- The 5 Real Estate Investment Strategies Every Real Estate Investor Must Know
The 5 Real Estate Investment Strategies Every Real Estate Investor Must Know
No matter what real estate investing niche you choose as your main means to achieve financial freedom, you need to know how to use all of these real estate investment strategies to your advantage. A lot of real estate investors talk about focusing on a specific real estate strategy and becoming a subject matter expert in it. While this will absolutely help you achieve success, it doesn’t mean you can’t benefit from understanding these other REI strategies.
In fact, I would argue that you’re missing out on a lot of potential profit by not having at least a wave-top understanding of these strategies.
You don’t need to master them all, and you definitely don’t need to give yourself shiny object syndrome, but you will benefit from having a basic understanding of them.
Real Estate Investing Strategy – Wholesaling
Wholesaling real estate is a way to turn a quick profit by playing the middleman (or woman) between a buyer and a seller. Wholesalers are masters of marketing and negotiation. They find properties well under market value, get them under contract, add a slight fee (markup), and then assign that contract to a buyer who will close the deal.
People often decide that wholesaling is a good way to begin their real estate investing journey, but the reality is that if you want to be a successful wholesaler, you need to understand that it is a business. You will need to treat it as such and go all-in to become a successful wholesaler. You can’t just send a few letters out and cross your fingers.
That being said, even if you have no desire to build a wholesaling business, I recommend understanding the basic ins-and-outs of this REI strategy. Understanding how to find affordable off-market deals and negotiate discounts will serve you well no matter what niche you choose to focus on. You will also benefit from understanding how to assign a contract because wholesaling makes a great exit strategy.
Let’s say you’re a buy-and-hold investor and you find a property that has potential, but you don’t have the capital on hand to take it down. You could simply use your basic understanding of wholesaling to assign the contract to another investor, and then you get a nominal fee for your time. That is a win-win situation and much better than just passing on the deal.
Real Estate Investing Strategy –House Flipping
Flipping houses is the “sexy” side of real estate investing you see all over HGTV and Instagram. Investors love to show before and after photos and talk about how well their flips went. HGTV, for one, is notorious for showcasing the before/after images and highlights of a house flip without touching on the additional expenses that existed in the deal.
Flipping homes is not an easy ordeal, and it definitely isn’t a passive investing strategy, but it can be quite lucrative. Whether or not you have any intention of flipping houses, you should definitely read a book or two on the strategy.
Understanding how to flip homes can be an incredibly powerful skill set. This is especially true when you consider the massive value-add potential renovations bring to your real estate business. No matter what your real estate investing niche is, you will absolutely be able to benefit from understanding renovations.
A good house flipper learns how to budget for renovations, manage the contractors and moving pieces, and gauge the after repair value of a property. All of these skills will be useful no matter what strategy you use to build wealth. Definitely learn about the basics of renovations if you want to increase the amount of profit you can squeeze out of each deal.
Real Estate Investing Strategy – House Hacking / Airbnb
House hacking is without a doubt my favorite real estate investing strategy for beginners! There are a lot of reasons for this, but it all boils down to the fact that you will learn how to be a landlord and investor, while simultaneously saving money on your living expenses.
There are a lot of different house-hacking strategies you can use as a real estate investor. You can buy a 2-4 unit building, rent out bedrooms, rent a mother-in-law suite, or even rent out an RV in the backyard if you’d like. Ultimately, the sky’s the limit with house hacking, and it is a great strategy for beginner real estate investors.
I wrapped Airbnb into this section because I have successfully used Airbnb to rent bedrooms out of my primary residence as a means of house hacking. Combining these real estate investment strategies, I was able to use Airbnb hosting to bring in around $2,500/month in San Diego County, while my cost for a 4 bed, 3 bath home was around $3,500. Saving $2,500/month through Airbnb is a definite win in my book!
You may never use the house-hacking strategy. Maybe you have a family and it just isn’t feasible, but it is a great way to get the creative juices flowing about using real estate not only as a means to build wealth but also as a means to slash your cost-of-living expenses.
Real Estate Investing Strategy – Buy and Hold
Buy and hold real estate investing is my bread and butter. I plan to hold several rental properties I currently own for the long haul (until probate), in addition to many others throughout my life to enjoy the benefits of living off cash-flowing real estate.
I absolutely think you need to understand the four pillars of rental property investing, regardless of the strategy you choose when first becoming an investor. The main reason it is paramount that you understand buy and hold real estate investing is that most investors gravitate towards long-term buy and hold investing at some point in their lives.
Regardless of what strategy you utilize now, you should understand rental properties well enough that you’re comfortable holding the best deals for yourself as long-term rentals. The benefits of buy and hold investing are too great for you to remain ignorant.
Creativity is the Ultimate Strategy for Real Estate Investors
Creativity is the mother of all real estate investment strategies. This can come in the form of creative financing, forming partnerships, formulating exit strategies, or even in the way you market for deals. The more creatively you can train yourself to think, the better your deals will be.
Problem-solving is an extremely valuable and underrated skill set, especially for real estate investors.
Definitely spend some time learning the ins-and-outs of creative financing. Knowing how to structure lease options, seller-financing, private lending, and other means to get financing will open a lot of doors for you when banks are difficult to work with.
Real Estate Investment Strategies – Summary
Ultimately, you should choose a niche to focus on and become an expert on that topic. Going deep in that subject and becoming an expert will absolutely help you build wealth.
That being said, you should understand a little bit about each of these real estate investment strategies so that you can weave them in and out of your REI strategy of choice to squeeze a little more profit out of your business whenever possible.