While real estate remains one of the best ways to make money, in order to succeed, you have to choose the right strategy. Your choice should take into consideration a lot of factors such as your budget, previous experience, personal preferences, strengths and weaknesses, and location. The good news is that the world of real estate investing is so diverse that anyone – from a beginner with a few hundred dollars to an expert with a few million dollars – can find a way to join. Here we show you the 5 top real estate investment strategies for making money including the key factors you should have in mind before getting into any of them.
1. Traditional and Airbnb Rental Properties (Top of the Top Real Estate Investment Strategies)
We start this list with the best of the best real estate investment strategies as well as any other year: namely, investing in rental properties. What this approach entails is finding one of the most profitable locations for owning a rental property, buying an investment property with the help of an agent, making fixes and repairs, and starting renting it out. You can do the latter either on a short term basis as an Airbnb rental property or on a long term basis as a traditional rental.
“Easier said than done!” beginner real estate investors would say, and they are absolutely right. Buying a profitable rental property can be a lengthy and exhausting process. Conducting real estate market analysis in a few locations, searching for investment properties for sale, and performing rental property analysis takes an average of 3 months when done manually. That is, unless you have access to the proper real estate investment tools.
Mashvisor’s real estate investment app allows even new investors to find a top-performing traditional or Airbnb income property within 15 minutes.
How is this possible?
By providing readily available rental market analysis, neighborhood analysis, and investment property analysis in any US location, no matter how big or small. In addition to analyzing hundreds of thousands of MLS listings, foreclosures, bank-owned homes, and short sales on the platform, investors can also conduct rental property analysis of off market properties by entering the street address or zip code.
Nashville Investment Property Analysis Conducted by Mashvisor’s Rental Property Calculator
So, what do beginner real estate investors need to know before committing to owning and managing a traditional rental property or an Airbnb investment property?
First and foremost, that the key to success with this strategy is always investing in positive cash flow properties. That’s the only way to assure that you are making money in real estate rather than losing money. To facilitate and speed up the analysis process, you can use Mashvisor’s investment property calculator. This tool provides reliable and accurate estimates of the property price and all start-up costs, recurring expenses, rental income, and occupancy rate, whether a property is rented out traditionally or on Airbnb. After calculating all these metrics, Mashvisor’s rental property calculator computes the cash flow as well as the rate of return in the form of cash on cash return and cap rate.
Another key factor is buying investment properties for sale within your budget in order to avoid bankruptcy and a foreclosure. Yet another important consideration is aiming to invest in a market where both long term and short term rental properties enjoy strong demand and high profitability. Recent years have witnessed a continuing rise in Airbnb laws and regulations – including prohibitions – in most US major cities as well as some smaller markets. Thus, if you plan to invest in Airbnb today, it is good to be prepared in case the legal and regulatory environment changes in the future.
This list is a good start for beginner real estate investors: 20 Cities with No Airbnb Legal Issues in 2020.
Meanwhile, remember that what makes rental properties head the list of the best real estate investment strategies is the fact that you can make money both in the short term (through rental income) and in the long run (through real estate appreciation). Another amazing benefit of buying rental properties is that you can turn them into a source of passive rental income. The way to do that is by hiring a professional property management company.
If you think that’s the right real estate investment strategy for you, here are the 20 Most Profitable Locations for Traditional Rentals in 2020: Cash on Cash Return and the 20 Most Profitable Airbnb Locations in 2020: Cash on Cash Return.
If you’d like to start making money in real estate right away with rental properties, sign up for Mashvisor to search through and analyze hundreds of thousands of investment properties for sale in all of the US market.
2. Buy and Hold Real Estate
Number two among the top real estate investing strategies is buy and hold. Investors who are considering this approach should have in mind that this is a long term real estate strategy and not a way to make quick money.
Buy and hold real estate refers to purchasing an investment property now and holding on to it in the long run to sell in future. Investors sell their buy and hold properties once they have appreciated enough in value to provide a significant return on investment in the long term. Actually, many have made a lot of money in real estate with this strategy as the long term gains can be sizeable. The downside, however, is that you don’t get to make money in the short run – unless you decide to combine buy and hold real estate with renting out.
The most important factor to succeed with this approach is to conduct careful real estate market analysis. The purpose is to select a location which is expected to undergo above-average natural appreciation in the coming years. Real estate appreciation can be the result of commercial real estate developments in the area, infrastructural improvements, introduction of major businesses and employers, and a wide range of other factors.
Related: How to Perform a Real Estate Market Analysis
To enhance your return on investment, you can also rely on forced appreciation. This refers to actively implementing fixes and repairs on your investment property before selling it in order to push its fair market value up. According to real estate experts, the home improvements which affect home value most sizably include kitchen and bathroom renovations. Before moving forward with any repair projects, make sure to analyze the situation carefully and confirm that the increase in property price will exceed the repair costs.
To start a profitable business with this real estate investing strategy, check out the Top 5 Major Cities for Buy-and-Hold Investment Properties.
3. Fix and Flip
If you are interested in active real estate investment strategies which allow you to make lots of money in the short term, you should think about flipping real estate. This approach has been gaining more and more popularity among young investors in recent years.
The nature of this real estate investing strategy is to buy distressed properties – at below market value – and make the necessary fixes. This provides an instant significant increase in the home value and allows you to sell your house for a major profit.
However, to be honest, not everyone was born to fix and flip real estate properties. This strategy requires at least some previous experience in the business in order to know what improvements will bring the highest forced appreciation. Moreover, you need to have easy access to a wide real estate network of various professionals who can do the repairs. Knowing property sellers, property buyers, other real estate investors, and real estate wholesalers helps by speeding up both the property buying and the property selling process.
Another prerequisite to succeed with flipping is to have a very energetic personality and to be willing to work with many other professionals.
On the positive side, you can easily make a few thousand dollars over the course of a couple of weeks, something which most other real estate investment strategies don’t offer.
4. Real Estate Wholesaling
Wholesaling real estate is yet another top way to make money. This strategy refers to finding real estate properties for sale, putting them under contract, marketing them, and finding property buyers. In a sense, a real estate wholesaler acts like a middleman between a homeowner and a real estate investor selling a property and the ultimate property buyer.
The best aspect of this very active real estate strategy is that you don’t have to buy and own a property. This means that it can be implemented with a very limited budget, unlike buying rental properties and other real estate investment strategies which require an actual purchase and ownership. The only money you need is for marketing the property to potential homebuyers and investors.
The key to success in real estate wholesaling is finding cheap real estate properties – below market value – and selling them for a significantly higher price. This means that this strategy requires superior property search capacities as well as excellent marketing skills.
5. Real Estate Crowdfunding
The last on our list of the top real estate investment strategies for anyone is crowdfunding. Similar to the concept of investing in Real Estate Investment Trusts (REITs), real estate crowdfunding uses online platforms to pull together the capital of hundreds of investors from around the globe to buy common properties. Crowdfunding real estate investment app platforms have emerged relatively recently as a result of the advancement of real estate technology and social media.
Unlike REITs, however, some crowdfunding websites, such as Fundrise, allow common people to start investing in real estate properties with as little as $500. That’s the main advantage of this strategy. Another important advantage is that it requires zero knowledge of the real estate business, zero experience in real estate, and zero active engagement. Crowdfunding is as passive as real estate investing gets.
Related: Passive Real Estate Investing for Beginners: 8 Strategies
As promised in the introduction, this year provides such various real estate investment strategies that anyone can get involved. Which approach you choose depends on your budget, personal preferences, and location. If you decide to go for investing in traditional or Airbnb rental properties, sign up for Mashvisor now to find the most profitable deals.