As a budding real estate investor, the sheer choice of methods can be incredibly overwhelming. It’s likely that multiple methods will be a perfect fit for you and your financial situation. However, it’s worth understanding the main ones to make an informed decision. In the following sections, we divulge some helpful tips about the top seven real estate investing strategies and the differences between goals, tactics, and strategies.
Goals, Strategies, & Tactics
Before diving into the various methods, let’s take a look at the difference between real estate goals, strategies, and tactics. At first glance, they may seem to be different words for the same thing, but there are distinctions, as you’ll see from the below:
- Goals — These are your financial dreams. It’s where you want your real estate investing efforts to take you.
- Strategies — Strategies are your plans for how you’ll reach your goals. They get you to where you want to be in the safest, fastest way.
- Tactics — Consider these the tools that help you execute your chosen strategies.
As prefaced, there are tons of real estate investing strategies to pick from. But there’s no point in getting bogged down in all of them, especially if you’re a beginner. Review these common real estate investing strategies to help you become more financially independent.
- Holding Rental Property
Purchasing and holding single-family homes is one of the most popular real estate investment strategies among newbies and well-established investors. Not only do you get rental income, but you also get appreciation value in the long term. Companies that buy houses for cash utilize this strategy regularly. You can purchase a single-family home, rented out, and collect a monthly paycheck after expenses. For real estate investors planning to property-manage themselves, single-family homes are easier than large multifamily properties.
BRRRR stands for buy, remodel, rent, refinance, repeat, and is a strategy that works like this:
- Purchase a fixer-upper using a short-term financing method.
- Make necessary repairs.
- Rent to a tenant.
- Refinance and take the cash out as soon as the home has a decent history of in-the-green cash flow.
- Then, do it all over again!
This real estate investing strategy works extremely well for many property owners. However, as you acquire more rental properties, managing all of the tenants can become a headache. Landlords commonly sell a house with tenants in it because they cannot deal with being a property manager anymore. Fortunately, selling a property with tenants isn’t as hard as you think. Ideally, you find another landlord willing to take on the rental property. You can continue the BRRRR strategy. However, it might make more sense for you to sell the house instead of keeping it as a rental property after fixing it up.
3. Fixing and Flipping
As long as everything goes to plan, flipping houses brings high rewards — although the risks are also high. With fix and flip properties, you only hold them for a few months (i.e., long enough to make strategic renovations to boost property value). However, it’s a terrific method if you’re well-versed in estimating value and actual renovation costs and have the capital to get the job done quickly.
4. House Hacking
Last but certainly not least, house hacking involves living in a property that generates income. In other words, multi-family complexes, fourplexes, or homes with rentable spaces like guest houses or basements. Renting out a part of your primary residence reduces your living costs and turns a profit.
Plus, it’s an excellent way to understand the landlord business.
Again, this real estate investment strategy involves fixing up houses. However, the difference is that you live in the property while you conduct renovations. Once you’ve made the upgrades, you wait at least two years to resell it for a profit. Provided you follow the IRS rules, you won’t pay tax on any profit up to $250,000!
Real estate investment trusts are companies that invest in a broad range of assets, such as commercial real estate, special-use facilities, and residential build-to-rent properties. Such businesses must pay at least 90% of their profits to shareholders. They’re a savvy way to diversify your investment profile, ensuring you generate income without owning any properties yourself. Real estate syndications follow a similar strategy to this. Multiple investors can put money into a real estate project that they believe in.
7. Real Estate Sales
In this strategy, you need to find great property deals and rapidly resell them for a relatively small profit margin. To find success from this method, you need to have excellent negotiation skills and be a stellar marketer. If you cringe at the idea of sales, we suggest using a different strategy for real estate investing (there are lots to choose from, after all). For anyone that needs to sell their home quickly, contact us today. We will make you a cash offer to buy your house in as-is condition.