The real estate industry is a vast one; there are dozens – if not hundreds – of different real estate investment strategies, niches, and ideas to make money as a property investor. Real estate investing requires the ability to mitigate risk and attention to detail, neither of which are the result of poor planning. To blindly enter the real estate investing business is to practice ignorance, as the nature of the real estate investing market is ever changing and unpredictable. Those who aren’t prepared for the fast-paced environment are quick to end their careers as real estate investors.
This is why it is crucial for you, as a property investor, to understand the best real estate investment strategies and choose the right one for you. In doing so, you’ll have a direction and focus in your real estate investing career, thus giving yourself the best odds of success.
Before we dive into the top real estate investment strategies, it’s important to note that what works for one property investor probably won’t work for another. It all depends on several factors which real estate investors should always take into consideration before determining which one of the real estate investment strategies is the best for them. These factors include the type of the investment properties you’re investing in, your location, budget, and long-term goals.
To learn the top real estate investment strategies that will help you get started as a property investor, continue reading!
Top Real Estate Investment Strategies: Buy and Hold
This is a more traditional, and probably the most common and most simple, type of real estate investment strategies. It allows real estate investors to build a steady, passive income and gives them the opportunity to gain appreciation in the long term.
The buy and hold strategy involves buying investment properties, leasing them out for a long period of time, and making money from either collecting monthly rents or simply holding the investment property until it appreciates and selling it for a higher price than the initial purchase price. This is one of the best real estate investment strategies for long-term investments properties.
One reason for the popularity of this type of real estate investment strategies is that during the time that a property investor holds the property and rents it out, the mortgage is being paid down each month, which builds equity in the investment property.
When following this type of real estate investment strategies, you’ll need a reliable source of financing such as a conventional loan (mortgage), personal cash, or funds contributed by a real estate partner. Moreover, not all buy and hold investment properties are the same – they range from single-family homes, through multi-family homes, to entire apartment buildings. Real estate investors need to know how to evaluate deals, which requires a thorough comparative real estate market analysis in addition to an investment property analysis.
Another thing to consider when following this type of real estate investment strategies is how you, as a property investor, will manage the investment property. Is your investment property in your local real estate market? Do you have the time to manage it yourself (become a landlord)? If not, it’s best to hire a professional property manager to take care of overseeing repairs, handling maintenance issues, screening tenants, maintaining financial records, and collecting rents.
Top Real Estate Investment Strategies: Fix and Flip
This is the best type real estate investment strategies for real estate investors seeking short-term investments to quickly make money. The fix and flip strategy involves buying investment properties which are on the real estate market for a low price due to a foreclosure, a short-sale, or being in a bad condition and which need plenty of reparations and renovation. Real estate investors then work on renovating and improving these investment properties and then selling them for a higher price, thus making a quick profit.
Don’t think of fix and flips as passive income-generating investment properties; when real estate investors sell the renovated investment property, they don’t make money until they start flipping again! Furthermore, in order to make money through this type of real estate investment strategies, the selling price of the investment property must be higher than the initial purchase price plus the renovation costs.
When going for this type of real estate investment strategies, look for deal-breakers and ensure that you repair and sell the investment property as quickly as possible in order to guarantee maximum profitability and avoid additional monthly expenses. In addition, it’s important to set a budget and consult with a home inspector or appraiser to help you identify important issues and avoid wasting time and money.
Related: 5 Tricks To Save On Fix-and-Flips
Thinking of investing in a below-market real estate investment property? Click here to start your search for the best one in the US real estate market!
Top Real Estate Investment Strategies: Rent to Own
This type of real estate investment strategies – also known as a lease option – gives real estate investors the ability to make a deal with a prospected buyer in which the buyer rents the investment property for a set time period (typically 1-3 years) before actually buying it. In this way, a property investor enjoys a guaranteed passive income!
Related: What Is Rent to Own? Everything You Need to Know in One Blog
This type of real estate investment strategies brings many benefits for real estate investors:
- First of all, the potential buyer is obliged to pay a non-refundable “Option Money Fee”. This fee allows the property investor to make a quick profit when the potential buyer first moves into the investment property, in addition to giving him/her some security in case the agreement is broken.
- Another benefit of this type of real estate investment strategies is that it guarantees that the investment property won’t be vacant for the time period set in the lease option.
