Real estate is a $470 billion industry in the United States. Real estate is among the best strategies for investing. The housing market is something that will always be prevalent in the United States and around the world.
Having and owning real estate is a great way to make money. Not only can you make money but you can diversify your portfolio in doing so. Your asset will yield similar results to the stock market, but it will have less volatility.
There are strategies for investing one can take. The most common is to own an investment property. But this is not the only way to get started and make money in real estate.
Aside from buying and selling a property, there are several strategies you can take to make a profit in the real estate industry. Continue reading this article to find the top 10 strategies for investing in real estate.
1. Fixing and Flipping
Fixing and flipping real estate will help you get started in real estate investing. In this strategy, the first step is to find a property that needs some rehab. Make sure the property meets certain criteria before you buy it.
Good criteria for the property includes how long it has been on the market, how it compares to other properties, and the status of the neighborhood.
After you have secured the property, you will need to get to work by making all the necessary repairs. You can either do this by yourself or hire a crew to help make the repairs.
Once all the repairs have been made, get the property on the market. The last step is to sell the property and make money. If you have ever watched HGTV, you have seen this real estate strategy.
This strategy is great for people starting in real estate. The strategy will generate a good cash flow to help pay for other investments while helping you save for the future.
2. Live-in Before Renting
This is one of the easier investment strategies on this list. For this strategy, you will pick out a place to live that you will eventually rent to other tenants. You will need to purchase a house that is good enough to live in and rent once you move out.
This strategy is different than house hacking (more on that later). You won’t be living in the property while renting it.
A real estate investment such as this is a good way to experience different living styles. You can see what different houses are like in different parts of your town while making money.
Another additional benefit of this strategy is that you don’t have to live next to, above, or below your tenant!
3. BRRRR Investment Method
No this doesn’t mean you invest somewhere cold. This real estate investment strategy is a great way to get involved. It stands for Buy, Remodel, Rent, Refinance, Repeat.
This is a great way to get involved with several rental properties. Knowing how to invest in real estate using the BRRRR Method will help build an excellent portfolio.
The goal is to buy homes under their market value. So you will be searching for homes that need to be fixed up. You will then buy the property by using short-term cash. Once you have the property in your ownership, you then need to fix up the property.
Once that is complete, you refinance the home. You should refinance the home through a long-term mortgage. This way, you can keep making your money back to help you fund your next project.
This is a strategy that should be used early in an investing career. If you do it correctly, you will be able to make enough money to quit using this strategy. You will want to get involved in lower-risk properties instead of having to constantly find and rehab homes.
4. House Hacking
Some real estate strategies require immense amounts of work, but house hacking does not. Simply put, house hacking is the strategy of living in a house that also generates income.
Duplexes or triplexes would be the most common. This way, you can rent out the other one or two spaces for two tenants while living in the other. In doing so, you will be able to cut down on housing costs.
House hacking can provide investors with a great experience. You will be able to be a landlord and a renter at the same time. Once you are finished living in the space, you can then rent out your portion of the building and use it as a long-term investment.
5. Live-in While Flipping
If you are trying to decide whether or not to flip a house, this strategy might help convince you. The first step in this investment strategy is to buy a house and move into it.
While you are living there, you need to make repairs to the property. Over the two years that you live there, keep up-to-date with housing trends in your local market to ensure you get the most value.
By living in the space for two years or more, the value will hopefully go up. Also, if you do this right, you would pay no taxes on your profits that are $500,000 for a couple or $250,000 for one person. This is through specific rules laid out by the IRS.
Reinvesting your rental income is a good long-term strategy. This complimentary strategy is often used by several investors but primarily buy-and-hold investors.
This strategy can be thought of as a snowball effect. You will save up your profits and cash flow from the property to help you get another property. By being patient, you will be able to get your second investment property off the money made from your first.
Once you have the second property, you wait for the profits from both properties to equal a third property. When you keep adding properties to your portfolio, you will be able to secure the next one quicker.
