When considering entering the real estate investing business, one question property investors might ask themselves is: “Should I invest for the long term or the short term?”Obviously, the main reason many decide to invest in real estate is to make money and establish a source of income. Both long-term and short-term real estate investing strategies have proven to be successful in achieving this. Thus, the answer to our main question depends on a number of factors such as your location, financial resources, and investment goals.
To help you determine which investing strategy you should follow, here’s a closer look at the different real estate investing strategies that can be applied either to long-term or short-term investments.
Long-Term Real Estate Investing Strategies
When investing in real estate for the long term, real estate investors purchase and rent out their investment properties for long-term leases. Long-term real estate investing relies heavily on time and cash flows to be successful. These investing strategies are probably the most common ways to invest in real estate and are also the most lucrative. Two common long-term strategies are:
Real Estate Investing: Buy-and-Hold
This is one of the best real estate investing strategies for long-term property investors. The buy-and-hold strategy involves buying an investment property, renting (or holding) it out for an extended period of time, receiving monthly cash flow, and then selling it in the future for an additional profit. The types of properties the property investor can purchase when following this long-term investing strategy range from single-family homes, through multi-family homes, to entire apartment buildings.
When following this real estate investing strategy, the property investor will need a reliable source of financing and know how to evaluate the investment property, in addition to understanding the real estate market in which the property is located. This requires conducting a thorough comparative real estate market analysis in addition to an investment property analysis.
Typically, the property investor should buy investment properties when the real estate market and properties are at a low point (low prices with high inventory). When the real estate market becomes over-heated, real estate investors should stop buying until things settle back down. During these periods, they could sell the investment properties or simply continue to hold them and make cash flow.
Moreover, when following this long-term real estate investing strategy, the property investor should take property management into consideration. This type of real estate investing requires the property investor to be active and perform a number of tasks including screening tenants, overseeing repairs, handling maintenance issues, keeping financial records, and collecting monthly rents. Are you ready and willing to take on these responsibilities to guarantee a successful real estate investment? If not, property investors can always hire a professional property manager to overlook their investments.
Real Estate Investing: REITs
Real Estate Investment Trusts (or REITs for short) is another type of long-term strategies for real estate investing. Created by the Real Estate Investment Trust Act of 1960, REITs are companies that own and finance multiple investment properties ranging from office buildings,through apartment buildings and shopping malls, to hospitals and skyscrapers.
Investing in real estate investment trusts is a great option for property investors who don’t have big capital or the time to invest in real estate as a full-time job, or simply want to be a part of the real estate investing business, but don’t want to play an active role and deal with the hassle of becoming a real estate investor. In essence, a REIT enables the property investor to own a share of the value of an investment property and earn passive income from leasing it.
In addition, real estate investors have minimal responsibilities; as previously mentioned, they’re not required to actively manage their investments – the REIT will take care of that. Furthermore, a real estate investment trust typically invests in more than one investment property, meaning that this real estate investing strategy allows property investors to diversify their investment portfolio, which naturally lowers their risks.
Benefits of Long-Term Real Estate Investing
Many people decide to invest in real estate properties for the long term for many reasons – here are some of them:
- As for buy-and-hold, many find this real estate investing strategy beneficial thanks to the positive cash flow, real estate appreciation, consistent rental income, and tax deductions it offers to the property investor. Not only that, but during the time that the property investor holds the investment property and rents it out, the mortgage is being paid off each month, which builds equity on the investment property.
- When it comes to REITs, some of the advantages they offer include high yield, simple taxes, excellent liquidity, and passive income in the form of dividends (which is great for retirement plans), in addition to investment portfolio diversification.
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Short-Term Real Estate Investing Strategies
Short-term real estate investing strategies are becoming more and more popular in the real estate market today. In fact, some real estate investors are finding that short-term strategies can generate more income than long-term ones! Here, we’ll discuss the two most common short-term real estate investing strategies:
Real Estate Investing: Fix-and-Flip
The fix-and-flip strategy involves buying an investment property that’s on the market for a low price due to foreclosure, short-sale, or being in a bad condition and needs renovation. Then, real estate investors work on improving these investment properties and selling them for a higher price, thus making a quick profit.
This investing strategy is not one where property investors can make passive income; after selling the renovated (or flipped) investment property, property investors don’t make money if they don’t start flipping again. In addition, keep in mind that in order to make a quick profit through this real estate investing strategy, the selling price of the flipped investment property must be high enough to cover the initial purchase price and renovation costs, plus a profit margin.
Fix-and-flip might seem like a simple way to make money from real estate investing; however, it requires experience to succeed. The trick is finding deal-breakers, determining the best way to finance the investment property, and ensuring that you repair and sell the investment property as quickly as possible to guarantee maximum profitability and avoid additional expenses. Another tip is to consult a home appraiser to identify the important issues that need fixing and avoid wasting time and money.
Real Estate Investing: Wholesaling
One of the main obstacles preventing people from investing in real estate is lack of cash. However, it’s not always required to spend money in order to be a part of the real estate investing business! Wholesaling is one of the ways real estate investors can quickly make a profit without spending any money, which is what makes it one of the best short-term investment strategies for real estate investing.
Real estate wholesaling involves finding sellers who want to put their investment properties up for sale, writing contracts to acquire the deal, finding buyers, and selling them the contract. Thus, a real estate wholesaler is a middleman between sellers and buyers and is entitled to a share of the selling price.
This real estate investing strategy appeals to many because since wholesalers don’t own the investment property for sale, they don’t have to worry about cash flow, rental income, repairing costs, mortgage payments, property taxes, or any of the responsibilities that typical real estate investors and landlords have to deal with. As a result, this minimizes the knowledge of the real estate market you need to have.
However, succeeding as a real estate wholesaler is not as easy as you might think. A successful wholesaler seeks out the best deals and continuously builds networks with others in the business to create a database of potential sellers and buyers at all times.
Benefits of Short-Term Real Estate Investing
As previously stated, many decide to invest in real estate for the short term because:
- With these investment strategies, real estate investors can earn profit quickly and see the results of their investing after a short time period.
- It gives property investors some flexibility as they don’t tie up their money for an extended period of time.
- In the case of wholesaling, it doesn’t require spending money or having an in-depth knowledge of the real estate market.
Real Estate Investing Strategy – Airbnb Rentals
The last real estate investing strategy we are going to talk about deserves its own section because it can be applied for both the long term and the short term. How is that possible? Well, a property investor can purchase an investment property for the sole purpose of renting it out as an Airbnb rental (long term). In this case, the property investor takes care of maintaining the investment property, repairs, rental income, and the other responsibilities of being a landlord.
On the other hand, real estate investors can simply rent out a room from their residential properties as an Airbnb rental any time they want, even just for a night (short term), meaning they can generate a passive income without the hassle of being a traditional landlord.
Airbnb rentals are becoming more and more sought out by real estate investors as some Airbnb rentals generate more income than traditional rentals, in addition to offering a lot of flexibility to the property investor.
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Real Estate Investing – Conclusion
Many real estate investors wonder whether they should invest in real estate for the long term or the short term. To succeed in real estate investing, property investors need to plan carefully and determine which of the above mentioned investing strategies works the best for them. Moreover, your financial budget, location, and goals should align with whichever investing strategy you decide to follow.
Mashvisor offers a selection of real estate investing tools that facilitate your search for investment properties and allow you to conduct a real estate market analysis. Mashvisor’s blog section provides property investors with real estate investment tips and advice, in addition to hundreds of guides on how to make the best real estate investment decisions.
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