- Moreover, the property investor is ensured that the investment property will be sold. Therefore, rent to own has fewer risks: potential buyers won’t cause damage to the investment property since, eventually, it’s going to be their new home.
- Additionally, depending on the lease, potential buyers are usually responsible for repairs and maintenance costs, which further gives the property investor a sense of financial security.
- Finally, when selling rent to own investment properties after the set time period, hiring a real estate agent is not required, thus eliminating the extra fee which a property investor would otherwise have to pay to the agent.
All these benefits prove that rent to own is one of the best real estate investment strategies!
Top Real Estate Investment Strategies: Airbnb Rentals
Another one of the great real estate investment strategies is Airbnb rentals. These are similar to buy and hold investment properties, but Airbnb rentals are short-term rentals (typically less than 6 months).
Airbnb rentals have been increasing and are becoming more and more sought out by real estate investors as they have proven to be very profitable – some Airbnb rentals even generate more rental income than traditional rentals. Moreover, these real estate investment strategies offer a property investor more flexibility; real estate investors can buy investment properties for the sole purpose of renting them out as Airbnb rentals, or simply just rent out a room from their residential property any time they want (even for just a night), thus generating passive income without the hassle of being a landlord!
However, before entering the real estate investing market following this type of real estate investment strategies, it should be noted that Airbnb rentals typically take more time to manage and involve more maintenance costs, not to mention the possibility of going through weeks or months without a short-term tenant (Airbnb guest), as opposed to traditional rentals where you ensure a steady passive income.
In addition, many states and cities have legal regulations or restrictions regarding Airbnb rentals. Therefore, when considering this type of real estate investment strategies, make sure Airbnb rentals are legal in your state and city.
Related: Don’t Invest in Short-Term Rentals Here: The Places with the Worst Airbnb Legal Issues
Click here to start your search for the best Airbnb rentals to invest in throughout the United States!
Top Real Estate Investment Strategies: Real Estate Investment Trusts
Real Estate Investment Trusts (REITs for short) are among the most common types of real estate investment strategies that generate a passive income. REITs are companies that purchase and own multiple investments ranging from office buildings, through apartment buildings and shopping malls, to hospitals and other investment properties.
These are great real estate investment strategies for a property investor who doesn’t have a big capital or the time to focus on real estate as a full-time job. When you invest your money in REITs, you’ll receive a passive income in the form of dividends, which is great for retirement plans. Moreover, real estate investors have minimal responsibilities as they don’t actively manage their investments. Additionally, REITs mostly invest in more than one investment property, meaning this type of real estate investment strategies gives real estate investors the ability to diversify their investment portfolio, which naturally lowers their risks.
Related: How to Reduce Risk in Your Real Estate Portfolio
Top Real Estate Investment Strategies: Real Estate Wholesaling
In real estate investing, buying and owning investment properties is not the only option out there. While it is not necessarily the first option that comes to mind when thinking about real estate investment strategies, wholesaling is definitely a great option. This strategy allows you to quickly make money in real estate without spending any!
Real estate wholesaling involves finding investment properties from sellers, writing a contract to acquire the deal, and then selling this contract to a buyer. Many real estate investors consider this one of the best real estate investment strategies due to its low startup costs – as wholesalers don’t actually own the investment property, they are not responsible for any repairing costs, mortgage payments, banks, or other financial complications.
In spite of this, becoming a successful wholesaler is not as easy as it sounds. Wholesalers must continuously seek out the best deals, besides having to network and make contacts in order to create a database of sellers and buyers.
Top Real Estate Investment Strategies: Conclusion
To succeed in real estate investing, you need to plan carefully and determine which of the above mentioned real estate investment strategies works the best for you. Moreover, you, as a property investor, must always remember that the investment properties you choose to invest in, your financial budget, location, and goals should align with whichever real estate investment strategies you decide to follow to increase your odds of succeeding in your real estate investing career.
Mashvisor offers a selection of tools to help facilitate your search for investment properties, helping you with the real estate market analysis and providing you with real estate investment tips and advice in addition to hundreds of blogs related to anything and everything real estate, including real estate investment strategies.
For any more information and guides on how to make the best real estate investment decisions, check out Mashvisor.