Real estate investment is considered as one of the most reliable ways to generate wealth. There are several ways you can use to invest in the real estate industry. Whether you are a seasoned investor or are just starting, these investment decisions can be overwhelming.
This article aims to explain what we think are some of the best strategies you can employ to invest in real estate. These strategies will help you understand and have a better idea of how you can invest your hard-earned money in real estate and make some money on out of it.
We believe that one or more of these strategies will help you figure out your starting point and how you can get a jump start without making too many mistakes. We hope that this article will pave the way for you in the world of real estate investing.
Goals, Strategies, Tactics
Before you start thinking about real estate as an investment strategy, you need to figure out your goals, what strategies you will use, and what tactics you will be employing? You, that's right! There is a lot of difference between the three, and you must know about it.
Think of real estate investing and wealth generation as climbing a mountain. So, that makes you the adventurous mountain climber! The peak of the mountain represents all your financial goals and life goals, for that matter. To reach the top, you will have to achieve several milestones along the way.
The next one is the strategy! Strategies are your plans and road maps, which will tell you how you will climb up the mountain. In mountain climbing, maps are very important as they guide you on reaching the top in the fastest and most efficient way possible. Similarly, without a strategy, you cannot achieve your life goals and milestones.
And finally, there are tactics! Tactics are the tools (like binoculars, ropes, ladders) that help you climb the mountain's rough terrain. You will find plenty of articles on the internet on this topic, but so many real estate investors tend to get too focused on these “tactics” that they forget about the bigger picture.
Real estate investors dive into this subject without realizing what strategy they want to employ and overwhelm themselves with unnecessary information that is detrimental to their cause. Getting better at tactics without having any idea of what strategy you are going to use is similar to driving on a dark road without any idea of where you are going.
When you are trying to learn about real estate as an investment strategy, you must understand everything you can about what strategies you will use before doing anything else. And we are going to be telling you exactly that!
Best Real Estate Investment Strategies
There are 15 ways that people generally use real estate as an investment strategy. These are an absolute must-know if you are thinking about indulging in the world of real estate investment. These real estate investment strategies are:
- House Hacking
- Live-In Flip
- BRRRR Investing
- Short-Term Buy-Hold
- Long-Term Buy-Hold
- Debt Snowball
- All-Cash Plan
- Trade-Up Plan
- Hard Money Lending
- Discounted Notes
This is one of the oldest modes of investing in real estate. The gist of it is you buy a property that is not in its best condition. You revamp it and sell it for a higher profit. Sounds easy, right? Well, not actually; this strategy requires a lot of your time, effort, and money. You can use this strategy if you are planning to go all-in in this line of work. Because once you take up such a project, you might as well say good-bye to your day job.
This strategy's biggest benefit is the large influx of cash that make all the effort, hardships, and late nights planning your budget worth it. Moreover, after seeing the house's final completed form, you are filled with a sense of achievement that is hard to come by in our daily lives.
Wholesaling is either going to be your favorite strategy, or you will not be interested in it at all. If you like sales and are fond of negotiating deals, then this strategy is for you. If not, then this strategy probably will not take you that far. Wholesaling is buying a property at a “wholesale rate” and selling it quickly for a little profit.
Wholesaling is equivalent to a full-time job. You will spend your days either hunting for cheap properties that you can buy or looking for potential clients who will buy the property of your hands at a higher rate. The plus side of this strategy is that you will be able to create a lot of connections in the real estate world and polish your marketing and negotiating skills, which will come in handy in your future endeavors.
3. House Hacking
House hacking is a great way to begin your career in real estate investment for a newbie. Since newcomers are usually short on cash, this strategy helps them pay off their bills while building a solid portfolio. The gist of this strategy is you rent out those rooms of your house you are not using. This way, you get to create a solid revenue stream without having to do much.
For a newcomer in this field, there are plenty of benefits. Not only do you get to generate an income stream that you can use to pay off your mortgage or utility bills, but also you can gain a lot of experience in dealing with tenants and managing rent.
Personally, I think house hacking is one of the greatest ways to use real estate as an investment strategy.
Live-In-Then-Rent is an offshoot of house hacking in some ways. It is renting out your place once you have paid the mortgage on your home. This means that your home acts as an investment for you, and you don't have to share your living space with someone else.
The Live-In-Then-Rent strategy is a great way to get your portfolio going. Since you don't have to live with your tenants, you have an easier time keeping your relationship with your tenant professional. This is very important, as befriending your tenant can lead to plenty of problems in the future.