This is just like a snowball going down a mountain. The snowball picks up more and more snow as it goes along, just as you will pick up for properties through more income as you go along.
The real estate market has been strange since the pandemic started. However, certain strategies have remained strong. Reinvesting your rental income is one of the strategies that COVID-19 has not affected.
7. Buy and Hold
Buying and holding rental properties is a great real estate strategy. This strategy will help you generate income from rentals that you can reinvest. This strategy will also allow you to benefit from unique tax laws and enjoy long-term appreciation values.
This strategy is very popular in the real estate investing world. By utilizing single-family rental properties, you can generate large amounts of cash flow. If you are starting your journey in real estate, this is a great strategy for you.
According to Green Street, 35% of all rental properties in the United States are single-family rental properties. This means that the properties are easy to operate and easy to find.
One of the great parts of this strategy is that there are many ways to finance an SFR. You can utilize government loans or you can use portfolio lenders.
Properties in the United States have increased by over 200% in the past two decades. Rental properties are extremely popular in the United States. Without a change to that in sight, now is a great time to invest in a rental property.
Although there are many upsides and benefits to this strategy, there are also downsides. Your income and cash flow from the rental property may fluctuate based on external factors. These factors include repairs, vacancies, and market changes.
As long as you are smart and devoted, this investment strategy could work well for you.
8. Lien Investing
This investment strategy is geared around property taxes and other fees. Property tax lien investing means that you will be covering your taxes with the cash flow you are making. Making these payments will only result in you making more money.
There are two ways that you can invest in property tax liens. The first way is to purchase these tax liens at an auction. You can search online where these auctions can take place.
Buying your tax lien at an auction often has a lower risk associated with it. It is a lower risk because most people will be able to make their money back in a short period of 6 months to 2 years.
The second option is to invest in certain property tax liens that are managed by a third party. These parties usually include investment companies that have a large portfolio.
This investment strategy can be confusing and complex. If you are starting and looking to start your real estate portfolio, this strategy might not be the best idea for you.
REIT stands for Real Estate Investment Trusts. These are companies that hold and invest in several different properties. These are privately or publicly held organizations that hold properties ranging from commercial real estate to data centers. These companies will try to have several different assets to have a broad portfolio.
If you are a shareholder in one of these companies, you will be able to enjoy high dividends. These companies are required to pay 90% of their profits to shareholders.
This is a really good way to get your foot in the door with real estate. You will not be owning any property, but you will be generating income. It is also a great way to expand your portfolio.
REITs can be found on exchanges where they have shares that can be bought and sold. This will increase the liquidity of the organization which, in turn, will yield more stability and profit for you.
Although REITs are nice, you will not be able to have all the benefits of owning a property. You will be missing out on direct control, direct decision-making, and being the only recipient of the income from a property.
REIG stands for Real Estate Investment Groups. These are essentially the same concept at REITs but with small funds. These small funds obtain rental properties and encourage investors to buy through the group.
REIGs can be seen as incredibly hands-on with the investing process. They want to ensure that each investor is getting proper returns on their investment. The REIG you go through will market empty properties, bring in maintenance crews, collect rent, and many other things.
They will do all the services listed above in exchange for part of the rental income. The REIG will also take care of screening potential tenants in the process.
An investor will make money from their shares. These shares work through rental income and appreciation on properties that the REIG has sold. Similar to REITs, this is a hands-off strategy.
If you are looking to start in real estate investments, this is a great place to start. REIGs and REITs are a great way to expose yourself to the real estate investment industry.
Pick Your Strategies for Investing
There are so many different strategies for investing in real estate. If you are starting your journey in real estate, you might want to consider a more hands-off approach to ease in. If you are a pro in the real estate industry, try to challenge yourself with something new.
Real estate is a volatile market that changes constantly. However, it can be a great way to set up a constant cash flow.
It can be hard to pick which strategy is best for you. If you are stuck on a strategy, learn more here.