When investing in real estate, you will come across several real estate investment strategies. So, how do you decide on the best one to use?
One of the best aspects of real estate investing is the multiple methods through which you can invest in real estate and make significant profits.
As a beginner real estate investor, you will come across several real estate investment strategies that will all seem lucrative and profitable. So, how do you decide on the best real estate investment strategy for you to use?
The answer is: learning.
Learning about the different real estate investment strategies that are available to you will give you a better understanding of each strategy, its advantages and disadvantages, and will help you decide whether this is the strategy for you and whether you have the required skillset to pull off the strategy successfully and to profit from it.
So, below are the most common and lucrative real estate investment strategies. I have broken down these strategies into two sections: traditional investment strategies and creative investment strategies.
Traditional Real Estate Investment Strategies
Traditional real estate investment strategies are the strategies that have existed since the dawn of real estate investing. These strategies are the most common in the real estate market, and you will come across most of them anywhere you go.
Due to these strategies being the main ones used in the world of real estate, they are typically the most accessible and the easiest to learn for beginner real estate investors. It is easier to find resources and services to complement these strategies and learn about them, and they can be very profitable investments when done correctly.
Buy and Hold
The buy and hold aspect of real estate investing is not exactly a strategy on its own, but rather a characteristic of most real estate properties that relies on the premise of appreciation.
Appreciation, being one of the biggest advantages of investing in real estate in general, can be used to make any real estate property a profitable investment by simply holding the property for a long enough time for it to appreciate in value.
While it is sometimes a viable option to purchase a property and do absolutely nothing with it until it appreciates, the buy and hold strategy can be combined with most other types of investment strategies to maximize the profits and generate extra money from the property until it appreciates and you can sell it again for a profit.
Rental Properties
The rental property is historically the most common real estate investment strategy in the world, and it is the best strategy to use in combination with the buy and hold or appreciation aspect of real estate investing.
The rental strategy is very simple to understand, making it the top choice for beginner real estate investors when they buy their first investment property. Rental properties are investment properties that you can purchase with the purpose of renting them out to tenants in exchange for a rental income.
One of the biggest advantages of rental properties is that you can use the money that your tenant pays you to pay off your mortgage and cover for the other expenses that will apply to your investment property. This means that if you manage to acquire a loan for purchasing an investment property, you can use it as a rental property and effectively let your tenant pay off your mortgage for you.
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There are two types of rental properties in real estate investing: long-term (traditional) rentals, and short-term (Airbnb) rentals. Before deciding on the rental strategy that you want to use for your investment property, make sure to learn more about these two types of rental properties in order to pick the right one for you and for your property.
Fixer-Uppers
Fixer uppers, also known as fix-and-flip properties, is a real estate investment strategy that revolves around purchasing a distressed property – a property that is in bad shape or condition – before fixing the property and renovating it to get it back into a good and habitable condition and selling it back.
The fixer-upper investment strategy is one of the simplest real estate investment strategies to pull off, and it is the fastest method for making profits investing in real estate.
Fixer-uppers can be very profitable when done correctly. Distressed properties are typically offered for sale at a drastic discount due to the scale of repairs and renovations that they require. A smart real estate investor knows that they can profit from these properties by increasing their value and selling them at a higher price than what they had paid for them.
In order to avoid losing money on a fixer-upper investment, make sure that the costs of repairs and renovation of the property, combined with the actual price that you paid for the property, are less than the amount at which you can sell the property after fixing it. This difference in price is the actual amount of money that you will be making as profit.
Creative Real Estate Investment Strategies
Creative real estate investment strategies are more modern strategies that real estate investors have used in order to pull off their investments using unconventional methods in order to make up for other limitations that they might have, which are mostly related to the financing of the property and the challenge of obtaining a conventional mortgage loan to buy the property.
Seller Financing
The seller financing method, also known as the seller carry back, is used by real estate investors who are having a hard time qualifying for a loan.
Using this strategy, the buyer and the seller will come to an agreement that the buyer will pay the owner monthly payments with a set interest rate, and the full price of the property will be paid within a duration of 1 to 5 years. This gives the buyer enough time to secure a refinance loan on the property, which is easier to obtain than a purchase loan.
Subject-To
Under this strategy, you can purchase an investment property that has financing tied to it, but the financing remains tied to the seller even after you’ve purchased the property.
This means that the title of the property will be transferred to you, but the title of the mortgage will remain active under the seller’s name. Afterward, you would pay the mortgage payments in the seller’s place for a set duration. After that, you will be able to refinance and get your name on the loan.
This option is mainly used when purchasing a pre-foreclosure property since the seller, in this case, will be trying to get out of the property as soon as possible. The main advantage for the buyer in this strategy is that he/she will not have to come up with a down payment for purchasing the property.
Rent-to-Own
Rent-to-own is one of the creative real estate investment strategies that have been gaining popularity over the years. A rent-to-own agreement, also known as a lease option, allows a real estate investor to purchase an investment property with little to no money down, and at a decreased risk.
This strategy is used by real estate investors who are struggling to come up with the money for a down payment, and it revolves around the investor renting the property for a few years with the option of purchasing the property upon the end of the duration.
Under a rent-to-own agreement, part of the rent that you pay will go towards the purchase of the property. While this means that the rent on the property will be higher than the average rental property, this strategy allows real estate investors to purchase properties which they otherwise wouldn’t be able to.
Final Notes
After deciding on one of these real estate investment strategies, make sure to scour the internet in search for the tools and services that can be used for the strategy that you have chosen to make your investment venture easier and faster.
If you’re opting for any type of rental properties, one of the best tools that you can use to make better investment decisions and to find the perfect investment properties to use for your rental strategy is Mashvisor.
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Using Mashvisor, you will be able to find investment properties that have a high potential for profits based on real estate analytics and data comps related to the ROI of the property and how it fairs against other similar properties in each neighborhood or market.