As one of the largest industries in the United States, buying and owning real estate can be an exciting — and lucrative — investment opportunity. However, like any investment, developing a real estate investing strategy that takes market circumstances into consideration will ensure you are more likely to reach your desired outcome. For example, if you plan to live in a house while making improvements and upgrades, you need to consider different factors than someone who plans to rent out a house as a short-term vacation rental. Whether you want to use your property to generate rental income or to hold on to it until the perfect selling opportunity arises, building a real estate investing strategy with the potential to be profitable is within your reach — whether the overall market is up or down.
Top 5 Real Estate Investing Strategies
1. Buy and Hold Properties
If you are searching for a long-term real estate investing strategy that will provide you with a steading income stream, a buy and hold is one opportunity you should consider. Like the name implies, a buy and hold property is one where you buy a property and keep it for a long period — regardless of fluctuations in the market. Prior to purchasing a property as part of a buy and hold real estate investing strategy, you will need to research the market, neighborhood, and property expenses to ensure your monthly cash-flow is positive. You should also decide whether you want to become a landlord or hire someone else to manage the property.
Buy and hold properties range from single-family homes to multi-family homes and entire apartment buildings. Depending on the property’s location and cash flow, you might rent out the entire property to one tenant or break it up into multiple rentals. If you want to have a personal residence at the same location as your investment, choosing a multi-family home or apartment building can help you keep costs down while keeping a close eye on your investment. Plus, when you own the entire property, you can create the rules your tenants must follow.
2. Investing in Short-Term Vacation Rentals
Thanks to the rise of websites like Airbnb, Home Away, and VBRO, many people have invested in properties that cater specifically to the short-term vacation rental market and found it to be very lucrative (often producing more income than other types of real estate investments). When buying an investment property that will be a short-term vacation rental, consider how you will manage turnover between tenants, occupancy rates in the region, and the legal regulations you need to follow. You will also need to think about how you will market the property to ensure you minimize vacancy rates and maximize the return you see on your investment.
3. Fix and Flip Properties
If you are looking for a real estate investment opportunity that quickly provides a return, a fix, and flip property might be right up your alley. With a fix and flip property, the investor will purchase, renovate, and sell the property quickly. Fix, and flips are not get-rich-quick schemes, but when done correctly, it is possible to quickly turn a profit from this real estate investing strategy.
When looking for a fix and flip property, keep an eye out for factors that could waste time and money — such as construction permits, shipping or importing high-end materials, or town ordinances that allow nearby neighbors to air their grievances to public committees. Once you set your budget and timeline, it is crucial to line up an inspector, contractor, and appraiser, so you can run as soon as you close on a property. The biggest variable with a fix and flip property is time and the longer you take to complete the project and sell the property, the higher your expenses.
4. Commercial Real Estate
Most people looking for a real estate investing opportunity overlook a huge segment: the commercial real estate market. It should come as no surprise that the commercial real estate market is huge in the United States and can be very rewarding to investors.
The primary difference between residential and commercial real estate is the entity who will rent or buy the property from you. With commercial real estate, your tenant will be another business (as opposed to a person or family in residential real estate). Just like there are many types of residential real estate investing opportunities, commercial real estate properties can range from retail storefronts or shopping malls to warehouses and office buildings. When exploring a commercial real estate investing strategy, keep in mind that renting your property to a large company will yield a steady cash flow, the vacancy of that property can last longer than with residential properties.
Investing in commercial real estate is not a strategy for beginners because there is considerable risk involved. However, since commercial real estate is a great way to add to your portfolio, those who are new to the commercial area should explore passive investment opportunities.
5. Passive Investments
If you aren’t interested in getting your hands dirty with real estate investing — and are willing to give your money to someone else to realize an investment — passive investing is one way to accomplish your goals.
The most common type of passive real estate investment is a real estate investment trust (REIT), where a group of investors pool their money to buy a large real estate property, such as a mall, skyscraper, or many single-family homes. Each investor will get a share of the profits, and the only work involved is writing a check. Depending on your real estate investing strategy, there are different REITs that deliver different returns — from retail and office space to healthcare and manufacturing facilities. You can invest in a mortgage REIT, choose a stock exchange-listed REIT, or buy a share in a REIT mutual fund.
Regardless of your real estate investing goals, learning the basics is the first step to defining your strategy. After you understand the industry, you can then explore specific real estate investing options and choose the one that aligns with your time, budget, and long-term goals. If you have questions about your real estate investing strategy, the professionals at Flipout Academy can provide expert advice and guidance. Besides their one-on-one training, Flipout Academy also offers a Strategic Elite Program where members get exclusive access to the same private money and hard lenders their team uses to finance their own real estate investments.