers in addition to the potential for great profit. Make sure you’re protected if you have to take the properties back after a foreclosure.
Also read: Best Residential Property in Gurgaon
You’ve just finished reading the top real estate investment strategies. These are the several paths that real estate might take to help climb the financial mountain. Each has benefits and drawbacks of its own.
Remember that the majority of investors combine various techniques periodically. Don’t panic if you attempt one tactic and find it doesn’t work for you, either. An entrepreneurial endeavor is buying and selling real estate. Before you locate your sweet spot, you may need to experiment and attempt things that don’t work.
Wishing you the best of success with your own real estate investment plans!
What is the 1% rule, and how can it help me in real estate investing?
The 1% rule is a quick and easy way to evaluate a rental property’s potential. It suggests that the monthly rent should be at least 1% of the purchase price.
What is the best way to find off-market deals?
One of the best ways to find off-market deals is to build relationships with local real estate agents, wholesalers, and other investors in your area. Networking events, online forums, and social media can also be great resources for finding off-market deals.
What is the best way to analyze a rental property’s potential?
There are many metrics and calculations you can use to analyze a rental property’s potential, including cash flow, cap rate, gross rent multiplier, and return on investment. It’s important to consider all of these factors when evaluating a potential investment property.
What is a land contract, and how does it work?
A land contract is a type of owner financing where the seller acts as the lender and finances the purchase of the property for the buyer. The buyer makes payments to the seller over a set period, and once the payments are complete, the buyer owns the property outright.