Just as the name suggests, this strategy advises you to buy a house, move into it, fix it up, and sell it after living in it for two years. This is a great way to earn your profits through real estate investments, as it helps you get some very attractive tax breaks. If the IRS rules are followed to the letter, you can get a tax break of 250,000 dollars if you are filing individually or a 500,000 dollars' tax break if you file your taxes as a couple.
Live-In-Flip will help you accumulate thousands of dollars of profits in the early days of your career, a capital that will prove crucial in your progression in the world of real estate.
6. BRRRR Investing
BRRRR is an acronym for “Build, Remodel, Rent, Refinance, Repeat.” If carried out carefully, this investment strategy is an excellent way to build your rental portfolio without emptying your bank account in the early stages of your investing career.
In short, in BRRRR, you are looking out for those properties which require some maintenance and fixing on your end, those properties which you can buy below market value. You then use short-term financing or your cash to buy it and then revamp it. After rejuvenating your newly bought property, you will put your property up for refinancing on a long-term basis. If you can do it effectively, you can essentially pull out all the investment you have put in the property. And you can use this capital to invest in your next project.
7. Short-Term Buy and Hold Rentals
This strategy means buying and holding a property for a duration of 1 to 5 years and capitalizing on the land's appreciation. Apart from your property's natural appreciation, you can also do a forced appreciation on your property by remodeling, raising the rent, decreasing expenses, and anything else that might make your property more desirable.
8. Long-Term Buy and Hold Rentals
This investment strategy entails the investor owning and renting the property to keep the property for longer than ten years. This is one of the most tried and tested ways to generate wealth over time. There are plenty of benefits that you can enjoy with Long-Term Buy and Hold Rentals. These benefits include rental revenue, tax benefits, amortization of loans, and price appreciations.
This is my favorite way to use real estate as an investment strategy. I'm a long-term buy and hold real estate investor through and through!
9. Rental Debt Snowball
This is a modern and unique way to build your wealth, decrease risk, and eventually generate an income stream from your rental properties. This strategy entails you concentrating all your rent and other revenue streams into paying the mortgage of one property at a time. This way, you can quickly pay off your mortgage and act on your retirement plan sooner than you hoped.
10. All-Cash Rental Plan
This strategy is like rental debt snowball, which means you will concentrate your rent and other forms of revenue in this strategy, but instead of paying your mortgage, you will buy the property completely. Some financiers prefer this method instead of the previous one, as you will be able to buy a property without any debt hanging above your head.
11. Trade-Up Plan
This strategy is perfect for all the multi-taskers out there. The trade-up plan is ideal for investors looking to climb the ladder of success and wealth quickly and have the stomach to face a bit of risk in the process. There are several moving parts in the trade-up plan. It essentially entails creating wealth and real estate by moving from smaller to larger properties through a 1031 tax-free exchange method.
12. Hard Money Lending
This strategy is ideal for investors looking to invest their money without doing a lot of work. These loans are given out on a short-term basis and are perfect for those investors who buy and flip properties. These loans generally involve high-interest rates, upfront fees, and lesser loan to value ratio.
This strategy is a double-edged sword. While it can be very profitable, it can also be very dangerous if you plan to take the property as collateral and then make sure your contract is airtight.
As a side note, fill out this form If you want to use hard money lending to fund one of your real estate investment strategies.
13. Discounted Note Investing
Discounted note investing is acting as a bank for other investors. It means generating or purchasing notes at a lower rate than the actual value. As a result of this margin of safety, you can generate huge returns and decrease your risk.
This is now what most people think of when looking at real estate as an investment strategy. That being said, I think it is very powerful to understand!
14. Syndications and Crowdfunding
Syndication is you pooling your money with many other investors and investing that capital to buy a property or give out loans. It is a method of investing in any of the investments mentioned above strategies without going through making deals. All you have to do is combine all your money, and the managing partner will look for investment opportunities and provide you with your cut of the profits.
Real Estate Investment Trusts (REITs) are very similar to mutual funds. Rather than owning a portion of several stocks, you own a portion of several commercial, wealth-generating properties. Unlike most strategies, this investment strategy is purely passive. The best part of investing in real estate investment trusts is you can take your capital out of the arrangement by selling your portion of the pie to your partners.
References – Real Estate as an Investment Strategy
Real Estate as an investment strategy is one of the first articles I had ghostwritten for me. Can you tell?