One of the most attractive features of real estate investing when compared to other investment strategies is the multitude of options which it provides. However, beginners sometimes find this diversity to be confusing, leaving them unsure where to start. To help out newcomers get started, we’ve put together a list of the 5 best ways of how to invest money in real estate to make more money.
Regardless of your previous experience, educational and professional background, budget, and desired level of engagement, you are guaranteed to find the best real estate investment strategy for yourself in this list.
To learn even more about this topic, watch our latest video, available below.
Number 1: Traditional Rental Properties
One of the most standard answers to the question “How do I invest money to make money in real estate?” is buying a long term rental property. This is an investment property which you buy for the sole purpose of renting out on a long term – or monthly – basis. These income properties are also referred to as traditional rental properties as they are one of the most conventional ways for investing in real estate.
Related: 20 Most Profitable Locations for Traditional Rentals in 2020: Cash on Cash Return
One of the most important benefits of this strategy is that you get to make money in both the short and the long term. In the short run, you make money through the monthly rental income which you receive from your tenants. In the long haul, you make money from real estate appreciation. This means that the value of real estate properties goes up over time, irrespective of temporary slowdowns and even downturns in the US housing market.
To start investing in traditional rental properties, you need to be able to cover a down payment of about 20% of the home value, the closing fees, and some other one-time costs related to buying an investment property. This means that long term rentals are not necessarily the best way to invest in real estate with little money or no money. You do need some initial capital to become a landlord.
In order to optimize your return on investment from traditional rental properties, you need to conduct careful investment property analysis. This real estate analysis should incorporate both rental market analysis and rental property analysis. You should rely on solid real estate comps and rental comps to make sure that you are paying the right price for your investment property and that it will generate enough rental income to cover all running expenses and leave you with some money in your pocket. In other words, positive cash flow properties are a must when learning how to invest in real estate with this strategy.
The good news is that Mashvisor provides beginner property investors with all the real estate investment tools which they need to find lucrative long term rental properties quickly and easily. We’ve turned a 3-monthh research process into 15 minutes.
Number 2: Airbnb Rentals
Next on the list of the best real estate investment strategies for beginners is short term rental properties, also known as Airbnb rentals. In recent years, after the emergence of the Airbnb platform, vacation home rentals has become one of the best answers to the question “How to invest money wisely in real estate?”
Investing money in Airbnb properties is very similar to investing in traditional rental properties. Once again you get to make money in both the short and the long run. The difference is that running a short term rental is a significantly more active real estate investing strategy. As an Airbnb host, you have to keep marketing your rental property constantly, to clean it and restock it all the time, and to welcome guests daily.
However, both traditional and Airbnb rental properties can be turned into entirely passive real estate investment strategies. The way to do that is to hire a professional property management company.
Meanwhile, nationwide real estate market analysis conducted by Mashvisor shows that vacation home rentals are consistently more profitable than traditional ones. In the vast majority of the US housing market, they bring a better cash on cash return and a better cap rate.
Nevertheless, if you are considering how to invest money in real estate with short term rental properties, you should have a look at the Airbnb laws and regulations. Many cities as well as smaller towns have adopted strict short term rental regulations which significantly limit and sometimes even prohibit this real estate investing strategy. But there are still many locations where buying an investment property for the sole purpose of renting it out on a short term basis is legal and which generate an excellent cash on cash return and cap rate for investors.
Related: 20 Most Profitable Airbnb Locations in 2020: Cash on Cash Return
Similar to buying traditional rental properties, finding a profitable Airbnb income property is easy even for beginner real estate investors. The heatmap, the Property Finder, and the investment property calculator are some of the real estate investment tools available on the Mashvisor platform which make neighborhood analysis, property search, and rental property analysis a piece of cake even for absolute beginners.
Sign up for a 7-day free trial of Mashvisor now for optimizing how to invest money in real estate with Airbnb rentals.
Number 3: Buy and Hold Real Estate
Another real estate investment strategy which is perfect for those with little experience and no desire to get involved in the rental business is buy and hold. However, buy and hold real estate is not how to invest in real estate with no money or how to invest money to make money fast.
The buy and hold strategy is very self-explanatory, even for beginners. It means to buy an investment property and to hold on to it in the long run. You sell it once the local housing market has experienced a considerable real estate appreciation. This means that you get to make money only when you’ve sold your property. The higher the difference between the purchase price and the sale price, the higher your long term return on investment with buy and hold real estate.
The main disadvantage of this strategy is that you don’t get to make money from real estate properties in the short run. This also means that you have to provide all the financing as you cannot rely on rental income to cover the monthly mortgage payments.
Meanwhile, the most important benefit of this strategy is that it is how to invest money in real estate passively. It requires zero engagement on behalf of the investor until it is time to sell the property. Another advantage is that you can make a lot of money if you choose a market which is expected to undergo major appreciation. That’s why you should conduct diligent real estate market analysis when choosing the best places to invest in real estate for buy and hold. Go for cities and neighborhoods with upcoming infrastructural developments, real estate development projects, and growing labor market.
Related: 5 Best Cities for Real Estate Appreciation in 2020
Number 4: Fix and Flip
How to invest money in real estate to make money fast? Consider fix and flip. This is a very active real estate strategy which entails buying a distressed investment property below market value, making cost-efficient fixes and repairs, and selling it within a few weeks or a couple of months to home buyers or another real estate investor. To start flipping real estate, you should have some previous experience in the field and be ready to devote quite some time over the next few weeks.
In return, you can make lots of money fast with fix and flip. The key to success with this approach is to be able to find off market properties whose owners are willing to sell below market value. In addition, you should also perform careful investment property analysis to know how much exactly you need to spend on fixing the property and for how much you will be able to sell it after.
Making money with fix and flip is based on finding a cheap real estate property in a decent shape owned by a motivated seller, making cost-efficient repairs, and finding a good buyer.
Number 5: Real Estate Crowdfunding
Last on our list of the best real estate investment strategies for beginners is real estate crowdfunding. This is a relatively new and very innovative way of how to invest money in real estate to make more money which emerged in the past decade. Crowdfunding real estate properties has been enabled by the social media revolution and the technological breakdown in the real estate industry.
In real estate crowdfunding, an investor makes money by pulling his/her capital with the financial resources of dozens of other real estate investors from around the globe to buy and own common residential or commercial real estate properties. You make money in both the short and the long term through dividends and capital gains, respectively.
Crowdfunding has a few major advantages over other strategies. It is a very passive real estate investment strategy as you never get to choose or manage an investment property. This means you don’t have to deal with tenants and Airbnb guests. Moreover, it requires zero knowledge of the real estate market. You don’t have to worry about conducting any sort of real estate analysis. All you have to do is to do some online research on the best real estate crowdfunding platform and decide how much money you want to invest. Importantly, with some platforms you can invest as little as $500, which makes this strategy a very affordable choice for investors with a limited budget. So, if you are wondering how to invest with little money to make money in real estate, consider real estate crowdfunding.
As you see, the question “How to invest money in real estate to make money?” has many different answers. The best strategy for you depends on your experience, background, capital, and preferences. If you think that rental properties are the best real estate investment strategy for you, sign up for Mashvisor now to start searching for the most lucrative income properties within your budget across the entire US housing market.